Effect of the European Union Emission Trading Scheme (EU ETS) on companies: Interviews with European companies

Abstract

We visited Belgian and Dutch companies that are covered by EU ETS in November 2007, in order to conduct interviews regarding the impact of the scheme and the resultant performance of these companies. The problems of the EU ETS that emerge from this interview are as follows: (1) the redundancy of emission allowance dampens the incentive to reduce the emission of CO2, (2) the allocation scheme fails to consider inter-industrial and/or inter-district fairness, and (3) since the duration of the National Allocation Plan is too short and highly uncertain, it is difficult to implement a long-term reduction investment plan. As European company officers pointed out, the current EU ETS has several problems. However, the recent political debate on the EU ETS seems to have entered a new dimension toward the second period of the National Allocation Plan. For instance, the cap of CO2 emission in the second period has tightened in comparison with the case in the first period, when the allowance excessive. Furthermore, in January 2008, the European Union set the goal of reducing emission by 20% from the 1990 level, by the year 2020. Moreover, the EU intends to introduce the complete auction of emission allowance after the year 2013 excluding the sector that is expected to experience serious leakage problems. The current EU ETS can be regarded as a CO2 reduction scheme in transition. The policy makers of the Japanese government should behold and draw upon the experiences of the European Union in order to implement appropriate policy measures against global warming in Japan.