The European Union (EU) has boldly created a regional market-based policy for reducing Greenhouse Gas (GHG) emissions. The EU Emissions Trading Scheme (ETS) will exist independently of international support through ratification of the Kyoto Protocol when it begins operation on January 1, 2005. Despite the contention by some industries that factoring in the price of pollution would make them less competitive in the global marketplace, Europe has pursued the implementation of the largest pollution credit marketplace in history.
This paper attempts to determine whether Europe has courageously adopted a system that will enhance its sustainability or foolhardily harmed the competitiveness of its industries. It first explores the characteristics of the Emissions Trading Scheme, exploring its motivations within the context of international discussion and diplomacy on climate change. Attention is paid to the allocation of allowances within the national and regional spheres, as the allocation will have the greatest impact upon the effectiveness and liquidity of the marketplace.
Subsequently, a greater understanding of industrial competitiveness within a European context is sought. What is meant by competitiveness? How does one measure the competitiveness of firms and regions? What is – or can be – the impact of legislation on competitiveness? What is the relationship between competitiveness and sustainability? These questions are briefly addressed in the second section of the dissertation, which concludes with a discussion on the effects of the ETS upon competitiveness.
The third section proposes a new supply chain management approach that may preserve the competitiveness of European industries subject to the system. An introductory overview of supply chain management and non-linear system dynamic modeling is provided prior to a description of its application to greenhouse gas (GHG) inventory management. Key, but counterintuitive, variables influencing GHG output are identified and an explanation of their relationships provided. Management and mitigation techniques are suggested and savings estimates, provided.
The concluding section of the dissertation attempts to tie the strands of the argument together to suggest that while Europe deserves praise for leading the way to a carbon-constrained economy, its choice of implementation may harm short term competitiveness. Some policy recommendations, and recommendations for further research, are provided.