INFORSE proposals for EU emissions trading scheme

The first period of the EU-ETS (2005-2007) has shown a number of weaknesses in the system which clearly show the needs for better frameworks for the EU-ETS as part EU climate policies. Some of the main problems of the first period of the EU-ETS were: Large variations in prices of allowances, reducing the incentives for long-term investments to reduce emissions. Much too low prices in the last part of the period, as a result of too high allocations. Unjustified windfall profits for companies with large CO2 emissions that receive free allowances and that can increase their product prices with the quota prices. These windfall profits were enjoyed by many power companies in the beginning of the period (2005), when quota prices were high. Reduced incentives to continue with reductions when allowances are sufficient and prices are low. This is because a number of previous policies are abandoned for the companies included in the EU-ETS, such as CO2-taxes.The uncertainty regarding future systems have given uncertainty for actors if they should aim at low or high emissions. Strong support for new emitters with free allocations of allowances for new entrants, e.g. with new coal-fired power plants.

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