Monday, February 23, 2009

Price of polluting falls

Due to a decline in demand:
A year ago European governments allocated a limited number of carbon emission permits to their big polluters. Businesses that reduce pollution are allowed to sell spare permits to ones that need more. As demand outstrips this capped supply, and the price of permits rises, an incentive grows to invest in green energy. Why buy costly permits to keep a coal plant running when you can put the cash into clean power instead?

All this only works as the carbon price lifts. As with 1924 Ch√Ęteau Lafite or Damian Hirst's diamond skulls, scarcity and speculation create the value. If permits are cheap, and everyone has lots, the green incentive crashes into reverse. As recession slashes output, companies pile up permits they don't need and sell them on. The price falls, and anyone who wants to pollute can afford to do so. The result is a system that does nothing at all for climate change but a lot for the bottom lines of mega-polluters such as the steelmaker Corus: industrial assistance in camouflage.

1 comment:

  1. Yes, I've been living this for the past 2 years. In the EU ETS (Emissions Trading System) supply is fixed by regulators (UN) and demand moves according to industrial output. Its a system that requires regulators to be dynamic and flexible, two characteristics of government for which we have few examples.