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Europe’s Carbon Trading Market is Not Robust

Jim Kirk argues in the August 13th New York Times that since Congress is not moving forward with cap and trade legislation, the Chicago Climate Exchange, the nation’s only buyer and seller of carbon credits, is suffering. Kirk says, “Although carbon trading is robust in Europe, Intercontinental Exchange, the owner of the Chicago Climate Exchange, painted a gloomy outlook for a robust cap-and-trade market in the United States.”

While is true absent a cap and trade policy, the future of the Chicago Climate Change is gloomy, Kirk is simply wrong to say that carbon trading is robust in Europe. In general, the ebbs and flows of the global market are causing a number of hiccups in the EU’s carbon trading plan. As a result of permit prices falling, electricity prices are up and carbon reduction is negligible. This article from The Guardian describes the collapsing carbon market in Europe:

“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-[emitters]such as the steelmaker Corus: industrial assistance in camouflage. A lot of the blame lies with governments that signed up to carbon trading as a neat idea, but then indulged [emitters]with luxurious quantities of permits. The excuse was that growth would soon see them bumping against the ceiling.

Instead, exchanges are in meltdown: a tonne of carbon has dropped to about €8 ($10.16), down from last year’s summer peak of €31 ($39.35) and far below the €30-€45 ($38.08-$57.13) range at which renewables can compete with fossil fuels.”

More specifically, in 2007 the banking company HSBC created a Global Climate Change Benchmark Index and had four climate change indices, two of which include a Climate Change Index and a HSBC Low Carbon Energy Production Index (including: solar, wind, biofuels, geothermal). Just this March, HSBC “removed two companies involved in carbon trading from its Climate Change Index on Monday because they had lost too much value.” The international climate change summit in Copenhagen last December was a failure, both procedurally and in its attempts to create a treaty, and as a result, carbon prices fell dramatically on the European Climate Exchange in London. Europe’s carbon trading market is anything but robust.