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

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In the year 2005, over 28 member states of the European Union merged together with the aim of addressing the greenhouse gas emissions as a way of combating climate change as outlined in the EU climate policy. The merging resulted to the formation of the European Union Emissions…
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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 Even though the EU ETS derived its inspiration from the Kyoto protocol, it was ratified before the Kyoto protocol and thus became lawfully requisite in the global and the EU law and would have become operational without even the Kyoto Protocol being implemented in 2005, February (Ellerman and Joskow, 2008).
Being the first global emission trading scheme of it is kind, the EU ETS has experienced significant changes some of which are threatening the achievement of its goals while others are lessons for follow-up phases. Moreover, this phase constitutes a “test” period in which the member countries and companies were allowed to examine and understand the goals of the charter before implementing the scheme (Joskow and Ellermann, 2008, p. 7). Further, the phase was meant to build up infrastructure that would provide familiarity to the scheme to facilitate the use of a cap-&-trade system to limit European greenhouse gas emissions, in addition to, providing a framework for the subsequent trading period, 2008-2012, which was considered analogous to the commitment of the first period of the Kyoto Protocol as opposed to realizing significant reductions of CO2 emissions in the three years (Joskow and Ellermann, 2008, p. 11).
In terms of allowance prices during this phase, the prices increased to a maximum in the year 2006, April to about €30per tonne of CO2 gas. However, in the last week of 2006, April the allowance prices dropped significantly by about 54% from €30 to about €13. Further, deficiency in terms of scarcity under the 1st phase of the scheme continued through the year 2006 leading to a trading price of €1.2 per tonne in 2007, March before declining further to €0.10 per tonne in 2007, Sep. The reasons for the decrease were due to the trade participants being cognizant that collective emissions were below the figure of the allowances/limitations that were issued and thus, the price drop undermined the incentive to prolong emission reductions ...Download file to see next pagesRead More
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