Carbon Raiding

April 16, 2009

From the New Scientist today: Carbon trading isn’t working.

In 2005 the European Union created the world’s first proper carbon market, the EU Emissions Trading Scheme (ETS), which compels highly polluting industries to buy permits to emit CO2. The number of permits is limited, so the idea is that supply and demand set a price that encourages the development of a low-carbon economy. A rising price with no wild fluctuations sends an economic signal to invest in clean energy. But it’s not working.

The price of a tonne of CO2 on …the ETS has had a roller-coaster ride – soaring one minute, plummeting the next. In the past year it has lurched from over €30 to €8, and now languishes at around €10. Disastrously, such low and unpredictable prices for CO2 remove the economic incentive to decarbonise economies.

This is the partly the result of the economic downturn. As heavy industries mothball factories, energy use drops and demand for permits goes down. At the same time businesses try to raise cash by selling their unused permits, flooding the market and further depressing prices. French energy company EDF recently complained that carbon markets were failing just like the market for subprime mortgages. As a result, all kinds of green energy schemes are grinding to a halt.

This is something that green campaigners have been warning about since the ETS was proposed. It was actually the central theme of the April 1 Climate Camp held in London’s Bishopsgate outside the offices of the European Carbon Exchange, before that bash was so rudely and brutally interrupted.

And no article about carbon trading is complete without a mention of the first round of trading on the ETS, which oversupplied permits to corporations across Europe by around 50 percent. This resulted in a huge cash giveaway, money for nothing essentially.

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