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Market-Based Instruments of Environmental Policy in Practice: The European Emissions Trading Scheme Essay Example

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Market-Based Instruments of Environmental Policy in Practice: The European Emissions Trading Scheme

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Further, deficiency in terms of scarcity under the 1st phase of the scheme continued through the year 2006 leading to a trading price of €1.2 per tonne in 2007, March before declining further to €0.10 per tonne in 2007, Sep. The reasons for the decrease were due to the trade participants being cognizant that collective emissions were below the figure of the allowances/limitations that were issued and thus, the price drop undermined the incentive to prolong emission reductions (Hoffmann, and Trautmann, 2008).The second phase materialized in 2008, January after a couple of amendments were made to the legislation of the EU ETS by the Emissions Trading Directive (ETD) because of the significant design challenges witnessed in the first phase that warranted some amendments. The challenges included deficiency of precise data in advance of the course, allowances to emitters were over-allocated, concerns about the program volatility were raised and the generation of windfall profits by electric power generators (Ellerman and Joskow, 2008, p. Moreover, the carbon prices within this period increased to about €20 per tonne of CO2 in the 1st half of 2008 before rising further to €22 per tonne of CO2 in the 2nd half of 2008 & €13 per tonne of CO2 in the 1st half of 2009.The commitment of the EU was to achieve a 20% greenhouse emission reduction by 2020 from the levels in of the 1990. This phase is currently ongoing after kicking off in 2013, January and is expected to run through to the year 2020. The EU commission has projected some changes to this phase so that by the year 2020 the emissions will have reduced by 20%. Thus, to ensure that the phase does not encounter challenges as its predecessors, a number of changes were proposed. For instance, the auction levels got an increase whereby over 50% of allowances were auctioned in 2013 compared with a 3% auction of the phase II. In addition, a proposal was made, which allowed any sector preferring to move its production out of Europe due to escalating costs to cause carbon-leakage to receive 100% of their benchmarked share for free. The proposal also envisaged 80% award to sectors that are not likely to cause a leakage but which can have a decline of about 30% by 2020. Further, whilst keeping the Kyoto dream alive, Phase III posted changes to regulate access to project credits by subjecting all access to certain confines to

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