In the UK Guardian last month, a leading European energy executive warned that Europe’s carbon market was becoming a “new type of sub-prime tool.” More analysis from the article:
The EU’s emissions trading scheme was set up as a market solution to cut greenhouse gas pollution from industry. Polluters were issued with permits that can be traded between companies and countries as a way of encouraging an overall reduction in carbon output. However, companies are now cashing them in. Up to €1bn-worth of permits are said to have been sold off in recent months as companies see an opportunity to bring in funds at a time when their carbon output is expected to fall due to lower production.
This week, Guardian columnist Julian Glover writes that the carbon market is on the verge of total collapse:
Set up to price pollution out of existence, carbon trading is pricing it back in. Europe’s carbon markets are in collapse.
Yet the hiss of escaping gas is almost inaudible. There’s no big news headline, nothing sensational for TV viewers to watch; no queues outside banks or missing Texan showmen. You can’t see or hear a market for a pollutant tumble. But at stake is what was supposed to be a central lever in the world’s effort to turn back climate change. Intended to price fossil fuels out of the market, the system is instead turning them into the rational economic choice.
Glover, the Guardian columnist, also recognizes that other major industrial economies thinking of creating carbon markets are watching Europe, and may now rightly hesitate given the mess there. He goes on to suggest, however, several “fixes” that strike to the heart of the scheme’s flaws: opportunities abound for exploitation.
The complexity of accounting rules, in addition to strong pressure from industry lobby groups, has almost completely undermined the program’s environmental effectiveness.
Apparently, however, the memo on Europe’s experience with pricing carbon hasn’t made it to President Obama, who as recently as last night was calling on Congress to give him a cap and trade bill without further delay.
Patrick E. Bell is a U.S. Fulbright Fellow, and MPA student at Seattle University.