If there is no cap on a cap-and-trade scheme, there is no trade. Why pay for something if it is freely available? Overly generous quotas will undermine any emissions trading scheme. From BBC (see also this post on EU Environment Commisioner Stavros Dimas, and this post),
The Stern Review’s recommendations on curbing climate change need a fresh set of global emissions targets, according to a leading environmental economist.
Professor Michael Grubb said carbon trading would only be effective globally if a new deal were in place.
New emissions targets are being discussed at the UN climate summit in Nairobi, but agreement is unlikely.
Professor Grubb also warned that the European market for carbon risked being undermined by a number of countries.
He described as “laughable” some of the national emission quotas being proposed for the second phase of the European Emissions Trading Scheme (ETS).
The European Commission is due to make a statement on Thursday which could include its response to these quotas…
Poland … proposes to allow its industry to produce 17% more CO2 each year than in 2005…
“We have collections of allocations which will simply not support meaningful action to reduce emissions in Europe,” observed Professor Grubb.
… absurdly high national allocations could have implications for the world’s poorest countries, causing the price of carbon to fall and reducing investments in clean energy, reforestation and adaptation.