The high price of hot air: why the EU Emissions Trading Scheme is an environmental and economic failure

In 2005 the EU created an ambitious EU-wide Emissions Trading Scheme (ETS) to tackle the growing threat from global warming. The idea of a market-based solution to pollution control is appealing. In theory, allowing companies to trade “permits” to pollute should be a way of reducing pollution at the lowest cost.

Permit-trading schemes have worked successfully in the past: for example the US has been using a sulphur trading system since 1990, and the UK ran its own intra-UK carbon emissions trading scheme from 2002. However, in its first year of operation, the EU’s ETS has raised serious questions about its organisation and effectiveness. The system has a number of serious problems.