1. Lessons from the EU ETS Conference on Climate Change Policy
Denny Ellerman
Center for Energy and Environmental Policy Research
Massachusetts Institute of Technology
Conference on Climate Change Policy
Eagleton Institute, Rutgers University
March 26, 2010
Massachusetts Institute of Technology
Center for Energy and Environmental Policy Research

2. The EU ETS: A Recap Classic cap-and-trade covering large sources
About 45% of EU CO2 emissions
27-state multinational CO2 trading system
Hybrid implementation of Kyoto Protocol
Trading and non-trading sectors
Decentralized cap within a cap with CDM linkage
trial period, second period, and post 2012 periods

3. The Broad Lesson
Largely confirms US experience with cap-and-trade for conventional pollutants
CO2 is not that different
A CO2 price will not “wreck” the economy
Useful learning and borrowing for U.S. and global design
No basis in EU ETS experience for not adopting cap-and-trade approach in the US

4. Re-affirms US Experience
It works (much better than alternatives)
Emissions are reduced (in line with the cap)
Markets emerge effortlessly (to facilitate trading)
Costs are reasonable (€46/person/year)
Few of feared side effects (trade, economy…)
Sub-prime mortgages in US have bigger effect than CO2 price in Europe
One price among many others that matter

5. Lessons for US Design Borrowing is OK Long horizons from the beginning
Primary cost containment in US proposals
Long horizons from the beginning
Not discrete compliance periods
Upstream accountability for small sources
Instead of costly downstream reporting
Cap-setting and free allocation require good emission inventories of included sources

6. Lessons for Global Design
Trial periods have value for building trust and requisite institutions/experience
Some central coordination will be required
Appropriate differentiation is difficult but feasible (East/West problem in EU)
Club benefits will also be needed
Institutional readiness and cross-border flows are not problems

7. The EU ETS: A Recap
An efficient and effective instrument for reducing GHG emissions
Not perfect, but better than anything else around
More than any other country/region has done
A useful laboratory for US and global design
Nothing to dissuade others from following