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The cautionary tale of the EU carbon market

Questioning the present and future of carbon pricing


 

The European Union’s carbon market is in shambles. Bryan Walsh considers what went wrong and what it means.

Backloading failed because even in very green Europe, economic concerns seemed to trump environmental ones. European Parliamentary members worried that any action that would cause the price of carbon to rise would add to European industry’s already high energy costs. Europe, unlike the U.S., doesn’t have relatively cheap, relatively clean natural gas to help cushion that blow. At the same time, European nations like Germany are rethinking some of their renewable energy policies, concerned by the rising cost of electricity. It looks like a textbook example of what Roger Pielke Jr. calls the “iron law of climate policy“: when climate policy starts to hurt economically, even the greenest states start to back away.

It’s possible that backloading may get a second chance before the European Parliament, and even without a viable carbon market, Europe is still the global leader in climate action. Nor is the ETS the only game in town. California launched its own cap-and-trade system this year—though that’s come under political pressure as well—and Australia has introduced a price on carbon. China may do so as well. But the hope that we may be able to reduce carbon emissions the same way we cut pollutants like sulfur dioxide and nitrous oxide—through a well-run cap-and-trade —seems to be dimming, a victim of its own complexity and a sluggish global economy. That might leave the door open for other policies, including a straight carbon tax, more support for renewables or increases R&D funding for carbon-free power. We could use all three, but carbon markets may be finished. If carbon trading can’t make it in Europe, it can’t make it anywhere.

China is apparently undeterred.

The developments in Europe might be interpreted in one of two ways: either it is evidence that carbon markets won’t work or it puts the onus on those who propose carbon markets to explain how their proposal accounts for the shortcomings of the European system.

There is, it seems to me, another looming issue, another one which the NDP will have to account for. Let’s say that, by 2015, British Columbia has expanded its carbon tax (as the BC NDP currently proposes), Alberta has increased its carbon tax (as the Progressive Conservative government there seems to be considering), Quebec has a cap-and-trade system linked with California (as both jurisdictions are moving towards) and, say, one other province has implemented a carbon-pricing mechanism of some kind (Manitoba? Ontario? Newfoundland?). How then does the NDP reconcile its proposal for a national cap-and-trade system with all of that? What do the Liberals—Mr. Trudeau having offered vague support for a price on carbon—propose? Do we end up with a number of different approaches—carbon taxes, carbon markets and regulatory regimes—functioning within the country? Does that make sense? Is it feasible or political possible to build a national carbon-pricing mechanism, or at least a national approach that takes into account provincial jurisdiction?

Jean Charest thinks the country is headed towards a carbon tax. Somewhere Stephane Dion is either nodding grimly or screaming.

Update 4:19pm. Further to this post, I sent along a question to the NDP side: How would an NDP government reconcile a national cap-and-trade system with provincial jurisdictions that already have carbon-pricing mechanisms? The response from Thomas Mulcair’s office is as follows.

We will deal with this as we’ll deal with every other issues of shared responsibility: by cooperation.

I’ve asked a few smart people if they have any thoughts on the way forward and hope to post those in the next while.


 

The cautionary tale of the EU carbon market

  1. Dilemma for Mr.Trudeau: to tax carbon or not to tax carbon.

    Mr.Trudeau will need to get his votes from somewhere if he is to fulfill the notion of a Liberal majority government come 2015.

    If he wants to collect more Quebec votes, he will want to introduce a carbon tax. But since the NDP already announced to implement a tax on carbon, Trudeau will then have to compete for the Quebec vote with the NDP. And because a tax on carbon will not be popular in western Canada, Mr.Trudeau will certainly not gain votes there if he introduces a tax on carbon.

    Mr.Trudeau will have to garner votes from somewhere in the country if he is to become our next PM. The west, even without an introduction of a carbon tax, is not likely to vote for Trudeau en masse.

    So, what is Mr.Trudeau to do? Not much is clear on that front, and I think the Liberals are well aware of that fact.

    The polls may indicate that Mr.Trudeau will easily win a majority come next election, but where will he get the seats to make it count? And what will he do about a tax on carbon??

  2. Yep, electricity costs rise. Probably here, they would rise until hydro lines are built from BC, MB, Que, Labrador, and Ont, at which point they would fall again.

  3. The problems in the European carbon market have been clear for years already, and some of us have been telling you about it for several years already.

    Yet, Mr. Wherry wasn’t receptive to evidence-based decision-making about how existing carbon markets were fatally flawed. Mr. Wherry was only interested in evidence-based policies which agreed with his rigid ideological positions.

    But the failures of carbon trading are becoming so well understood now, that even Mr. Wherry can no longer pump his carbon trading fantasies.

    Obama blue state thermal coal trains of death are all not only shipping record amounts of coal to Asia, but record amounts of coal to Europe.

    Carbon trade that! -).

    • You nailed it. Those who claim to worship at the alter of “evidence-based decision-making” are always the first to disregard any evidence that doesn’t suit their pre-determined decision, especially amongst the Global Warming cultists.

  4. Glo-Bull Warming is the biggest fraud ever perpetrated in human history.

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