This new political geography has been obvious ever since the Copenhagen talks collapsed in 2009, but last week the speed with which ground is being lost became sickeningly obvious. The European parliament refused to back a stop-gap measure to save the European carbon emissions trading scheme. This allows EU companies economising on carbon to sell an allowance to those who are less efficient.
The theory is that the higher the price, the greater the incentive to economise on carbon use and the greater the value in being carbon efficient. But overloaded with sellers and too few buyers, because policing the use of carbon is completely ineffective, the European carbon price has collapsed. The European Commission proposed to clear away the backlog of sellers with a one-off buyout of the overhang of carbon permits and so support the price, but parliament was not prepared to back the cost. The scheme is as good as dead.
No, that\’s not the way a cap and trade system works. The emissions are limited by the cap. The price is telling us how difficult it is to stay under the cap. Thus, of course, low prices for permits are a good idea. It shows that it is easier than we thought to reduce emissions. Hurrah!
Hutton\’s claim is that the carbon reduction scheme is doomed because it is easier to reduce emissions than we thought it would be. Which is a slightly strange position to take, no?