Problems With European Emissions Trading Scheme

The British climate change campaigners, Sandbag, released a report yesterday critical of the European cap-and-trade scheme.

The problem is relatively straightforward: too many emissions permits were allocated during the early phase of the scheme.  A surplus of permits, coupled with the global recession, the ability to hoard permits for future years, and the ability for European polluters to fulfill obligations by purchasing cheap offsets in the developing world, has Sandbag speculating that many big emitters won’t actually be forced to reduce their own emissions until 2015.

The Sandbag report hasn’t dissuaded the British government from continuing to support cap-and-trade.  Just yesterday, Labour MP Mark Lazarowicz released a report calling for expanding the cap-and-trade model globally.

In the US, I won’t be surprised to see climate skeptics reference the Sandbag report as the US Senate starts to debate its own cap-and-trade bill in the next few weeks.  The problem, however, isn’t so much that there is an inherent problem with a cap-and-trade–rather, as the Sandbag report discloses, the problem is in not having a serious emissions cap and relying upon too many loopholes that can militate against significant reductions.

Unfortunately the House version of the cap-and-trade bill is chock full of these loopholes–the most egregious being that most of the permits will be given away to polluters, thus reducing the incentives for action.  Given the fact that the Senate requires 60 votes to defeat a filibuster, it is likely that any legislation they pass will be even MORE watered-down than Waxman-Markey.  Such a scenario does not bode well for the effectiveness of cap-and-trade.