Empirical and theoretical perspectives on the first two phases of the European Emissions Trading Scheme, the largest cap-and-trade market established so far.

Emissions trading schemes figure prominently among policy instruments used to tackle the problem of climate change, and the European Union Emissions Trading Scheme (EU ETS), begun in 2005, is the largest cap-and-trade market so far established. In the EU ETS, firms regulated by the scheme are provided with emissions allowances (each a one-time right to emit one ton of greenhouse gases) and can sell their unused allowances to firms that have higher rates of emissions. In this volume, leading economists offer empirical and theoretical perspectives on the early phases of the EU ETS implementation.

The contributors discuss the features of the EU ETS market; and regulatory uncertainty stemming from rule changes; the political economy context of the trading scheme, including allowance allocation and the influence of lobbying on abatement decisions; the coexistence of such overlapping instruments for climate policy as pricing and taxation; the relationship between spot and futures markets for allowances, and firms' responses to various features of the EU ETS, including fluctuating allowance prices, free allocation, and links to the Kyoto process. They show that, although the basic theory behind emissions permit markets is straightforward, design features, market structure, and interactions with other policy instruments can influence the efficiency of the scheme.

Contributors
Nathan Braun, A. Denny Ellerman, Timothy Fitzgerald, Beat Hintermann, Wolfgang Hardle, Peter Heindl, Philipp Hieronymi, Marc Gronwald, Frank Jotzo, Andreas Lange, Stephen Lecourt, Ralf Martin, A. J. Mulder, Mirabelle Muuls, Clement Palliere, Jason Pearcy, Oliver Sartor, David Schuller, Stefan Truck, Ulrich J. Wagner, Rafal Weron, Peter J. Wood

Empirical and theoretical perspectives on the first two phases of the European Emissions Trading Scheme, the largest cap-and-trade market established so far.

Introduction I Current State and Development of the EU Emissions Trading System 1 The EU ETS 2 The EU ETS: What We Know and What We Don't 3 EU Emissions Trading and Regulatory Uncertainty II The Political Economy of the EU Emissions Trading System 4 Benchmark-Based Free Allocations in EU ETS Phase III 5 The Influence of Permit-Price Uncertainty and Lobbying on Energy III Overlapping Policy Instruments 6 Combining International Cap-and-Trade with National Carbon Taxes 7 Interaction between EU Instruments and Member-State Instruments IV Firm Behavior 8 The Relationship between Spot and Futures CO2 Emission Allowance Prices in the EU ETS 9 Trading Behavior in the EU ETS 10 Tradable Emissions Permits with Offsets 11 Offset Spread Options in the European Carbon Market List of Conributors Index