Emissions trading: lessons learnt from the 1st phase of the EU ETS and prospects for the 2nd phase

In January 2005, the European Union launched an EU-wide emissions trading scheme (EU ETS) for CO₂ emissions. It covers approximately 45% of total CO₂ emissions and is thus the largest ‘cap-and-trade’ carbon trading scheme in the world – an ambitious and highly challenging policy experiment.¹ As it emerges from its pilot phase and prepares for phase II, the EU ETS now stands at a crossroad: will it quickly address the problems experienced in phase I and establish strong price signals in Europe, or will the prevailing uncertainty continue into phase II?