Europe’s Biggest Polluters See Windfall Profits From Carbon Trading

Will the US and the world learn from the mistakes of the European Emissions Trading Scheme, or will we just repeat them?

Carbon credit cap-and-trade market systems (which I wrote about in July’s Fast Company) have long been touted as the solution to efficiently reduce greenhouse gases. Yet four years after the EU unveiled its emissions trading scheme, the most polluting industries in the region have seen multibillions in windfall profits. Total reduction in emissions? Almost none.

Cap-and-trade worked well in the US for acid rain. The key problem with the European approach seems to be the decision to give out permits for free rather than auction them off. To simplify: Under an auction system, a coal-burning power plant would immediately have to buy the rights to emit each ton of CO2 equivalent; the money would go to the governments, like a tax. The market signal is swift and clear. Under the free-pass system, that same coal plant will get, well, a free pass to pollute the current amount. Reductions come only when companies decide to trade their permits.

Even worse news? Given the economic crisis, Europe agreed today to an even more weakened version of their plan, with even more free passes.

FT: “Under the accord, industrial sectors such as cement, chemicals and steel will receive free carbon emission permits at least up to 2020, instead of having to buy them under an auction scheme, as envisaged in a Commission plan published last January.”

Will the the Obama-led US have the cojones to learn from Europe’s bumbles  to draft stronger future climate accords? Well, the US is not exactly known for its resistance to corporate influence in politics.