Emissions trading in practice: lessons learnt from the European emission trading scheme

Economists have developed a large body of theoretical literature on the advantages of emissions trading schemes (ETSs) over other mechanisms such as regulations. 1 ETSs particularly are lauded as being effective and efficient, as they are theoretically able to achieve a given environmental goal at least cost. However, the real world is more complex than usually assumed in textbooks. How an ETS will actually work in practice, therefore, is difficult to predict.