The EU ETShas experienced numerous teething difficulties since its launch in 2005 and as it moves into its third phase, expectations are reduced but lessons have been learned and the trading model could become a blueprint for other markets.
The European cap-and-trade emissions trading scheme (EU
ETS), under which carbon emissions are capped through
allowances that can be traded on spot and derivative markets,
was launched to great fanfare in 2005. The scheme aimed to
reduce carbon emissions within the European Union by 21%
The two most traded contracts are the Certified Emission
Reduction (CER) credits and the European Allowance unit (EUA),
one credit of each is equal to one tonne of CO2 emissions.
Emission Reduction Units (ERUs) are also tradable under the EU
ETS where emissions are made through what is termed a Joint
Implementation project in another eligible country.
EUAs accounted for 84% of the total global carbon market in
2010, with related transactions under the EU ETS such as
European CERs, taken into account that share rises to 97%. The
majority of the derivative contracts are traded on ICE Futures,
with the European Energy Exchange, GreenX and Nasdaq OMX also
trading CERs, EAUs and ERUs futures and options contracts.
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