February 17, 2012

IF YOU WANT TO MAKE IT MORE EXPENSIVE YOU HAVE TO TAX IT:

The EU's Emissions Trading System Isn't Working (Alexander Jung, 2/17/12, Der Spiegel)
  
In the perfect world of economic liberals, every commodity has its price. Limited supply makes goods more expensive and vice versa. That's how markets work -- at least in theory.

In practice, things often look different, and this is especially true when it comes to emissions trading, a business subject to a very different mechanism: laws dictated by the European Union.
Economists have generally praised the trading scheme as a nearly ideal instrument for reducing harmful carbon dioxide emissions. In this system, businesses purchase pollution permits, with prices determined according to supply and demand, in an efficient and self-regulating process. Companies that invest in environmentally friendly technology need to buy fewer certificates, or may even have some left over to sell.

But for the last half year, prices for CO2 certificates have dropped almost continuously, decreasing by about half, to around €8 ($10.60) per metric ton. Not even the closure of eight German nuclear power plants in 2011, and the resulting increase in demand for coal power, has done much to lastingly reverse the trend.

Michael Kröhnert, an emissions trader in Berlin, refers to the plunging prices as a slaughter. And he fully expects it to continue. "The spiral is spinning downward," he says.

Analysts at Swiss bank UBS even go so far as to warn that this creeping decline could escalate into a true crash. "The trading system isn't working," is their scathing conclusion. The emissions trading system, once so highly acclaimed, seems to be producing nothing more than hot air.

Posted by at February 17, 2012 6:54 AM
  

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