Ten insights from the EU Emissions Trading Scheme

The report evaluates the EU ETS, concluding that emissions trading is an effective tool for reducing CO2 emissions with modest macroeconomic impacts. It highlights the risks of free allowance allocation, such as windfall profits and reduced economic efficiency, and recommends a transition toward auctioning. The document also identifies that international competitiveness risks are concentrated in a few carbon-intensive sectors and suggests tailored solutions like benchmarked free allocation or multilateral border adjustments to prevent carbon leakage.

• The EU ETS has successfully reduced emissions despite early design flaws. MIT researchers estimate it cut European CO2 emissions by 120-300MtCO2 during its first phase, representing up to 5% of emissions from the covered power and manufacturing sectors.
• The macroeconomic costs of the EU ETS have been significantly lower than initial projections, with the overall EU package for 20% emission reductions estimated to cost around 0.5% of GDP.
• Free allocation of permits can lead to windfall profits and economic inefficiency. In the EU, power generators profited by passing through carbon costs to consumers while receiving allowances for free.
• International competitiveness risks are not widespread but are concentrated in a small number of carbon-intensive, low-value-added sectors. Key exposed sectors include iron and steel, aluminium, nitrogen fertilisers, cement and lime, basic inorganic chemicals, and pulp and paper.
• Auctioning is the most economically efficient method of distributing allowances because it maintains price signals for innovation and generates public revenue.
• Carbon prices in the EU ETS have been volatile and often lower than expected due to factors such as incomplete emission projections, the 2008-2009 economic recession, and a higher-than-anticipated supply of offsets from the Clean Development Mechanism (CDM).
• Border adjustments (charging imports or rebating exports) are a potential long-term option to tackle carbon leakage, but they risk being viewed as trade protectionism and should be pursued through multilateral negotiations to ensure WTO compatibility.
• The EU ETS utilized a phased design approach, allowing the system to evolve. Phase III (2013-2020) introduced centralized allocation rules and a move toward full auctioning for the power sector to eliminate windfall profits.

APA

Grubb, M., Fazekas, D., Cooper, S., & Kimmorley, K. (2011). Ten insights from the EU Emissions Trading Scheme. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/cs-10-insights-aus-final-15-04-2011.pdf

Chicago

Grubb, Michael, Dora Fazekas, Simone Cooper, and Katerina Kimmorley. Ten insights from the EU Emissions Trading Scheme. Climate Strategies, 2011. https://climatestrategies.org/wp-content/uploads/2014/11/cs-10-insights-aus-final-15-04-2011.pdf.

Wikipedia

{{cite report |last1=Grubb |first1=Michael |last2=Fazekas |first2=Dora |last3=Cooper |first3=Simone |last4=Kimmorley |first4=Katerina |title=Ten insights from the EU Emissions Trading Scheme |publisher=Climate Strategies |date=19 April 2011 |url=https://climatestrategies.org/wp-content/uploads/2014/11/cs-10-insights-aus-final-15-04-2011.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{grubb2011ten, author = {Grubb, Michael and Fazekas, Dora and Cooper, Simone and Kimmorley, Katerina}, title = {{Ten insights from the EU Emissions Trading Scheme}}, institution = {Climate Strategies}, year = {2011}, month = apr, url = {https://climatestrategies.org/wp-content/uploads/2014/11/cs-10-insights-aus-final-15-04-2011.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }