The Trouble With Markets for Carbon
The New York Times,
Backers of these markets, which involve setting limits on greenhouse gases and then allowing companies to buy and sell emission permits, see the approach as one of the cheapest and most effective ways to control the gases in advanced economies. The presidential candidates Barack Obama and John McCain have both endorsed the idea.
"We currently are in danger of losing yet another decade in the fight against global warming," said Hugo Robinson of Open Europe, a research group in
This week, the European Environment Agency reported that emissions from factories and plants that trade pollution permits rose 0.4 percent in 2006 over the previous year, and 0.7 percent in 2007, the first two years of the system's operations.
Europeans took an early lead in efforts to curb global warming, championing the Kyoto Protocol and imposing a market-based system in 2005 to cap emissions from about 12,000 factories producing electricity, glass, steel, cement, pulp and paper. Companies buy or sell permits based on whether they overshoot or come in beneath their pollution goals.
European Union officials acknowledge that establishing such a vast market has been more complicated than they expected.
"Of course it was ambitious to set up a market for something you can't see and to expect to see immediate changes in behavior," said Jacqueline McGlade, the executive director of the European Environment Agency. "It's easy, with hindsight, to say we could have been tougher."
A major stumbling block arose at the outset, when some participating governments allocated too many trading permits to polluters when the market was created. That led to a near-market failure after the value of the permits fell by half, and called into question the validity of the system.
Since then, officials have promised changes, and the price of carbon permits has largely recovered. Yet a ferocious lobbying battle is under way as European Union regulators seek to overhaul dysfunctional parts of the market by charging polluting companies more and reducing the supply of permits.
"The politics you're seeing in
Energy-intensive industries, like power, steel and aluminum, have challenged proposals that would force them to buy many more permits than in the past. During the three years in which they participated in the first phase of the market, carbon emissions in the iron and steel sector in Britain alone rose more than 10 percent while emissions in the cement industry rose more than 50 percent, according to transcripts from the British Parliament.
Electricity producers, oil companies, steel companies and airlines are among those fighting to protect their interests, with some threatening to freeze investments in
Meanwhile, poorer countries in the union, led by
The proposals are also under attack from environmentalists, who want to restrict polluters from using large numbers of permits from an offsetting program run by the United Nations. It funnels money to poor countries for investments that purportedly reduce carbon emissions, but the effectiveness of the program has been questioned.
"The sheer amount of lobbying creates so much uncertainty about the way these markets operate that nobody really is investing in cleaner technologies in
Carbon markets, also known as cap-and-trade systems, have come into vogue because they are more politically palatable than imposing carbon taxes.
Americans pioneered pollution markets in the 1970s and used them on a broader scale with some success during the 1990s to control emissions from power plants that contributed to acid rain. American officials also pushed hard for emissions trading to be included in the
But the momentum in the
Now the tide is turning again in favor of carbon markets in the
Mr. Obama has said he supports the use of a market to reduce carbon emissions by 80 percent below 1990 levels by 2050. His proposal would require pollution credits to be auctioned rather than given away to big industries, including coal and oil companies.
Mr. McCain favors giving permits away to big polluters before moving to an eventual auctioning of permits to reduce emission levels 60 percent below 1990 levels by 2050.
Americans were likely to experience many of the same problems already playing out in
The biggest question hanging over the European system and that is likely to be of major concern to American policy makers is whether the rules can be tightened enough that they achieve the social goal of reducing the emissions that are warming the planet.
Henrik Hasselknippe, the director of emissions trading analysis at Point Carbon, a consultancy in
Mr. Hasselknippe said efforts to overhaul the European system by reducing corporate influence and government largess would mean greater certainty about price of carbon permits during the next decade. And he predicted that emissions from industries covered by the European system would finally decline this year, by 2 percent.
Copyright 2008 The New York Times