VitalAccurateThinking

Emissions Trading Fallacy

"As a measure of the gap between Europe's rhetoric and its reality, nothing beats its emissions trading scheme. The idea is that CO2-intensive companies -- chiefly those that produce power or use a great deal of it -- receive a certain number of permits to emit the gas. If they reduce their emissions and end up with a surplus, they can sell the extra permits to firms needing more allowances. In this way, market mechanisms are supposed to punish or reward companies for their carbon output, encouraging them to reduce it in the long run. In Europe, however, the 'market' consists of demand that government has created artificially and -- more important -- supply that the state distributes arbitrarily. Not surprisingly, companies lobbied hard to ensure favorable allocations when trading began in 2005. The number of permits exceeded actual emissions and prices plummeted. Today, allowances for 1,000 tons of CO2 are priced at about 11 euro cents, hardly high enough to prod a company to cut its carbon instead of just buying more permits. If you think the U.S. Congress -- whether led by Democrats or Republicans -- would be more likely to shun special interests in the name of environmentalism, then I've got some tariff-free Brazilian ethanol to sell you."

posted by Jim VAT @ 8:41 PM