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Is Cap-And-Trade Working In Europe?

A group of U.S. air carriers lost a lawsuit today at the European Court of Justice, which ruled that they must pay for their carbon emissions under a European Union cap-and-trade program. This particular program, which goes into effect at the start of next year, is part of broader EU efforts to control emissions with a cap-and-trade system. How has that effort fared?

A 2008 report from the Pew Center on Global Climate Change (now the Center for Climate and Energy Solutions) found that the European system, in its first few years, had performed “surprisingly well.” The EU Emissions Trading System, which went into effect in 2005, quickly developed a “functioning market” for carbon allowances “without any prodding by the [European] Commission or member state governments,” and it successfully adapted to the market infrastructure of reporting and monitoring emissions. Moreover, major parts of European industry were soon integrating decisions about emissions into their everyday activity. Of course, the implementation of the program was not without challenges—too many allowances were initially given to carbon emitters, and problems with emissions data increased price volatility­—but overall, the authors concluded that “the system has so far worked as it was envisioned.”