Ten (plus one) insights from the EU Emissions Trading Scheme

The report examines the EU ETS, concluding that while it successfully reduced emissions and had minimal macroeconomic impact, it faced challenges with price volatility and windfall profits due to free allocation. It argues that competitiveness risks are concentrated in a few carbon-intensive sectors and recommends maximizing auctioning and pursuing multilateral agreements for border adjustments to minimize economic distortions.

• The EU ETS effectively reduced emissions during its first phase, with MIT researchers estimating a cut of 120-300MtCO2, which represents up to 5% of emissions from covered sectors despite excessive allowance allocations.
• Macroeconomic impacts of the EU ETS have been consistently lower than projected, with costs estimated at a small fraction of 1% of EU GDP.
• Industrial sectors in Europe have generally profited from the EU ETS, often excessively, because many sectors maintained surplus allowances and passed carbon costs through to product prices.
• International competitiveness risks are not widespread across the economy but are limited to a small number of carbon-intensive, low-value-added sectors, such as iron and steel, aluminium, nitrogen fertilisers, cement and lime, basic inorganic chemicals, and pulp and paper.
• Free allocation of allowances creates economic inefficiencies, including the risk of windfall profits or perverse incentives that may discourage plant closure or low-carbon investment.
• Auctioning is the most economically efficient distribution method as it maintains price signals for innovation and generates public revenue for low-carbon technology or consumer compensation.
• Unilateral border adjustments to prevent carbon leakage are risky as they may be viewed as disguised protectionism and could disrupt the international trade system and WTO principles.
• The EU ETS design benefited from a phased approach, allowing the system to be improved over time, such as moving toward centralized allocation and full auctioning for the power sector in Phase III.

APA

Grubb, M., & Sato, M. (2009). Ten (plus one) insights from the EU Emissions Trading Scheme. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/cs-101insights-en-091209.pdf

Chicago

Grubb, Michael, and Misato Sato. Ten (plus one) insights from the EU Emissions Trading Scheme. Climate Strategies, 2009. https://climatestrategies.org/wp-content/uploads/2014/11/cs-101insights-en-091209.pdf.

Wikipedia

{{cite report |last1=Grubb |first1=Michael |last2=Sato |first2=Misato |title=Ten (plus one) insights from the EU Emissions Trading Scheme |publisher=Climate Strategies |date=November 2009 |url=https://climatestrategies.org/wp-content/uploads/2014/11/cs-101insights-en-091209.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{grubb2009ten, author = {Grubb, Michael and Sato, Misato}, title = {{Ten (plus one) insights from the EU Emissions Trading Scheme}}, institution = {Climate Strategies}, year = {2009}, month = nov, url = {https://climatestrategies.org/wp-content/uploads/2014/11/cs-101insights-en-091209.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }