Market-Based Instruments of Environmental Policy in Practice: The European Emissions Trading Scheme - Essay Example

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The EU can be regarded as a leading force within the world on taking action on environmental sustainability, especially with regard to climate change.The European Union’s Greenhouse Gas Emissions Trading Scheme was instituted under the Directive 2003/87/EC, which came into operation on 1st January 2005…
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Market-Based Instruments of Environmental Policy in Practice: The European Emissions Trading Scheme
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Download file to see previous pages The EU can be regarded as a leading force within the world on taking action on environmental sustainability, especially with regard to climate change.The European Union’s Greenhouse Gas Emissions Trading Scheme was instituted under the Directive 2003/87/EC, which came into operation on 1st January 2005. The scheme works by demanding that operators of installations undertake the specified activities to hold a permit, which enables the installation to emit certain levels of CO2. The paper explores one of the market-Based Instruments of Environmental Policy - EU Emissions Trading Scheme (EU ETS) and appraises it effectiveness in controlling environmental degradation. Background The aim of EU ETS centres on meeting the obligations outlined in the Kyoto Protocol in the 20008-2012 trading period. The EU ETS sought to minimize anthropogenic emissions of certain greenhouse gases within a cost-effective and economically efficient manner. Since 2005, when the initial emission trading period (2005-2007), the total emissions of EU industry sectors covered by the scheme capped and toward the end of every compliance cycle companies needed to surrender allowances matching emissions so as to comply with the EU regulations and avert sanctions. From 2013, the EU ETS seeks to dramatically reduce CO2 emissions from 2.083 to 1.720 metric tons of CO2 by 2020. The biggest share of the emission allowances is allocated directly and free-of-charge while a lesser percentage may be auctioned, and allowances could also be gained via trading on the carbon market (Faure and Peeters 2008, p.208). In 2010, the industrial installations within the scheme accounted for close to 50% of the EU’s CO2 emissions and 40% of its total greenhouse gas emissions. Critics to the scheme cite the fact that triggered by the EU’s financial and economic crisis carbon prices, which have remained low since 2011 owing to EU’s financial and economic crisis carbon prices, which constraints the capability to incentivise the reduction of greenhouse gas emissions (Hahnel 2012, p.141). Greenhouse gas emissions from aviation activities incorporated into European Union’s Emissions Trading Scheme after, Directive 2003/87 amended to encompass greenhouse gas emissions from aviation activities (Faure and Peeters 2008, p.19). Figure 1. Annual EU ETS Cap as proposed for Phase 3 Year Billion metric tons of CO2e Annual limit for Kyoto compliance period (2008-2012) 2.083 2013 1.974 2014 1.937 2015 1.901 2016 1.865 2017 1.829 2018 1.792 2019 1.756 2020 1.720 Source: European Commission Market-Based Instruments of Environmental Policy Economies rely on natural resources as a critical input and economic growth and industrialization within the developing has significantly increased demand for resources. This has increased pressure on numerous natural resources, which raises questions centring on sustainability and availability, and high prices for some resources (EEA Technical report 2005, p.6). Majority environmentally-related market based instruments in use globally is mainly fiscal (tax) instruments. The rationale for the utilization of MBIs draws from the fact that regulatory approaches have failed to arrest the on-going environmental degradation or where the cost of traditional policy tools has proven to be prohibitive to both the government and the society at large (Kruger, Oates, and Pizer 2007, p.114). The adoption of MBIs may be grounded in the premise that MBIs avail the potential to attain efficiency gains over conventional regulatory instruments (Tunteng 2012, p.14). The EU has increasingly supported economic or market-based instruments such as indirect taxation, tradable emissions rights, or targeted subsidies for such policy purposes since they avail a flexible and cost-effective means for attaining certain policy objectives (Julien 2012, p.6). Discussion European Union Emissions Trading Scheme (EU ETS) The “phase1” that started in January, 2005 delivered a number of ...Download file to see next pagesRead More
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