Rescuing the EU ETS from redundancy

After running for 5 years, the EU Emissions Trading Scheme (ETS) has failed to constrain the annual supply of carbon across capped sectors for any year except 2008. In Phase I the carbon price collapsed due to the glut of carbon permits. Then, barely into Phase II, the recession savaged Europe’s economy dragging emissions down 6% in 2008 and sending them plummeting a further 11.6% in 2009, leaving the market long once again by some 233 million tonnes.ii The likely slow convalescence from this economic shock will further enfeeble Phase II caps which were already anaemic. Furthermore, likely carryovers of at least 1.5 billion permits from Phase II could allow emissions to grow with no further need for domestic abatement until as 2017 or later.