Is the EU ETS working?

The EU's emissions trading scheme has created a massive oversupply of allowances for its first phase. Kjetil Røine and Henrik Hasselknippe ask whether the scheme is causing emissions reductions, whether there will be a sufficient shortage in Phase II and whether companies will import all their reductions from developing countries

The European Union's emissions trading scheme (EU ETS) surplus of close to 100 million allowances (representing 100 million tonnes of CO2) in 2005 was largely due to two factors: generous allocation and internal carbon abatement and efficiency improvements. The former was most significant. This is confirmed by the recently published 2006 numbers, showing that emissions were up about 1% from the previous year, resulting in a surplus of more than 60 million tonnes of CO2. These numbers are