The system includes more than 12,000 power plants and factories across the 28 EU member states plus Iceland, Liechtenstein and Norway, and covers around 45 percent of the EU’s greenhouse gas emissions and around 50 percent of Germany’s.

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Numerical simulations indicate that the quota price most likely will be several times higher than marginal abatement costs, unless a significant share of allowances is auctioned.

An emission trading system (ETS) is a powerful policy instrument for managing greenhouse gas (GHG) emissions.

The EU ETS - also known as the European Union Emissions Trading Scheme - puts a cap on the carbon dioxide (CO2) emitted by business and creates a market and price for carbon allowances.

It covers 45% of EU emissions, including energy intensive sectors and approximately 12,000 installations.

This report combines data on how business costs would be affected by carbon costs with analysis of the effect on prices and international trade in order to identify the small group of activities for which competitiveness is an issue for the environment, as well as for business, and to identify potential responses.

This report, based on collaborative research with Climate Strategies, examines the workings of the EU ETS to date and offers analysis and recommendations on its future development.The study identifies seven key challenges to overcome for the second phase of the EU ETS and sets out the Carbon Trust's own conclusions and recommendations for the future of the EU ETS as an instrument that can both help business deliver emission reductions as efficiently as possible, and also protect and ultimately enhance business competitiveness in a CO This report explores in depth the implications of the EU ETS for industrial competitiveness in the UK and the wider EU.It presents our analysis of combined insights from economic modelling and a stakeholder interview programme.Trading responds to the central objective of climate change policy of efficiently directing capital within markets towards low-to-zero carbon emissions investments.To achieve this, an emissions market requires: Carbon pricing opens the door to a new set of investment and financing opportunities.Emissions trading schemes where allocations are based on updated baseline emissions give firms less incentive to reduce emissions for a given quota (or allowance) price. 49 (2005) 2041-2055], such allocation schemes are cost-effective if the system is closed and allocation rules are identical across firms.