International Experience with Emissions Trading

The report analyzes the design and operational experiences of various emissions trading systems, including the EU ETS, RGGI, WCI, NZ ETS, TMG ETS, and the Australian CPM. It highlights key design trade-offs regarding coverage, allowance distribution, and price management, while emphasizing that the EU ETS experience demonstrates that over-allocation does not necessarily preclude abatement. The document also provides a toolkit for policymakers to assess the environmental and economic effectiveness of such systems.

• There is a practical trade-off between the breadth of a system's coverage and the ease of its implementation; starting with the most important sectors first and scaling up helps overcome political and administrative barriers.
• Free allocation of permits, particularly through 'grandfathering' based on historical data, can reduce mitigation incentives and lead to windfall profits in non-competitive markets.
• Price management tools such as floors and ceilings are used to provide investment certainty and political buy-in; for example, California implements auction floor prices at US$10 per tonne of CO2, while New Zealand has used a price ceiling of NZ$25 per tonne.
• The EU ETS experience shows that emissions trading can drive abatement and influence corporate strategic decision-making even when the system is over-allocated and prices are lower than expected.
• Concerns regarding carbon leakage and eroded competitiveness are frequently raised by industry, but empirical evidence from the EU ETS suggests these fears are often not fully justified, as many firms pass carbon costs through to consumers.
• The EU ETS suffered from significant over-allocation in its first two phases due to limited data, decentralized decision-making via National Allocation Plans (NAPs), and industry lobbying.
• Emissions trading markets are highly susceptible to regulatory uncertainty and criminal activity; the EU ETS experienced VAT fraud and phishing attacks due to its decentralized registry system.
• A fundamental design tension exists between the objective of maintaining a high, stable carbon price to drive long-term investment and the objective of meeting an emissions cap at the lowest possible cost.

APA

Laing, T., & Mehling, M. (2013). International Experience with Emissions Trading. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2016/01/cs-international-experience-emissions-trading-201303111.pdf

Chicago

Laing, Tim, and Michael Mehling. International Experience with Emissions Trading. Climate Strategies, 2013. https://climatestrategies.org/wp-content/uploads/2016/01/cs-international-experience-emissions-trading-201303111.pdf.

Wikipedia

{{cite report |last1=Laing |first1=Tim |last2=Mehling |first2=Michael |title=International Experience with Emissions Trading |publisher=Climate Strategies |date=March 2013 |url=https://climatestrategies.org/wp-content/uploads/2016/01/cs-international-experience-emissions-trading-201303111.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{laing2013international, author = {Laing, Tim and Mehling, Michael}, title = {{International Experience with Emissions Trading}}, institution = {Climate Strategies}, year = {2013}, month = mar, url = {https://climatestrategies.org/wp-content/uploads/2016/01/cs-international-experience-emissions-trading-201303111.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }