Carbon Market Collapse Imminent?

Ronald Bailey | December 6, 2006

In October, all of the European Union countries forwarded their proposed National Allocation Plans for carbon dioxide emssions to the European Commission. The idea of the EU emissions trading scheme (ETS) is that permits to emit the global warming gas carbon dioxide should be screwed down over time lowering actual emissions. One problem, most of the countries submitted emissions plans that allocated permits for more than is currently being emitted--in other words, instead of reductions, they proposed increases. Collectively, EU countries have allocated permits allowing emissions 15 percent higher than actual emissions. If these proposed allocations stand that could put the kibosh on Europe's nascent carbon market. As EC Environment commissioner Stavros Dimas warned, "If member states put more allowances into the market than are needed to cover real emissions, the scheme will become pointless and it will be difficult to meet our Kyoto targets."

So Dimas  promised to whack the carbon scofflaws and demand that they lower their emissions allocations to effect genuine cuts. Now, Germany has given its answer and it's a great big raspberry. Reuters reports, "Germany will ignore a ruling by the European Commission on Wednesday that rejected Berlin's climate change targets for 2008-12, the economics ministry said on Friday."

If Germany won't go along, don't expect France, Britain, Poland, and so forth to do so either. Some thoughts on the future of the ETS here.

Comments

Guy Montag|12.6.06 @ 11:48AM|#

That's it. Putting my foot down.

Neither the hybrid Charger nor the hydrogen powered Jeep are going to europe, ever!

|12.6.06 @ 12:03PM|#

Its good to know that Europe is so very concerned about emissions that they'll set aside their own interests for the sake of helping the enviro...a wait, no they're not, signing the Kyoto apparently was just for the good publicity. So why is everyone mad that the US didn't sign it now?

biologist|12.6.06 @ 12:06PM|#

social contracts never work unless there is some means of enforcement

Guy Montag|12.6.06 @ 12:07PM|#

biologist,

Yea, that is why I am boycotting europe. See earlier post.

fyodor|12.6.06 @ 12:11PM|#

Unless I'm missing something, this seems like an enforcement issue. I don't understand Bailey's point in his linked article that a carbon tax would be more easily enforced. If European nations can get away with issuing too many carbon permits, why couldn't they get away just as easily with failing to implement the agreed upon carbon tax? Or conversely, if the carbon tax could be enforced via raised tariffs, why couldn't that be done with failing to limit permits? Maybe what's happening is a factor of dealing with the EU versus its member nations?

lunchstealer|12.6.06 @ 12:18PM|#

All they need to do is provide massive government subsidies to the fossil fuel industry and they'll be the Bush administration.

lunchstealer|12.6.06 @ 12:18PM|#

Oh, and maybe start some elective foreign wars.

|12.6.06 @ 12:21PM|#

I can't wait for the day when Bush calls Scmidt and tells him that he caused Katrina.

fyodor|12.6.06 @ 12:23PM|#

Can anyone tell me how these carbon permits are distributed by the member nations? I believe we have some form of emmission trading in the US, no? How do we do it differently?

uncle sam|12.6.06 @ 12:24PM|#

Nice illustration of how people respond to such "incentives".

Is it possible to figure out how much pollution is produced as a result of the cost of beauracracy and other government functions?

I bet we could cut our emissionss significantly if we could reduce government to a tenth its current size.

Guy Montag|12.6.06 @ 12:35PM|#

fydor,

I am not sure, but if they were worth anything clones of Jim Bowie would be springing up all over to forge them for sale.

|12.6.06 @ 12:37PM|#

I believe we have some form of emmission trading in the US, no? How do we do it differently?

The US only runs emission trading schemes on easy-to-measure and easy-to-scrub point-source problems. CO2 emission is none of these.

Nonetheless, it does seem that one can measure CO2 emission at the fuel purchase point. Surely someone knows how much of each carbon fuel is consumed by whom in Europe. One would think the smallest players -- excluding firewood -- are going to be gasoline retailers, which are still easily measured. Has such a mechanism been tried in Europe?

If, as I suspect from what I've read, handing out carbon emission credits is based on anything other than carbon emission, then all bets are off.

|12.6.06 @ 12:39PM|#

Off the top of my head, I recall reading that the 'plan' was to initially allow the emmissions permits to rise for a short while before clamping down. This was ostensibly to let the system itself mature, so that businesses could get use to the idea without having the doublewhammy of both enforcement and lack of experience.

I could be wrong...maybe I willfind the reference. But it at least makes a certain amount of sense.

And Fyodor, there is the voluntary Chicago Carbon Exchange. Only Europe has a mandatory exchange.

R C Dean|12.6.06 @ 1:57PM|#

This will fail because you are asking sovereign entities to involuntarily transfer wealth to one or more of their neighbor/competitors.

Why on earth would they do that?

It looks like none of them could think of a reason either.

|12.6.06 @ 3:50PM|#

Crap! I just bought a whole basement full of carbon.

|12.8.06 @ 5:18AM|#

Ron, did you write this about asteroids? If so, maybe you can tell us why you persist in being so disingenuous on why unilateral climate changes by the EU might be foundering, in the face of refusals by the US, China, India et al. to do anything?

Defending against NEOs is a classic example of a public goods problem. A public good is one, such as national defense, with low costs for an extra individual to enjoy, and high costs to exclude anyone from enjoying. This means that it's unlikely that any particular individual (namely you or me) would pay out of his own pocket to see that the good is provided.

In such situations, we turn not to markets, which excel at providing private goods, but to mechanisms of collective action, generally the government. Naturally, any new Planetary Defense Agency will suffer all the problems that afflict government bureaucracies, especially the innate drive to seek more money and power by exaggerating risks. But given the devastating consequences of an Earth Killer strike, it makes sense to take some strong collective action to protect ourselves and future generations against this risk.

And while you're at it, can you explain why you actively FAVOR throwing billions at year at tracking asteroids which pose a very remote risk, but seem so concerned about implementing carbon taxes to deal with a now undeniable threat posed by climate change? Is fouling our own nest just an inevitable part of private activity, while external threats to welfare more deserving of attention?