The European Emission Trading Scheme (EU-ETS) is the first large-scale and inter-regional trading scheme for greenhouse gas emissions. It is seen as the central instrument of European climate policy. After a first testing-phase (2005-2007), the second trading period of the EU-ETS had started in 2008, with stronger incentives for investment in low-carbon technologies and carbon dioxide abatement. However, there is hardly any evidence how emissions trading fares in practice. The KfW/ZEW CO2 Barometer shows that trading of emission permits is actively used by 75 percent of German companies, but the price-signals that stem from the EU-ETS were relatively weak so far - too weak to set strong incentives for carbon dioxide emission reductions on the company-level. Also in the case of the ‘clean development mechanism’ (CDM) which was introduced to promote emission reductions in developing counties, there is need for further development.
Löschel, Andreas, Peter Heindl, Vivien Lo, Annette Detken and Victoria Alexeeva-Talebi (2010), KfW/ZEW CO2 Panel: Vermeiden oder kaufen - Deutsche Unternehmen im Emissionshandel, Zeitschrift für Energiewirtschaft 34(1) , 39-46