Carbon Taxes and Emissions Trading: Issues and Interactions

The chapter puts carbonenergy taxation and ETR in the context of the EU Emissions Trading Scheme (EU ETS), which has been operational since 2005. It describes the basic principles behind emissions trading and discusses the effects on competitiveness which have been estimated from the scheme, both as it is now and how it might develop to 2020. Many of the issues and effects are similar to those discussed elsewhere in the book in relation to ETR. The chapter then moves on to the interaction between taxes and trading, both in theory and as they exist in practice in the European Union. There are a number of good reasons why carbonenergy taxation should be combined with the EU ETS, especially before the EU ETS moves to the full auctioning of quotas. However, the requirement for unanimity among EU member states on proposals for taxation at the EU level means that, notwithstanding the potential benefits, it will not be easy for new EU carbonenergy taxes to be introduced.