The EU’s emission trading system (ETS) is the world’s largest carbon market. Its “cap and trade” scheme provides a mechanism for both reducing the total amount of emissions in a cost-efficient way and ensuring that pollution is priced adequately. A recent study shows that the ETS saved more than one billion tons of CO2 between 2008 and 2016, a 3.8% reduction in total EU-wide emissions. [5] And only this week, carbon prices hit their highest level in more than a decade, despite the sharp contraction in aggregate demand and energy consumption, possibly reflecting the anticipation of tighter climate policies under the European Green Deal (see figure 2). Figure 2 EU ETS price (in euro per ton CO2 emissions)  Source: Bloomberg. Last observation: 15 July 2020. Notes: Energy Broker pricing on Bloomberg updates on a near realtime basis. Updates only occur when there is activity in the market, so there may not be updates to every contract every day. There is no reason for complacency, however. Currently, the ETS only covers economic sectors that together account for less than half of total carbon emissions in the EU, whereas the remaining sectors are subject to a patchwork of non-harmonised measures across the European Union. A global solution is out of reach. Moreover, carbon pricing is not a sufficient condition to manage the transition towards a more sustainable economy. Fostering green investment and innovation This brings me to the second pillar.
However,  4  See, for example, Ljungqvist, L and T J Sargent (2006), ”How Sweden’s unemployment became more like Europe's” in Freeman R, B Swedenborg and R Topel (ed), ”Reforming the welfare state – American perspectives on the Swedish model”, SNS Förlag. BIS Review 52/2007  5  it is not exactly easy to assess the level of resource utilisation in the labour market. There are many indications of fairly large labour reserves in total, although this may not be reflected in the recently agreed wage increases. Employment appeared to be developing in line with the forecast we made in February. However, the labour supply was showing weaker development than we had expected. Altogether, this means that unemployment has been slightly lower than we assessed in our forecasts in February and the labour market situation is therefore slightly more strained. Our assessment in May was that on the whole, the repo rate would need to be raised gradually and by more during the forecast period than was indicated by the forecast we made in February. I did not consider the changes in the economic outlook to be so great that they required an immediate adjustment in the repo rate. The reason for this was that inflation is low and there are still factors holding it back. What we must do is to balance the pace of our interest rate increases so that inflation does not accelerate more quickly than expected, but so that growth in production and employment are not slowed down too soon.