“Europe’s Emissions Plan Hits Turbulence” – Wall Street Journal, 20 February 2013

We recently wrote about the EU Emissions Trading System (ETS), Europe’s method of curbing carbon emissions, and how the American government prohibited American airlines from participating in the system. Now, with the economy a main priority for Europe, it seems that the Emissions Trading System is not faring so well in its home continent.

The cost of pollution has declined drastically, due to an excess of emissions permits in the European carbon-trading market, and a decreasing need for electricity during Europe’s economic crisis. Currently, the cost of emitting carbon dioxide is almost 5 Euros, or $6.68, a ton, a third of what it cost 18 months ago. Many countries, such as the Czech Republic, Germany and Poland, were set to phase out coal-burning power plants, but are rethinking.

In order to prevent prices from plummeting even further, the European Parliament has decided to withhold 900 million new emissions allowances for another five years. One allowance, which is another term for a permit, gives the owner the ability to emit one ton of carbon dioxide. Yet, permit prices have still fallen.

Though ETS mollifies environmental worries, it is only putting more pressure on a struggling economy. The goal of ETS is to reduce emission rates by making it expensive to pollute, and obligating companies to purchase emissions permits. The EU’s goal is to decrease emissions by 20% by 2020. This has sparked an argument between those who want Europe’s economy to grow, and those who want the EU to keep working on global warming concerns. The EU put it to a vote, and voted to continue ETS — not much else has been decided.

California, which had its first emission allowances auction last year, set its average auction price at $10.09 per ton, just a little more than the $10 minimum. California’s minimum price will increase 5% per year — in 2013, the minimum price will be $10.71. The EU could also implement a similar approach of instituting a minimum price for permits. Such a move could deter another crash.

Balancing today’s needs, which result from bolstering world economic crises with long-term perspective, and global cooperation required for solving climate change, always has been and will remain challenging.

Developed and Written by Dr. Subodh Das and Tara Mahadevan

March 7, 2013

Phinix LLC

Copyright 2013. All rights Reserved by Phinix, LLC.

www.phinix.net    skdas@phinix.net

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