News / 22 februari 2013

The 'Right to CO2 emission'

Everything is tradable, even the right to CO2 emissions. In the European Union this has been common practice for some years now. EU countries have agreed to a maximum amount of CO2 emissions, and this 'right' is divided amongst companies in EU countries that produce a lot of CO2. Theoretically, CO2 emissions should be reduced this way. But are they? Both ENDS, together with a number of other organizations, signed a letter calling to stop this system. Wiert Wiertsema, specialist on international capital flows, explains why.

What is the EU ETS?

The abbreviation ‘EU ETS’ stands for ‘European Union Emission Trading Scheme’. The Kyoto Protocol of 1997 obliges countries to reduce their emission of greenhouse gases. Within the EU ETS, companies get a fixed maximum number of ‘emission rights’ which they may either use or sell. If a company needs more emission rights than it has been granted, it can ‘buy’ emission rights from a company that has a surplus. The ETS applies to energy-intensive industries, such as electricity producers and airlines for flights within the EU. When a company would exceed its emission space it is supposed to face sanctions.


What do you think are the disadvantages of the ETS?

In practice, the EU ETS does not reduce greenhouse gas emissions; on the contrary. The emission rights have been distributed free of charge to companies, which in their turn pass the supposed costs for emissions on to their customers and consumers. Polluting companies thus are making considerable profits from this trade in emission rights. Meanwhile they invest very little in smart and renewable technologies to actually reduce their emissions.


Because the ETS is linked to the Clean Development Mechanism (CDM) of the Kyoto Protocol, the companies are also allowed to buy emission rights in developing countries. But many CDM projects - such as large dams – have negative effects on local communities, while the supposed positive contribution to local sustainable development is very hard to find.


Moreover, emission rights are too cheap. According to experts emitting one ton of CO2 should cost at least €40,- in order to make a real contribution to effective climate policies. During the last month though, the price dropped to below € 5 per ton. Thanks to the ETS it is much cheaper for companies to buy emission rights than to invest in the technological innovation which is indispensable to achieve a breakthrough. 


What would be a better way to reduce emissions?

Almost everyone agrees that the ETS has failed. To combat climate change, greenhouse gas emissions should reduce drastically, there is no doubt about that either. Because it has proven to be very difficult to reduce the emissions at the end of production chains, it is now time to look at the beginning of those chains. We should take measures that will reduce the use of fossil fuels. Effective measures are required to motivate companies to seriously invest in low emission technologies.


In our view the ETS should no longer be part of EU climate policies. The system should be replaced by an effective policy with clear objectives and regulations which cannot be circumvented by companies. Putting taxes on ALL greenhouse gas emissions - just to give an example - would already be a step in the right direction.


Wiert Wiertsema is senior policy advisor at Both ENDS, specialised in the effects of international investments on people and their livelihoods. 


For more information about the disadvantages of the EU ETS, read our joint statement: 

Time to scrap the ETS




Photo: Caza_No_7  on Flickr

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