European Union Environmental Trading System - Essay Example

European Union Environmental Trading System The EU ETS is the first company level trade cap system that dealsin allowances for green gas emissions into the atmosphere; it was set up by the EU in 2005 as part of its efforts to reduce the levels of carbon emissions by the member states (Ellerman and Buchner, 2007). It was built under the premises of the innovative mechanism under the Kyoto protocol which the international emission trading and the Clean development mechanism (CDM) (European Commission, 2010). The fact that the system is mandatory has made it and easy way for the expansion of the carbon market to take place. The EU ETS put a price on each ton of carbon emitted by a member company, this way they have been driven to pursue alternatives in the form of clean energy or low cost ways to fight climate change (European Commission, 2010). If the EU ETS principles are adhered to, the European Union can reasonably expect to achieve its target for the reduction of emissions as required by the Kyoto protocol at a cost slightly below 0.1% of the GDP. In addition the EU ETS would also be instrumental in meeting 2020 emission targets by the EU as well as making even more progress for such action in posterity. In addition motivation for companies to come up with a cost effective way of cutting down their emissions, the EU ETS is also providing and avenue through which investment can be made in developing countries. This way the host nations will benefit both in terms of industrialization and sustainable development as well as support in efforts to bring about clean energy. I agree entirety with the concept behind EU ETS, while admitting that it is far from perfect and it several ways it creates loopholes for firms to keep spewing out toxic fumes into the environment through buying emission allowances it is a significant improvement from the retrospective Laissez-faire approach. In addition by including individual companies instead of governments the EU has managed to get to the main root of the pollution issue. In most cases the government is often willing to comply with the regulation concerning emission but they end up facing an uphill battle when it comes to regulating the various companies involved in the activities (Caney and Hepburn, 2011). Most importantly however is the fact that the EU ETS initiative is forcing firms to think about pollution in monetary term, given that the main motivation for many of these organization is financial gain, making them pay for emissions is guaranteed to be more effective than any other method (Doble and Kinnunen, 2005). At the end of the day, firms are forced to take responsibility for the impact their activities have on the environment, this is designed to either compel them to reduce their levels of emission or come up with environment friendly production techniques. In my opinion, by making the companies pay for a limited level of emission, they can police each other and this way compliance is enhanced, furthermore the EU is in a much better position not only to control the levels of emissions but also to predict and come up with mitigative action which in the long run is good for the organization, the member countries and company and the world at large. Data from the European Commission proves that by the year 2010, greenhouse gas emission had reduced by an average 17,000 tons per installation more so the big emitters which include the major manufacturing plants in Europe. This was a decrease of over 8% since 2005 which is evidence of the effectiveness of the EU ETS policies in the short time they have been in place. UBS investment research carried out a study and discovered that although the EU ETS cost well over $280 million, its impact on the volume of emission in Europe was negligible, however it estimated that had the money been used as originally planned, it might have resulted in the reduction of overall emission by over 40%. The application of EU ETS in the aviation industry is also predicted to be a major win in regard to environment conservation with around 176 million tons of Co2 emissions expected to be saved by the year 2015. In addition to the Environmental benefits, there are other gains to be made from the EU ETS, for example, there is the economic advantage that is manifested in the fact that the emissions in the EU have been reduced at a lower cost than it was initially projected. The overall cost was less than 1% of the GDP and it was suggested that should the permits be auctioned and the revenue collected used effectively, to reduce distortive taxes and sponsor research and procurement of low carbon technology, the cost could easily be eliminated and a positive economic impact achieved. The demand for emission allowances has resulted in their underhand trading and in extreme cases outright theft, for example in January 2011 around 28 to 30 million euros worth of allowance were stolen from the national registries of several countries in Europe. Due to the high demand for them as well as their considerable value, there have been many other cases of computer hacking in which the databases of companies are stolen and their allowances resold on the “black market” (Lehane, 2011). Other effects of the EU ETS include the fact that it has been responsible for disruptive trends in the energy and economic sectors such as over allocation windfall profits, and price volatility. On the other hand it is criticized for disruptive spikes in energy prices which failed to consistently correlate with the cost of permits; this is most evident when large price increases occur when the cost of permits is negligible. Give that the US is the second biggest contributor to environmental pollution through greenhouse gasses; it should by all means participate in the EU ETS. This way, there would be stricter regulations against the pollutant activities which it is abundantly clear present local and international legislation has failed to contain. If American firms were made accountable for their actions and had to pay for emissions as do those in Europe, there is no doubt that they would increase their efforts acquire eco-friendly production technologies. In the short run, this may appear a daunting prospect by in the long run the benefits would be monumental in view of the fact that the current pollutant technology is based on oil and coal which are non-renewable are bound to run out at some point. American firms have in the last few decades tended to pursue a rather aggressive outsourcing strategy; this has resulted in many of their pollutant production activities being relocated to Chinese and other Asian factories. If the US was a part of EU ETS, it would be forced to stop or at least reduced its escapist way of dealing with the issue of emission and come up with its own homegrown solutions that fewer negative long term effects. While admitting that the EU ETS has been significantly effective in reducing emission rates, there are several other ways through which the same can be achieve. For one, governments can enact legislation limiting the among of CO2 emission a company can produce over a given period of time, to ensure they are followed the actions taken against those firms that break the rules should be severe and this way the emission levels can be controlled. Alternatively, states and corporation could agree on which production techniques are the most dangerous for the environment and work together to come up with substitutes. At the end of the day, the main driver for the high emissions levels today is the capitalist society which requires that the rate of production keeps going up irrespective of the consequences to the environment, therefore the best way to deal with the emissions is to include the capitalist element by giving emissions a price. References "Emissions Trading System (EU ETS)". European Commission. 15 November 2010. Retrieved from. http://europa.eu/rapid/press-release_MEMO-08-35_en.htm?locale=en Caney, S and Hepburn, C (2011). "Carbon Trading: Unethical, Unjust and Ineffective?". Royal Institute of Philosophy Supplement 69: 201–234. Doble, C and Kinnunen, H (2005). "The environmental effectiveness of the EU ETS : analysis of caps". ILEX Energy Consulting Ltd. Retrieved from http://assets.panda.org/downloads/171envteffectivenessaexecsummaryv60.pdf Ellerman, A. D. and Buchner, B.K. (2007). "The European Union Emissions Trading Scheme: Origins, Allocation, and Early Results". Review of Environmental Economics and Policy 1 (1): 66–87 Lehane, B.,26 January 2011). "Hackers steal carbon credits". The Prague Post. Retrieved from. http://www.praguepost.cz/business/7290-hackers-steal-carbon-credits.html Read More