Visions of Europe
For a long time, The Economist magazine was sceptical of climate change, but they now believe it is happening. Today the magazine published an editorial, strongly critical of the European Emissions Trading Scheme (ETS). An excerpt:
Unfortunately, the ETS has failed in all its three aims. Emissions were flat before the scheme’s introduction in 2005 (largely because manufacturing is moving out of Europe); have been flat since; and, if the European Commission accepts the national plans for handing out allowances put forward for the 2008-12 phase of the scheme, will continue flat. With so many allowances on the market, the price of carbon credits may well collapse and the carbon market fade away.
Nor are polluters paying-rather the reverse. In order to get industry to swallow this scheme, allowances were handed out free to companies, rather than being (as economists wanted) auctioned. In power-generation (Europe’s most-polluting industry) companies passed the price of carbon credits on to customers and pocketed the value of the allowances. According to a report by IPA Energy Consulting, Britain’s power-generators alone made a profit of around £800m ($1.5 billion) from the scheme in its first year.
Lastly, the ETS is not leading companies to invest in greener technology. In power, for instance, there has been a boom in coal-fired generation-the dirtiest sort. That is largely because of high gas prices; but the ETS has not been a countervailing force, chiefly because its time-horizons (2005-07, then 2008-12) are too short for companies to factor the cost of carbon into their investment plans.