IN THE EU WHERE CAP&TRADE WAS MADE

Cap-and-Trade Comes Of Age in Europe
Jill Duggan, December 15, 2009 (World Resources Institute)

"…[I]n February 2004…[EU officials and companies feared] the first multi-national cap-and-trade programme for capping greenhouse gases, the EU Emissions Trading Scheme (ETS)…would change the very way they had to do business…Two years later, and a year after the EU cap-and-trade system officially began…the 2nd Draft National Allocation Plan for the 2008-2012 phase of the EU ETS [was presented and attitudes]… could not have been more different…The air of apprehension had dissipated…Once trading began, industry attitudes towards cap-and-trade started to change…

"Industry lobbying prior to the introduction of the EU ETS was intense…[S]ome industry associations were broadly supportive…because it was the cheapest way to cut emissions…[but some were] relentless in pursuing…the maximum number of free allocations, or pollution “credits.”…European Member States understandably were implementing the new cap-and-trade legislation with their domestic economic interests at heart…[with] less simplicity and transparency."

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"The initial efforts to establish the EU ETS were characterized by a “prisoners’ dilemma,” in which complexity and lack of transparency leads to a lack of trust…There is a natural tendency for countries and companies to want to favor their own, when in fact they gain more certainty and stability by collaborating…By the time of the consultation for the second phase (2008-2012), trading had started, cap-and-trade had become a known commodity, and many of their concerns had not materialized…[The] first phase of the EU ETS now looks like it generated significant emissions reductions at far lower costs, and pain, than anticipated. The system, after some initial bumps, was working.

"…[T]he second allocation plans were marked by greater understanding and acceptance, and greater willingness to compromise…Europe has now had nearly 5 years of successful trading, and industries have adapted to the new system…[P]arties have agreed to rule changes that they would have found difficult to agree to at the start…[E]lectricity generators will have to buy all their permits from 2013…"

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"In 2006, only 15% of the companies covered by the ETS were taking the future cost of carbon into account…[A] year later, about 65% of companies in the trading system were making their future investment decisions based on having a carbon price…The EU ETS has not resulted in significant costs to business…[T]here has been no major impact on companies’ competitiveness…None has [relocated, lost market share,] cut jobs or shut down operations…and their financial performance and global market share have not changed…[except for the extremely energy intensive aluminum sector]…

"Companies have improved their monitoring and reporting of emissions and realized energy efficiency gains…and often become supportive of EU climate policy…Legislators in the U.S. will, I am sure, recognize the picture… as they deal with the concerns of constituents and companies, while trying to frame legislation…[Once EU] legislation was passed and became part of the furniture, it was easier to address issues with more objectivity and greater acceptance from industry. And while lobbying did not go away, it became less intense and industries become more willing to accept compromises that seemed impossible just a few years ago."