1. Sustainability myth: “The EU Emissions Trading Scheme has failed”
Edwin Woerdman/ Fitsum Tiche

2. Sustainability myth “ETS, RIP?” The Economist (April 20, 2013)
“No, Europe's ETS definitely doesn't work” The Interpreter (April 30, 2013)
“The EU Emissions Trading Scheme has failed” REDD Monitor (April 16, 2013)
“(…) failing EU carbon market threatens effectiveness (…)” Greenpeace (June 11, 2013)
“The EU ETS failure as a model for the ‘green economy’” Carbon Trade Watch (June 17, 2013)
“EU ETS (…): Why it can’t be reformed (…)” Corporate Europe (April 15, 2013)

3. Myth 1: The EU ETS doesn’t work
Lower than expected allowance price 
Source: Görlach 2016

4. Myth 1…
Cap-and-trade (effective and efficient)

5. Myth 1… Primary legal objective:
Article 1 EU ETS Directive: ‘(…) to promote reductions of greenhouse gas emissions in a cost-effective and economically efficient manner’
Secondary (or: implied) objectives
Recital 20 in Preamble of EU ETS Directive: ‘encourage the use of more energy-efficient technologies’.

6. Myth 1… Low allowance price =
in conformity with primary objective of cost-effective emission reductions and with secondary objective of industry protection and carbon leakage prevention
in contradiction with secondary objective of low-carbon technological innovation
Political response: indirectly raise allowance price (lower cap, MSR, backloading)

7. Myth 2: Carbon tax would be more effective?
The Economist and some academics focus on unforeseen recession under EU ETS: ‘carbon tax of e.g. € 20 would have delivered more emission reductions’
What if unforeseen boom under EU ETS?
Allowance price higher than carbon tax level
More abatement, emissions target met (cap)
What if unforeseen boom under carbon tax?
Industry emissions would be above emissions target

8. Myth 2… Cap-and-trade with free allowances vs carbon tax
Similarity: cost of producing output
Differences:
- Free allowances add to industry profit, whereas tax revenue goes to public coffer
- In a recession the allowance price drops lowering compliance cost, contrary to tax level
Lower tax during ‘bust’ (& higher tax during ‘boom’)?
Deviates from assumption of a constant or increasing tax rate
Carbon tax in its time path will show more resemblance with emissions trading price

9. Conclusion Misconception 1 = EU ETS fails and carbon tax is better
No! ‘Boom’ tax ineffective, ‘bust’ tax carbon leakage
Misconception 2 = EU ETS aim is low-carbon innovation
No! Primary aim is to reduce emissions at lowest cost