Weak points of EU ETS

Weak points of China’s pilot ETS

・ The prices are too low currently, which threatens the system. Low price is mainly due to the oversupply of allowances in the three compliance periods. Low price has very limited contribution to low-carbon innovation and investment and thus it damages the function of ETS.

・ The EU ETS system did not have the flexibility to deal with the short unexpected events and uncertainties and to accommodate the effects of lower-than expected emissions due to the economic crisis after 2007.

・ Baseline assessment and verifications are not enough among different member states, in particular in the eastern states. This is one of the reasons of oversupply of allowances in different periods.

・ The market is thin and volatile, the prices are relatively low. This is due to the free allocation of allowances in the 7 pilot ETSs and carbon market is not mature in a three-year short period.

・ The government can buy back emission reduction units (ERU) and governmental interventions are high at the 7 pilot ETSs.

・ CO2 is only one of the greenhouse gasses and more GHGs should be included in the future ETS, and then ETS will have real contribution to reduce climate changes.