20 July 2009

ETS Lost at Sea

A British NGO called Sandbag has released a quantitative analysis of the effects of the current recession on the ETS -- Europe's version of cap-and-trade, and has found the program to be seriously flawed. Sandbag claims that (here in PDF),
Targets for the Emissions Trading Scheme were already weak and have now been further undermined. . . At the moment the ETS embodies a reversal of the polluter pays principle, where instead polluters are being paid to do nothing to reduce their emissions.
Their critique rests on the fact that there are too many permits available in the European system to lead to a meaningful cap. Too many permits results from an overallocation and also surplus permits resulting from the current economic recession. Sandbag recommends that the caps be tightened and made more real. Good luck with that.

Tim Yeo, member of the UK Parliament, comments on the report's significance:
These findings confirm what many have begun to suspect. Although emissions trading remains conceptually valid, in practice the EU ETS has not succeeded in driving investment in low-carbon technology.
If the ETS is not driving investment in low carbon technology, then what is the point?


  1. Cui bono? Industrial rent-seekers are making Euros hand over fist. Politicians quieted the activists, while protecting the national favorites, and perhaps aiding specific rent-seeking profiteers as well. And the dim public has a self-satisfied sense that something is being done - without any sense of cost.

  2. Opposite to the first phase of EU ETS, the second phase EU ETS should be much tighter. In the first phase they gave away 95% of the carbon rights (and the price went to zero). In the second phase they only give away 80%. Due to the recession and the inclusion of CDM/JI rights the price would go straight to zero at the moment. However, the current rights are bankable for the phase after-2012, so that keeps the price up to the current 13 euro/ton (not quite an incentive to create a low carbon economy).