What is it about?

The EU Emissions Trading System (EU ETS) has evolved into a hybrid scheme. We model how revisions of its rules have affected corporate decisions. We show that the current EU ETS surpasses alternative design variants in paying hidden product subsidies to firms.

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Why is it important?

Our findings show that the efficiency of the EU ETS has been compromised by political choices and regulatory changes. We demonstrate how the current combination of rules encourages an inefficiently high level of investment in production capacity and an inefficiently high output in industries exposed to international competition.


The EU ETS is not a pure cap-and-trade system, but a hybrid system which contains rules that create inefficiencies. To make people more aware of this, we deliberately (and somewhat provocatively) rename the EU ETS as 'EU ETH': the EU Emissions Trading Hybrid.

Dr Edwin Woerdman
Rijksuniversiteit Groningen

Read the Original

This page is a summary of: Emissions Trading Hybrids: The Case of the EU ETS, Review of Law & Economics, March 2019, De Gruyter,
DOI: 10.1515/rle-2014-0054.
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