However that's not to say it's been as successful as many of its advocates believed. And there have been many hiccups along the way.
The Hiccups
The main problem is that the ETS simply dished out way too many permits. According to the scheme's watchdog, SANDBAG, each company had 7% more permits than they actually needed. With so many permits flooding the market the
price of permits dropped near €2 at its lowest, making the permits all but worthless and the incentive to invest in greener technology non-existant because not much money could be made by selling permits. Therefore the first phase of Europe's flagship environmental policy didn't go that well.
The reason why too many permits were given out was partially the fault of the 2008 recession. As demand collapsed firms cut production, the market became overwhelmed with permits. The other issue is that more and more intensive manufacturing is being moved to China. Therefore demand for permits in Europe has fallen, however a tonne emitted in Europe or China is still causing climate change
The answer came from the American state of California's mega economy. All by itself it is the world's 8th largest and produces 1% of global carbon emissions. In 2008 California introduced AB32 environmental legislation which included a cap and trade scheme, however part of the permits were sold by auction. This means companies would only buy as many permits as they needed and the government can make money from the sale. The risks were huge, Americans are especially sceptical of government intervention and if speculators hoard permits or the auctions aren't correctly controlled the whole concept could collapse.
Despite these risks the concept has endured. Concerns have been raised that cap and trade is a hidden tax where the price firms pay for permits is passed on to customers. But the experiment was successul enough for Europe to follow suit. During the second phase of the ETS(2008-2012) 4% of permits were auctioned. A cautious start, but in 2013 the ETS decided to bump that up to 30%, buoyed by the revenue the auctions made.
Now with a profit incentive for governments, there was less resistance to imposing the scheme on key industries