01 July, 2009

Lessons from EU cap and trade

Brad Plumer has a nice short article on the lessons of the EU's cap and trade program, which was initiated in 2005. His bottom line:

The EU cap-and-trade system suffered a slew of early mishaps, but the United States has been watching and learning, and we should be able to avoid most of those fumbles. What's more, now that the problems have been ironed out, Europe's cap genuinely appears to be working, spurring companies to become more energy-efficient and making meaningful cuts in emissions. That said, the China factor is still huge: Europe obviously can't stop global warming all by itself, and there's no substitute for an international treaty.

As Plumer mentions, Europe's Emissions Trading System started out with many of the flaws that Spencer decried in the Waxman-Markey bill - most notably, giving away the permits rather than auctioning them in a misguided attempt to pass savings on to the consumer. Instead, massive rent-seeking ensued, with polluters raising prices and in some cases actually increasing emissions.

But, after that initial period, the ETS began auctioning permits and setting stricter caps, and emissions have fallen sharply (although some of that drop comes due to outsourcing...underlining the international nature of the problem). So, good news/bad news: the bad news is that Waxman-Markey, which seems to me by far the most ambitious bill that could possibly pass Congress (and it still might well not), contains most of these misteps and then some. Good news is that the EU was able to change course and turn an intially useless trading system into one that has already reduced emissions to 5% below 1990 levels. So, if seen as an endpoint in itself, based on the experience of the EU, we already know that Waxman-Markey will be almost useless. But seen as a framework that we can lock in now, and upon which to more easily drap future policy decisions, it will provide real value.

1 comment:

912 Colorado SouthEast said...

If you actually do your research, you'll see that the program in the EU actually INCREASED emissions by 5%, caused wealth distribution, loss of jobs to China, and factories have to shut down for entire days due to cost of energy.
Yep, good critical thinking here.