Emission Impossible

Over the last few weeks, several good, even excellent articles have been published on the vicissitudes of the EU's Emissions Trading System. However, many of them overlook one crucial factor: In the bewildering array of technicalities, the original, and ostensibly only, purpose of the scheme -- the reduction of putative man-made global warming-- has been forgotten.

The recent crash of the CO2 emission market shows it is a very special market, indeed. Revelations in April that some EU member states had granted their companies an excess of permits more than halved the carbon price from €30 per ton to €11 in just a few days. Subsequently the price rebounded to about €14 per ton now.

Carbon trading has been presented as a "market-based", cost-effective solution to mitigate the effect of man-made global warming. Governments set limits to carbon emissions and then permit trading in credits. Companies in energy-intensive industries receive permits for each ton of carbon dioxide they are allowed to emit. If they want to emit more they must buy them from companies with a surplus. The aim of the market is to ensure companies have an incentive to invest in new technology or other efficiency measures to reduce their CO2 emissions.

There is a two-tier allocation procedure. First, international agreement must be reached on the total volume of emissions, and on the burden sharing, which sets emission ceilings for each country. Subsequently, big energy-intensive companies in each country receive their share of the national allocation of emission permits. But here countries face a dilemma. On the one hand they want to do something about global warming. But they also do not want their national industries to suffer. Therefore, they are tempted to give them far too many pollution-permitting carbon credits, which risks undermining Europe's drive to cut emissions. This dilemma manifests itself in a tug-of-war between national ministries of economic affairs and environment ministries. Apparently, the economic ministries have carried the day so far.

What about the "progress" on the international stage? At last July's G-8 Summit in Gleneagles, Scotland, world leaders failed to reach agreement on a follow-up to Kyoto after 2012. Nor was there any support at December's climate conference in Montreal for such a follow-up. As a matter of fact, Europe remained isolated in pushing for an extension of its system of binding caps on carbon dioxide emissions in conjunction with tradable emission rights. And Europe's climate policy suffered another setback at last month's climate meeting in Bonn, which ended in a deadlock. There, the developed countries reached a consensus that they would not take on further commitments until the developing world also considered emission targets. The developing nations, on the other hand, reached consensus as well, holding firmly to the position they will not take on such commitments.

The proponents of Kyoto have always argued that the agreement was only the first step towards a far more comprehensive scheme which would ultimately include all countries in the world and would aim at greenhouse gas emission cuts of around 60 percent by 2050. But it has become clear there will be no "son of Kyoto" after 2012. So the question arises: what useful purpose could be served by continuing Europe's current emission trading system, given the fact that its impact, if any, will be undetectable, even with the most sophisticated thermometers? The only rational policy decision would be to abandon it as soon as possible. However, rationality is in short supply on the climate question.

The author is a TCS contributing writer living in Europe.

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