Politics makes emissions trading a peculiar market

Feb. 6, 2012
The trading of allowances to emit carbon dioxide is supposed to be a market-based response to global warming. It's really politics.

The trading of allowances to emit carbon dioxide is supposed to be a market-based response to global warming. It's really politics.

In Europe, carbon prices aren't high enough to suit politicians. The cost of emitting a tonne of CO2 is now about €7 in the European Union Emissions Trading System. At that level, politicians think the carbon price inflicts too little pain to induce affected industries to cut emissions drastically. They think the price should be €25/tonne or more.

To increase demand for allowances, the EU on Jan. 1 brought aviation into the ETS—all aviation, not just European parts of it. Airlines, no matter where they're based, must submit an allowance for every tonne of CO2 emitted by their flights to or from EU member countries. Airlines not holding enough allowances must buy them. The EU controls allowance supply.

The European Court last month supported the move against a challenge from a US airline group, saying the requirement doesn't amount to a tax violating transport agreements. The legal case probably didn't end there. And protests have arisen outside the US.

Meanwhile, the UK has decided to act solo on the misbehaving carbon price. The government plans to set a floor price equivalent to €19/tonne for British emitters in 2013.

But prospects for the initiative turned cloudy on Jan. 26 when a committee of Parliament questioned the wisdom of unilateral punishment of British industries and power consumers. Committee members preferred the EU's method of evangelizing European climate-change neuroses to businesses from less-anxious realms.

Amazingly, these manipulations occur while European economies struggle against a deepening crisis. And they do so within a mechanism by which people buy and sell something they must have, not something they want. It's a mechanism with which officials feel at liberty to set floor prices and recalibrate supply and demand when prices, in their estimation, aren't right.

That's not a market. It's camouflage for officially imposed hardship. Europeans need to know that. So does everyone else.

More Oil & Gas Journal Current Issue Articles
More Oil & Gas Journal Archives Issue Articles
View Oil and Gas Articles on PennEnergy.com