26 October 2016
This report looks at whether additional actions to reduce emissions lead to net emissions reductions over time in the EU Emissions Trading System. The argument that total emissions are always equal to a fixed cap is sometimes called the “waterbed effect” by analogy with a fixed volume of water in a waterbed, where if you squeeze in one place it pops out in another.
Although often repeated this claim turns out to be more urban legend than fact. Under the EU ETS at present the vast majority of emissions reductions from additional actions will be permanently retained. This is due both to the effect of the current surplus and introduction of the MSR, and the fact that over the long term supply of allowances is not fixed, but responds to circumstances.