03/28/2024

Carbon Trading: ETS, RIP?

THE world’s largest carbon market has been holed below the water line. On April 16th the European Parliament voted to reject an attempt to bolster Europe’s flagship environmental programme, the Emissions Trading System (ETS). Carbon prices, already low, plunged. The emerging network of global carbon trading and European climate policy as a whole could sink.

The ETS has long been a mess. It is a cap-and-trade scheme in which permits to emit carbon—about 16 billion tonnes-worth in 2013-20, or roughly half the European Union’s total carbon emissions—are allocated to firms and can then be traded between them. Partly because recession has reduced industrial demand for the permits, and partly because the EU gave away too many allowances in the first place, there is massive overcapacity in the carbon market. The surplus is 1.5 billion-2 billion tonnes, or about a year’s emissions. Prices had already fallen from €20 ($30) a tonne in 2011 to €5 a tonne in early 2013.

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