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The Carbon Trading Boondoggle: Evidence from Europe

Posted By Nicolas Loris On February 23, 2009 @ 5:25 pm In Energy | Comments Disabled

Apparently people forgot to mention to the central planners in Europe that prices fall during a recession. That includes carbon prices [1]:

Set up to price pollution out of existence, carbon trading is pricing it back in. Europe’s carbon markets are in collapse.

A year ago European governments allocated a limited number of carbon emission permits to their big [emitters]. Businesses that reduce pollution are allowed to sell spare permits to ones that need more. As demand outstrips this capped supply, and the price of permits rises, an incentive grows to invest in green energy. Why buy costly permits to keep a coal plant running when you can put the cash into clean power instead?

As recession slashes output, companies pile up permits they don’t need and sell them on. The price falls, and anyone who wants to pollute can afford to do so. The result is a system that does nothing at all for climate change but a lot for the bottom lines of mega-[emitters]such as the steelmaker Corus: industrial assistance in camouflage.

A lot of the blame lies with governments that signed up to carbon trading as a neat idea, but then indulged [emitters]with luxurious quantities of permits. The excuse was that growth would soon see them bumping against the ceiling.

Instead, exchanges are in meltdown: a tonne of carbon has dropped to about €8 ($10.16), down from last year’s summer peak of €31 ($39.35) and far below the €30-€45 ($38.08-$57.13) range at which renewables can compete with fossil fuels.”

The ebbs and flows of the market are causing a number of hiccups in the EU’s carbon trading plan. As a result of permit prices falling, electricity prices are up [2]and carbon reduction is negligible [3].

A similar trading scheme would like occur in the United States if we adopt a cap-and-trade plan to reduce carbon dioxide, as suggested by California Rep. Henry Waxman [4], chair of the Energy and Commerce Committee. The inefficiencies and unpredictability of a cap-and-trade bill would pour salt in an already wounded economy. And it would have minimal effects on global temperature. The U.S. should learn from the EU’s long, unsuccessful history when it comes to emissions trading schemes [5]and not follow down the same path of failure.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/02/23/the-carbon-trading-boondoggle-evidence-from-europe/

URLs in this post:

[1] carbon prices: http://www.guardian.co.uk/commentisfree/2009/feb/23/glover-carbon-market-pollution

[2] electricity prices are up : http://news.bbc.co.uk/2/hi/programmes/file_on_4/6720119.stm

[3] carbon reduction is negligible: http://www.guardian.co.uk/business/2007/apr/03/carbonemissions.environment

[4] as suggested by California Rep. Henry Waxman: http://www.foundry.org/2009/01/15/waxmans-global-warming-plan-that-will-save-our-economy/

[5] long, unsuccessful history when it comes to emissions trading schemes : http://www.heritage.org/Research/EnergyandEnvironment/wm1800.cfm

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