The European Carbon Trading system isn’t dead yet
THE Wall Street Journal tells us that the ETS, the European carbon trading system, is dead. This is because the prices are so low that no one can be bothered trading:
One of the great policy bubbles of our times has been cap and trade for carbon emissions, and on Tuesday it may have popped for good. The European Parliament refused to save the EU’s failing program, which is the true-believer equivalent of the pope renouncing celibacy.
The Parliament in Strasbourg voted 334-315 (with 63 abstentions) against propping up the price of carbon credits in the EU Emissions Trading System. The failed proposal would have delayed the scheduled sale of 900 million ETS permits over the next seven years, thereby suppressing supply. After carbon traders realized they weren’t getting more artificial scarcity, they drove the price of emissions permits down by 40% at one point on Tuesday.
The problem with this is that it’s grasping entirely the wrong end of the stick. A low carbon permit price is great news: it shows that we’re not bankrupting ourselves trying to reduce carbon levels.
Leave aside for a moment whether you think there is a carbon problem or not. Assume, just for a moment, that there is. There’s two major ways of dealing with this. We can have a carbon tax: the higher that is then the more people will limit their use. Or we can have a system of permits: you get to emit however much you’ve got permits for. The price now is not what deters people: it’s having to have the permit.
So, a low price is just great. For it shows that we’re all fiding it easy to reduce our emissions to under the cap. A low price for permits is thus showing that meeting the carbon targets is easier than we thought it would be: thus cheaper.
Low prices are, just as with food and booze, great news.