Designing emissions trading in practice general considerations and experiences from the EU Emissions Trading Scheme (EU ETS)

This paper deals with designing emissions trading in practice. After a short introduction to the general idea of emissions trading, practical requirements for the introduction of an emissions trading scheme are considered, including the temporal and spatial dimension as well as administrative requirements and the role of markets. Historical developments regarding emissions trading are discussed. Currently, the largest trading scheme is the EU Emissions Trading Scheme (EU ETS) that aims to reduce greenhouse gas emissions in the European industry by 21 percent until 2020 compared to 2005 levels. Because of its prominent role, the basic design and the process of introducing the EU scheme are reviewed in more detail. Finally, the impact of the EU ETS on the regulated entities is analyzed based on an annual survey among German companies regulated by the EU ETS which is conducted by the Centre for European Economic Research (ZEW) in a common project with KfW Bankengruppe.