The report finds that the scheme has achieved much of what was intended: establishing a European-wide carbon price; causing businesses to incorporate the price into their decision-making; and creating the infrastructure for a multi-national trading program. As for actually achieving a reduction in emissions - it's been modest but improving.
Some of the key lessons:
- Good information is critical. You need accurate data on baseline emissions.
- Suppliers quickly factor the price of emissions allowances into their business decisions under a cap-and-trade program.
- Price volatility can be reduced by including banking and limited borrowing of emissions allowances.
- The relationship between permit allocation, permit markets, and the electricity market must be understood and addressed to avoid unintended consequences.
- The linkage of 28 separate trading programs in the EU scheme provides a valuable prototype for a globally linked carbon market.