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Europe’s carbon market limps on

February 21, 2013

Europe’s carbon market limps on

The European Union’s falling carbon market has been thrown a lifeline by the European Parliament’s Environment Committee. It has backed the Commission’s plan to prop up the price of a tonne of carbon by withdrawing an oversupply of credits from the market.

Carbon trading is one of the major EU policies designed to combat climate change. But a combination of successful lobbying by industry bodies, political influences and lack of economic growth has brought the scheme close to collapse, so that it is now cheaper to pollute the atmosphere than to invest in becoming energy-efficient.

The original idea of the EU emissions trading system (ETS) was to set a maximum cap on carbon emissions from each factory or power station. This would force industry to become more efficient or to pay a high price for every extra tonne of carbon over the limit. Industries would gain credits for reducing their emissions below the set limit and then sell them on the open market to polluters who had failed to act. The whole system depended on the price of the units of carbon being high enough to give polluters an incentive to reduce their emissions.

With a gradually sliding price for carbon because industry had no trouble meeting its unrealistically low targets on energy efficiency, this lead to a vast surplus of carbon credits and few needing to buy them. As a result, the price of carbon fell from 30 euros a tonne in 2008 to under five this year. This left no incentive for industry to reduce its emissions ? it was cheaper and easier to buy cheap carbon credits.

The committee devised a system to withdraw credits from the market, reducing the surplus, and then to reintroduce them gradually at a later date, maintain the pressure on industry to become more energy-efficient. Negotiations between all the parties involved are under way to see exactly how the plan would work to raise the price without damaging the industry.

Read more at Climate News Network.

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