ITRE

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Committee on Industry, Research and Energy (ITRE):

Emission trading vs. carbon tax in the absence of an international agreement: working towards a decarbonised European economy whilst trying to maintain global competitiveness, which reforms and policies should the EU pursue at home in order to further reduce greenhouse gas emissions?

Committee Article

There is a growing debate between two competing climate change policy instruments - carbon taxes and emissions trading. Although an international emissions trading system does not necessarily preclude the use of carbon taxes, the two are commonly seen as competing policy instruments to reduce greenhouse gases (GHG). Under an emissions trading system, the quantity of emissions is fixed (often called a “cap”) and the right to emit becomes a tradable commodity. Carbon taxes are simply direct payments to governments (collection body), based on the carbon content of the fuel being consumed.

The European Union Emissions Trading System (EU ETS) was the first large emissions trading scheme in the world, and remains the biggest. It was launched in 2005 as is a major pillar of EU climate policy, and has seen a number of significant changes since. The EU ETS works on the ‘cap and trade’ principle. The EU ETS has been criticised for several failings, including: over-allocation, windfall profits, price volatility, and especially for having caused a disruptive spike in energy prices.

How will the EU address urgently needed carbon market recalibration? Will the EU be able to back-log without decreasing own competitiveness that could result in industry relocation?

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