The EU Emissions Trading Scheme (ETS) is important because the scheme covers half of all EU carbon emissions produced by power companies and industry.
If the Emissions Trading Scheme (ETS) is not helping to cut these, the EU as a whole will not meet its targets.
The first phase of the EU’s Emissions Trading Scheme (ETS), from 2005 to 2007 was a failure.
Huge over-allocation of permits led to a collapse in the price of carbon from €33 to €8 per tonne, meaning that the system did not reduce emissions at all.
In 2007 energy suppliers' 1.8% cut in carbon dioxide emissions was just higher than the UK's average of 1.7% down on 2006.
The residential sector and business sector both achieved better emissions cuts than the power sector in 2007, 4.6% and 2.6% respectively.
Meanwhile, there were increases in emissions from the transport sector (up 1%) and from industry (up 9.5%). [source:NewEnergyFinance/DECC]
The reason why the recession hasn't hurt big companies signd up to the ETS (according to International pro-business NGO The Climate Group) is because allocation of free permits to energy-intensive participants has helped them to ride out the recession, passing any price increases on to consumers.
Companies mentioned by The Climate Group include Centrica, Johnson & Johnson, Tesco, cement producer Lafarge, a British glass manufacturer, a German engineering firm, a global steel maker, a global aluminum firm and a financial services company. Fluctuations in energy prices and the economic downturn had more substantial effects on businesses than the price of carbon.
The only way that the ETS can work is if all of the permits to pollute are auctioned off and industry pays the price for abusing the atmosphere - which actually belongs to every single global citizen, as well as every other living organism.
Sandbag, another NGO, has used the large amount of information generated by participants in the scheme to create a Google map.
You can search it by country or year, sector, company, plant name, permits allocated, used and surrendered, and so on. London, for example, contains 44 registered emitters.
It has issued a report which highlights the harms that overallocation of permits has caused: "industry is likely to have nearly 400,000,000 tons worth of surplus permits across the period 2008-2012" they say. As a result they weren't out to reduce their emissions and instead will be old to sell their surplus for windfall profits of over Euros5 billion. There may also be an estimated surplus in the New Entrance Preserve of over 300 million permits by 2012.
All of this is because the caps were set too high and there is no way in the market to bring down the supply permits.
Sandbank concludes by saying that there could be 1.6 billion surplus permits and credits available during phase 2 of the scheme. this will permit European companies "to stand still on cutting domestic emissions further next seven years".
Sandbag recommends that the next phase of the emissions trading scheme should be immediately increased to deliver at least a 30% reduction in emissions by 2020 rising to 40% if a deal is reached at Copenhagen.
They should also take steps to effectively tighten caps in phase 2 of the scheme.
The scheme undoubtably has great potential to cut carbon emissions using the market and uncover the most cost-effective abatement opportunities.
The Low Carbon Kid says that it just needs designing so that it isn't one of the greatest rip-offs of all time (banking bonuses excluded), that's all.
And if any deal being pushed for by American industry wants to follow the current ETS model you know why. It will benefit their pockets and it won't make the slightest dent in carbon emissions.
What's the solution? Oliver Tickell has researched and developed it in his book and website Kyoto 2.