1. Emissions trading - European Emissions Trading Scheme (ETS) Aim:Control pollution through a market system market: scarce goods are traded creation of scarcity:limit (cap) on the emission of a pollutant "cap-and-trade" system Approach: - companies are given allowances (credits), i.e. the right to emit a certain amount of a pollutant - total amount of allowances must not exceed the cap - companies that need more credits must buy them from others buyer is fined for polluting seller is rewarded for reducing emissions © DS

2. Option:Cap may be lowered over time reduction of total pollution set by political insititutions Institutions who don't need any credits can also buy them (e.g. Greenpeace) intention:less credits on the marketcompanies can't pollute so much Instrument of "free market environmentalism"! Start:allowances are auctioned or given away free (grandfathering) basis:allocation plan(set up by the government) ETS:National Allocation Plan (NAP) set up for each member state must be approved by the European Commission Allowances for Germany are traded at the "Leipziger Strombörse" © DS

3. 1st phase (2005 - 2007): covers only CO 2 emissions45% of all EU emissions) from:- energy installations (e.g. power plants, refineries) - production and processing of ferrous metals - mineral industries (cement, glass, ceramic bricks) - pulp and paper industries 2nd phase (2008 - 2012):intended to cover: - all greenhouse gases - aviation sector © DS