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8. The Legislative Frameworks

Basics 2

The EU ETS is rooted in a legislative framework dating back to the early 1990s.

8. The Legislative Frameworks

The EU ETS is the brainchild of politicians and legislators. While it is backed by decades of academic research and empirical evidence from practical examples, it is rooted in a legislative framework dating back to the early 1990s. 

The Kyoto Protocol

This is an extension of the United Nations Framework Convention on Climate Change (1992). It was signed in 1997 and entered into force in 2005; there are 192 parties. The broad objective is to make industrialized countries commit to reducing carbon emissions. In its Article 17, it allows countries to trade GHG emissions units - the UNFCC considers this to be the foundation of a new commodity. The EU ETS was created in this context, hitting the ground in 2005, after an approved directive in 2003.

The Paris Agreement

Adopted in 2015, legally binding and signed by 196 parties, this document aims at speeding up and strengthening the European climate targets. It was necessary to come up with a common objective as a foundation of international climate policies : keeping the global temperature rise below 2 degrees Celsius above pre-industrial levels. It was decided that greenhouse gas emissions should be reduced by 40% by 2030 compared to 1990 levels.

The European Green deal

The document was approved in 2020 and set the “net zero objective”. By 2050, the European Union should be climate neutral. This entails a significant reduction in the carbon emissions within the economy. In cases where the complete elimination is not possible, carbon capture or offsets should be put in place. Overall, any emission created should be balanced out by CO2 volumes taken out. 

The Fit for 55

The new goal set in 2023 is to reach an overall reduction of European emissions by at least 55% by 2030 compared to 1990 levels. The target for the EU ETS emissions was set even higher: a decrease of 62% by 2030 compared to 2005 levels. To comply with those new objectives, regulators revised some key features of the EU ETS supply. The free allocations will be phased out in the decade to come, and a new ETS will cover road transport and buildings.

Sources

UN Climate Change. What is the Kyoto Protocol?

UN Climate Change. Emissions Trading.

UN Climate Change. The Paris Agreement.

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