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May 132013

Transworld Paper No. 26

by Simone Borghesi and Massimiliano Montini

This paper examines the main legal and economic aspects of the EU Emission Trading System (EU ETS), with a particular emphasis on its features with respect to previous cap-and-trade regimes, its environmental and technological effectiveness and its potential role as a prototype for a global emission trading system. The EU has surprisingly changed its role from follower to forerunner in the ETS race. Despite being a prototype for other countries, however, the EU experience has shown a mixed skylight, characterized by flashing lights and dark shadows.

Keeping this in mind, the paper investigates the prospects for the extension of the EU ETS on a global scale, examining whom should regulate the global ETS and how. Three possible options are identified and discussed: (i) a worldwide ETS; (ii) a global network of regional/domestic ETS regimes; (iii) a linkage scheme between interacting regional/domestic ETS blocks.