If you’ve been breathing a bit easier of late, there may be a reason: carbon dioxide emissions covered by the European Union’s cap-and-trade system fell a remarkable 11 per cent last year, according to preliminary data released by the European Commission. That is the biggest one-year fall since the emissions trading system began five years ago.
Unfortunately, the drop was not owing to the sort of forward-looking, green technology investments so frequently touted by Commission president José Manuel Barroso. Instead it was an unintended gift from the worst economic crisis since the Depression, which has slowed industrial activity. In weight loss terms, this is a bit like shedding 5 kilos through the accident of a stomach flu as opposed to the sustained virtue of diet and exercise.
The new data are creating much hand-wringing about the functioning of the Emissions Trading System. Because of the slowdown, the cement, steel, chemicals and other heavy industries that are the scourge of environmentalists will now be left with millions of euros worth of surplus carbon allowances, which they can sell for cash or save for future years.
Not a bad deal for industrial companies, since many received their allowances for free from their national governments in the first place. This is particularly ironic since these companies mounted aggressive lobbying campaigns against the ETS, complaining that it would unfairly punish them. It is now showering them with windfall profits. More troubling than the pollution subsidy is the fact that the ready availability of allowances is keeping the price of carbon well below levels needed to stir investment in all the windmills, solar panels and carbon capture facilities that policymakers envisioned.
All of these concerns are valid. But they miss the larger point: the end goal of the ETS is not to make carbon more expensive for its own sake, but to reduce its levels in the atmosphere. Surely emissions levels will pick up when the economy recovers, and carbon prices will climb alongside them. Assuming policymakers do not bow to industry lobbying and loosen the overall cap, then allowances will steadily become scarcer and we will all have another opportunity to see the ETS function as intended. But in the meantime, the earth is probably just happy that emissions are falling. We should be too.
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