An Evaluation of the European Union Emissions Trading System: The Importance of Including Methane Emissions Along the Supply Chain of Natural Gas and Crude Oil

Abstract

An increasing number of countries have been implementing emissions trading policies to limit CO2 emissions, and many turn to the experience of the European Union Emissions Trading System (EU ETS), the largest one in operation. This dissertation aims to evaluate whether the European Union Emissions Trading System is effective in meeting its goal of greenhouse gas emissions reduction and decarbonisation. To this end, the research questions are the following: How effective is the European Union Emission Trading System in meeting its goals? What could be the structural changes to improve this system? To answer these questions, this dissertation is divided into 5 chapters. The first chapter introduces this thesis. The second chapter describes how global climate change has been affecting the Earth’s ecosystems, the society, and the economy. The third chapter evaluates each of the four phases of the EU ETS based on whether this cap-and-trade scheme has been successful in reducing CO2 emissions, and whether it has been affecting the economic performance, considering the profit and the competitiveness of the participating countries. The fourth chapter reports the personal part of this dissertation which aims to understand whether the system is effective in its main goals. To prove the point, an economic model is developed, in which an Italian firm participating in the EU ETS uses Algeria-imported natural gas and crude oil to produce energy, and in which the upstream and midstream methane emissions from these fossil fuels’ supply chains are included in the EU ETS. These changes should improve the EU ETS in abating GHG emissions. The fifth and last chapter discusses the outcomes and concludes the dissertation.