CO2 emissions trading system

In order to reduce greenhouse gas emissions in a cost effective manner, the European Union launched an emissions trading scheme in 2005. The price for CO2 emissions was high, 30 euros per tonne in 2008, but has fluctuated between 3 and 9 euros per tonne since 2012.

The issue

All major greenhouse gas emitters in the EU are obliged to participate in the emissions trading system (ETS). With this system, approximately 40 percent of EU greenhouse gas emissions are regulated. The European Union's goal is for ETS emissions to be at least 21 percent lower in 2020 than in 2005. No target is set for the CO2 price, which is determined by the market.
Every participating company in the emissions trading system must surrender as many emission allowances as it emits greenhouse gases annually. A proportion of emission allowances are allocated to companies free of charge. If a company holds allowances in surplus, it can trade these. If a company has a shortfall, it can either buy additional emission rights or reduce emissions by means of targeted investments. The higher the CO2 price, the more interesting the latter option will be.

Analysis

Halfway through 2008, the CO2 price peaked at 30 euros per tonne and then quickly dropped to 10 euros per tonne. After that, the CO2 price fluctuated around 15 euros per tonne. Another downward trend was seen in 2011. Two years later, the CO2 price had dropped to 4 euros per tonne. The price then rose gradually to 8 euros per tonne and in 2016 dropped back to 5 euros per tonne. Since the summer of 2017, the price has risen to 7 euros per tonne. On the basis of CO2 price alone, it was more attractive to invest in lower emissions during the period 2007-2011 than it has been over the past six years.

International comparison

In 2016, greenhouse gas emissions from ETS companies in EU member states were down by 27 percent compared to 2005. This means that the EU target of 21 percent reduction in 2020 has already been achieved. The Netherlands has hardly contributed to this. Germany and Poland also lag behind. On the other hand, United Kingdom, Spain, Italy and France have made their contribution by jointly achieving 40 percent lower ETS emissions in 2016 than in 2005.