30 September 2008

Carbon Trading (or not)

The Germans have thrown a big spanner in the EU's carbon trading scheme by asking that free permits be given to "key" industries. (Permits used to be free; governments are planning to auction future permits.) Other EU countries have rushed to ask for their share of free.

Meanwhile, Australia will push ahead on cap and trade, and ten North-eastern states have started to auction carbon permits. Although oversupply has meant low prices, the principle of paying to emit carbon (and system to allocate permits) has been established. Permits sold for $3.07/ton at their first auction [PDF].

Although the developed world is responsible for most emissions, the developing world is going to suffer from them. Bangladesh has announced its plan to cope, which is about 95% short of where they need to be. Read this Economist article on other efforts to adapt to change that's already happening. It may be a good idea to funnel money from all these carbon permit sales (or -- better yet -- a carbon tax [many prior posts]) to those countries too poor to adapt to the harm richer countries are inflicting on them. (Read this post on why China and the US have opposite positions on the distribution of these funds.)

Bottom Line: A variety of responses (and counter-responses) to carbon trading regimes reflects their growing importance. It also makes it clear that global cooperation on carbon emissions is going to be necessary and will be tough.

Addendum: Belgium has bought 2 million tons of emissions permits from Hungary. Price undisclosed.

2 comments:

dWj said...

The German government is presumably welcome to give money to whomever it wants; I don't see why that should have to involve the emissions permit auctions.

David Zetland said...

Here's how we could agree. Auction the permits and then subsidize any company you want. Behavior on the margin (pollution) would fall, and the companies would not suffer 9too much). (This is how I look at water pricing too, e.g., http://tinyurl.com/6ah7dl.) The problem with "free permits" is that the price of pollution is zero.