The Burst of the Carbon Cap-and-Trade Bubble

Via Hot Air and The Guardian.

The recession has thrashed the European carbon emissions “market”. Power production is down, thus not as many emissions are being produced, thus the demand for emissions “forgiveness” has plummeted.

From the Guardian:

Image via Wikipedia

A year ago European governments allocated a limited number of carbon emission permits to their big polluters. Businesses that reduce pollution are allowed to sell spare permits to ones that need more. As demand outstrips this capped supply, and the price of permits rises, an incentive grows to invest in green energy. Why buy costly permits to keep a coal plant running when you can put the cash into clean power instead?

All this only works as the carbon price lifts. As with 1924 Château Lafite or Damian Hirst’s diamond skulls, scarcity and speculation create the value. If permits are cheap, and everyone has lots, the green incentive crashes into reverse. As recession slashes output, companies pile up permits they don’t need and sell them on. The price falls, and anyone who wants to pollute can afford to do so. The result is a system that does nothing at all for climate change but a lot for the bottom lines of mega-polluters such as the steelmaker Corus: industrial assistance in camouflage.

From Hot Air:

Now, of course, Europe has all sorts of excess capacity in energy production thanks to the economic downturn of the past few months.  The cap-and-trade system essentially subsidizes non-production, and the energy producers have cashed in.  Only now, those credits aren’t worth warm spit, because no one else is ready to start producing enough to worry about exceeding carbon caps.  It’s a perfectly-formed system for failure; no one would part with the credits in boom times, and no one will buy them in a bust.

Sounds like something we ought to do here. Not.

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