Emissions trading works

The European Union's emissions trading scheme is the most important achievement to date in climate policy. This is the conclusion of articles in the first issue of a new journal, Review of Environmental Economics and Policy.

But Europe emits only a fifth of global greenhouse gases. So the authors also conclude that a worldwide climate policy is needed.

The articles are by leading environmental economists. They review how well the European Union's emissions trading scheme has worked in the first two years of its three-year trial, from 2005 to 2007.

The emissions trading scheme is an ambitious effort to correct for the failure of the economic system that is causing climate change. It aims to deliver the reduced carbon dioxide (CO2) emissions the EU has agreed to under the Kyoto Protocol.

The scheme works like this. An industrial plant or electric utility that uses a lot of energy is allowed to buy the rights to emit CO2. So the more it emits the more money it costs. This creates pressure on the company to reduce its emissions and save money.

The European Union has succeeded in placing a price on CO2. And this price is starting to reflect the limited ability of the atmosphere to absorb more greenhouse gases.

The scheme is easily the largest emissions trading scheme in the world. It covers about half the CO2 emissions in a region that produces 17% of the world’s energy-related CO2 emissions. The value traded so far is estimated at 14.7 billion euros ($18.86 billion).

The papers discuss the key role played by the European Commission in establishing the emissions trading scheme. Its main role was to make allowances scarce. This made them valuable enough to be traded.

At the beginning all the countries in the EU put claims to the Commission for the number of allowances that would go to each of them. The Commission reduced these numbers in 14 of the 25 countries. The total reduction was almost 100 million tonnes of CO2 a year.

The first year of the scheme was 2005. A review of emissions for this year showed that actual emissions were about 80 million tonnes of CO2 less than the allowances. This was about 4% of the EU's intended maximum emissions.

The emissions were greater than the allowances in only 6 of the 25 EU countries. These were the UK, Ireland, Spain, Italy, Austria and Greece. Organisations might have reduced their emissions by any of several methods.

These include improvements in technology, investment in energy efficiency or switching to fuels that emit lower levels of CO2.

Allowances were greater than emissions for two reasons. One was that too many were given to some countries and sectors. But the other was that emissions actually did fall in 2005 because of the price of the allowances.

Allowance prices in the first year of the emissions trading scheme were higher than expected by analysts and academics. Between July 2005 and April 2006, the allowance price was consistently being bought and sold above the 21-30 euro range.

A persistently high price in a market with many trades between sophisticated players is good evidence that the scheme works. Emissions are being reduced.

Analysis of the actual emissions data confirms this. It suggests that they fell by about 7%.

The Commission intends to encourage further reductions by making the 2008-12 allowances lower than those in 2005-07. It will reduce the allowance totals proposed by 10 member states to less than 90% of their trial-period values.

The papers conclude that the EU emissions trading scheme is important because of its size and the number of countries taking part. It shows that emissions trading works.

There are signs that the scheme has laid the groundwork for a global system. But if CO2 emissions are to be reduced worldwide then we need a worldwide emissions-reducing system. It would be difficult to create such a global system.

One problem is that there is no world equivalent of the European Commission. A worldwide community of interest among countries does not exist. So emissions trading in developing countries might not be a realistic goal any time soon. Other national initiatives are unlikely to link to the European emissions trading scheme. Different methods need to be looked at.

The long-term future of the European emissions trading scheme seems promising. But the European Union produces not much more than a fifth of global greenhouse gas emissions. This share will shrink as time passes.

The European emissions trading scheme is an act of faith. By leading the way Europe hopes that more countries will follow its example.

But this will not happen if current discussions fail to lead to a global system that suits everybody.

More help with words

greenhouse effect

fossilised

fossil fuels

income

research


What's it all about?

1. What is the main conclusion of this set of articles?
2. What is the second conclusion?
3. How long is the European Union's emissions trading scheme set to last?
4. What was it designed to do?
5. The emissions trading scheme works, say the researchers. It does reduce the amount of carbon dioxide that companies are releasing into the atmosphere. How does it do that?
6. What percentage of the world's energy-related carbon dioxide emissions are produced by Europe?
7. Why did the European Commission have to make allowances scarce?
8. In how many countries were emissions greater than allowances?
9. How many countries are there in the EU?
10. So in how many countries were emissions less than or equal to allowances?
11. Name three countries that exceeded their allowed amount of emissions?
12. The writer suggests three methods that countries might have used to reduce their emissions. State two of them.
13. For one of your chosen methods explain in one sentence how it might work.
14. The writer says that allowances were greater than emissions for two reasons. Which of these means that the scheme was working?
15. Allowance prices were higher than the experts expected in the first year of trading. What is this evidence for?
16. This conclusion was drawn just from the price of the allowances. What other evidence did the researchers look at to see if the conclusion was correct?
17. How does the Commission plan to reduce emissions further?
18. The researchers conclude that the European emissions trading scheme is important for three reasons: It is big, many countries are taking part, and most important of all it -----.
19. State one reason that the European scheme is unlikely to be extended to cover the whole world.
20. Explain what the writer means when she says that the European emissions trading scheme is "an act of faith".
21. Is the conclusion of this article optimistic or pessimistic?
22. Explain your reasons for the answer you gave to the previous question.

What kind of story is this?
Learning to do science is about learning to think. Experiments, direct teaching, group activities and discussions all have a part to play. So do science news stories.

Like other non-fiction texts, science stories contain different kinds of statements. To get at the science behind the words - and to make reading them an active experience - students should pull a text apart and explore the kinds of statement it contains.

We've met some of these in the later questions of the previous activity. Science news stories usually include the aims of the research or reasons for doing it. They often contain a hypothesis. Sometimes evidence for a hypothesis is given, or a hypothesis is used to make a prediction. Towards the end of a story the direction of future research the scientists are planning is often discussed, as well as outstanding questions the research will be designed to answer.

All these types of statement occur in some science stories. Virtually all science stories, however, will contain statements of the following four types:

• new findings or developments;
• the technology and methods the scientists used;
• previous or accepted knowledge, which may or may not be supported by the new findings;
• issues, implications and applications of the research.

So the next activity is designed to engage students with the latest science news by exploring the meaning and structure of a story as revealed by the content and balance of these four statement types:

Pulling it apart
In groups students should read through the story looking for new findings or developments. Once they have reached agreement, or at least consensus, and have underlined all the statements about what the scientists have just discovered or achieved, they can compare and discuss.

In groups they should go through the story again looking for the technology and methods the scientists used in their research. Once they have reached agreement or consensus, and have underlined the statements that talk about the methods and equipment the scientists used, they can compare and discuss..

They should repeat the activity for existing knowledge.

Any areas of disagreement in these activities - whether among the students or between teacher and students - should be regarded as opportunities for discussion rather than errors to be corrected.

Having fully engaged with the latest science news through the above activities, students will be far better able to talk and think about the science and its implications than someone who has simply read about it in a newspaper or watched a brief item on television.

Now it's time for them to get to grips with the issues raised by the research.

Young people have opinions. But school science traditionally allowed little scope for forming and expressing these - which is why it turned many of them off the subject for life.

Putting it together again

In groups, students should read through the latest story looking for issues, implications and applications. Once they have reached agreement, or at least consensus, and have underlined all the relevant statements in the story, they can compare and discuss.

Having done all this the students are well armed to explore the issues raised by the story. A suggested discussion topic specific to this new story is provided below.

Topic for discussion, research or pupil presentations

A) One question this news story does not answer is exactly how the European Union emissions trading scheme works.

In groups students should research the EU emissions trading scheme, figure out how it works, and prepare presentations to explain this to the rest of the class.

The following questions can be used to focus their efforts if necessary, while research can concentrate on websites from the list below. Older, more experienced students may be set the task without one or both of these pieces of scaffolding.

Questions

1. How many countries are taking part?
2. Not all the companies in any country are included in the scheme. What type of companies
   are included?
3. What encourages a company to buy more allowances if it emits more carbon than it
   should?
4. The EU emissions trading scheme is of a type known as “cap and trade�. Explain what
   these two words mean when used in this way.
5. Why does this type of scheme work better than if companies are simply told by their
   government not to go above a certain level of emissions?
6. What kind of problems does a method like the EU emissions trading scheme suffer from?
7. How could these problems be solved in future?

Websites

Introductions to EU emissions trading scheme from:

Department for Environment, Food and Rural Affairs

Worldwide Fund for Nature

Department for Trade and Industry

Environment Agency

BBC

B) Older students can try to answer a simple question to develop their ability to tackle news stories critically: The evaluation this story refers to claims the EU emissions trading scheme works: Does it really?

In groups students should take a look at opposing viewpoints expressed in for example, the following two websites, summarise the arguments for whether the scheme is a success or a failure, and decide which they find most convincing and why.

"Failed European Emissions Trading Scheme"

"The European Trading Scheme has had a rough ride."

Tips for science class discussions and groupwork

No 50
Preparation - the task
Make sure that the topic for discussion is clear, often framed as a question 'is wind energy the best power source for electricity?', 'should the government allow medical research on monkeys?'.

Preparation - information
Make sure that the participants all have sufficient information on the science involved, on the wider implications and on different arguments which might be used. It is often helpful to give students a few minutes to consider their position and prepare their arguments before the group discussion starts. A good 'warm up' with some groups is to then go round the class getting each student to express their views briefly, no discussion allowed at this stage.

From Science for Public Understanding