Congressional Research Service
http://opencrs.com/document/R41049/
A Phase 3 will begin in 2013 designed to reduce emissions by 21% from 2005 levels. Several positive results from the Phase 1 “learning by doing” exercise assisted the ETS in making the Phase 2 process run more smoothly, including: (1) greatly improving emissions data, (2) encouraging development of the Kyoto Protocol’s project-based mechanisms–Clean Development Mechanism (CDM) and Joint Implementation (JI), and (3) influencing corporate behavior to begin pricing in the value of allowances in decision-making, particularly in the electric utility sector. However, several issues that arose during the first phase were not resolved as the ETS moved into Phase 2, including allocation schemes and new entrant reserves, and others. A more comprehensive and coordinated response by the EU has been made for Phase 3 with harmonized and coordinated rules being developed by the European Commission…
The EU-ETS experience illustrates the importance of having reliable emissions data for all facilities covered under a cap-and-trade scheme; data that are pivotal for developing allocation systems, reduction targets, and enforcement provisions…
EU-ETS analysis suggests the most important variables in determining Phase 1 allowance price changes were oil and natural gas price changes; this apparent linkage raises possible market manipulation issues, particularly with the inclusion of financial instruments such as options and futures contracts. The EU will examine the matter in preparation for Phase 3. Congress may consider whether the government needs enhanced regulatory and oversight authority over such instruments.
