Reuters: Cap and Trade Worked in EU

21/02/2010 at 11:37 am Leave a comment

It’s official. The EU trading system got carbon emissions down. It’s one thing when renewable energy writers on blogs like this say cap and trade has transformed Europe.

We regularly cover the huge wind and solar industries created there – the results of Europe’s early adoption of the Kyoto Accord and subsequent EU Emissions Trading System (ETS) andEurope’s resulting 13% greenhouse gas reduction.  We have covered the indirect results before (like how the US now getshand-me-down clean energy technology from Europe).

But now it’s official. Cap and trade in Europe is a success. Reuters said it.

A study has found that although there were many problems in the first phase, they were overcome and did not hamper the scheme’s ultimate objective of reducing emissions. Cap and trade was not a failure, despite the problems.

Experts at French state bank Caisse des Depots, the Paris-Dauphine University, the Center for Energy and Environmental Policy Research in the United States and University College Dublin collaborated to evaluate the scheme’s trial period from 2005 to 2007.

The EU’s flagship carbon trading scheme requires companies to buy permits for every tonne of carbon they emit. Then carbon output is capped and the permitted level is lowered year by year. The fines and auction fees from the dirty energy fund the creation of clean energy as in a “feebate” system.

Problems with the first ever trading have included too low a price for carbon, fluctuating prices, recent thefts of allowances (that have possibly been retired from the market: slowing carbon emissions – but not through the legal channels), tax cheats, and so on.

Other problems turned out not to be problems: for example, giving away allowances (only 1% were auctioned initially) did not slow carbon reductions. Lack of enthusiasm (some nations like those recently emerging from the former USSR were notably uncommitted) did not slow carbon reductions.

When legislation first limited CO2 from fossil energy companies in the EU only 15% of the companies covered by the European Trading System took the future cost of carbon into account. A year later 65% were making their investment decisions based on having a carbon price. Cap and trade has not failed.

Source: REUTERS News

Entry filed under: Renewable Energy.

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