Impacts of the EU Emissions Trading Scheme: Insights from the First Trading Period with a Focus on Competitiveness Issues

The EU Emissions Trading Scheme (EU ETS) has been in operation since January 2005. The data analysis of the allocated allowances and verified emissions for the first trading period shows that the EU ETS was in an overall long position implying very low carbon prices. The average long position for 2005-2007 for the EU total is the balance of a 12.1 percent long and an 8.7 percent short position of the total emissions. The allocation differences vary between countries, sectors and installations. Another feature of the EU ETS is the pronounced inequality in the distribution of the size of installations when ranked according to their emissions. When looking at competitiveness effects of the EU ETS it is important to differentiate between sectors. In the report we chose two sectors as case studies – electricity and cement. From the empirical analysis it seems that the EU ETS has so far not generated large incentives to enforce long-term developments in these sectors. This has to be seen in the context of low or close to zero CO2 prices in the first trading period.