Samplings: September 2007

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©iStockphoto.com/Hans F. Meier

The European Union’s “cap-and-trade” system for regulating carbon dioxide (CO₂) emissions is being hailed as an important first step in addressing global warming. Beginning in 2005, the twenty-five (now twenty-seven) EU countries have each been assigned an annual CO₂ quota, a maximum allowable amount of CO₂ emissions, which the countries then apportion among various large industrial emitters. If one company needs to exceed its allowance, it can buy unused allowances from another. The market for allowances effectively puts a price on CO₂ emissions. A. Denny Ellerman of M.I.T. coordinated a symposium of papers to examine how well the system—called the Emissions Trading Scheme—is working. In 2005, nineteen of the participating countries released less CO₂ than their quotas allowed. Overgenerous allowances, now slated for reduction, may account for some of that success. But the high cost of over-emitting probably helped too. In the first year of trading, emissions allowances sold for as much as U.S. $33 a ton and about $19 billion in allowances have been traded to date. Furthermore, analysts estimate, under the cap-and-trade system the EU pumped about 4 percent less CO₂ into the atmosphere than it otherwise would have. Why do countries adhere to a scheme that forces their industries to pay if they’re not green? In Europe, having a green conscience and securing the full economic benefits of EU membership seem incentive enough. The trick will be to make something similar work on a global scale. (Review of Environmental Economics and Policy)

Link: Symposium article abstracts (free) and full texts (pay per view) from Oxford University Press