Politics makes emissions trading a peculiar market

02/06/2012
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...
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