Sunday, November 26, 2006

Trading taken too far?

This site is wholly in favour of the EU emissions trading scheme whereby major emitters of carbon dioxide in Europe are forced to participate in a cap and trade scheme. Although the scheme has not succeeded in reducing carbon emissions by much this is purely due to the overly generous allowances. The Observer reports that the EU is soon to announce the allocations for Phase II of the scheme and hopefully these will be less liberal.

One suggestion being considered by the EU is that each individual road user be given an allocation of carbon permits. I find this quite extraordinary: why should road users be handed a further subsidy? Presumably carbon allowances will not be given out to those who do not own a vehicle. In addition, what are the transactions costs of the scheme and wouldn't it be simpler to adjust national fuel taxes for the same purpose? If anyone should be included in the scheme it should be the petrol retailers and not motorists. The effect will be the same because they will immediately pass on the cost to individual road users. But in this way road users avoid becoming involved in two transactions, one for the petrol and one for the carbon.

This week the EU will reveal allocations for the next phase of the Europe-wide greenhouse gas emissions trading, a market worth ¤12bn (£8.1bn) and covering 11,000 installations throughout Europe. It is determined to issue less generous allocations to countries after criticism that the scheme was failing to achieve its target.

The EU is keen to include airlines in the scheme but does not want to put them at a commercial disadvantage with US carriers, which received huge federal subsidies after the 9/11 terrorist attacks.

The Commission is considering bringing individual car drivers into the scheme, giving people a personal carbon allowance to buy or sell. It also wants to take forward a ¤2.5bn European Institute to partner universities and private sector firms exploring new, clean technologies.

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