Carbon Market Collapse Imminent?

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.