To meet its obligations to reduce greenhouse gas (GHG) concentrations under the Kyoto Protocol, the European Union (EU) established the first cap-and-trade system for carbon dioxide emissions in the world starting in 2005. Proposed in October 2001, the EU’s Emissions Trading System (EU ETS) was up and running just over three years later. The first three-year trading period (2005-2007)—a trial period before Kyoto’s obligations began—is now complete and, not surprisingly, has been heavily scrutinized. This report examines the development, structure, and performance of the EU-ETS to date, and provides insightful analysis regarding the controversies and lessons emerging from the initial trial phase.
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