Economic Analysis of the European Climate Policy: the European emissions trading scheme

The last two decades have experienced an increasing awareness about global warming, its causes, and potential effects on the ecosystem, in general, and on humankind, in particular. Global warming is nowadays recognized as one of the most impressive global negative externalities and market failures generated by the current economic system (Stern et al. 2006). In an attempt to safeguard against the risk of massive damage caused by a change in climate, the international, European and national institutions have committed to clear environmental goals aimed at stabilizing the global temperature at a non-dangerous level. In 2005, with the entry into force of the Kyoto Protocol, the ratifying Parties have committed to reduce by 2012 their emissions to 5.2% below the level of 1990. After having ratified the Kyoto Protocol, the European Commission (hereinafter EC) published the 2007 communication "Limiting Global Climate Change to 2° Celsius: The Way Ahead for 2020 and Beyond" in which it expressed its firm intention to enforce emissions reduction climate policies even beyond the terms of the Kyoto Protocol. At the end of 2008, the European Climate Package, which imposes a unilateral 20% emissions cut below the 1990 emissions level to be met by 2020, was finally approved.1