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After speaking with some erstwhile skeptics of adopting the environmentalists’ agenda it appears that it is quite important that education of policymakers improve regarding the Europe’s actual experience with Kyoto-style global warming regulation. I say this finally after sitting in on a meeting between a European lawmaker and a pivotal congressional leader on the matter. This involved an individual bringing a message of the EU experience that the U.S. lawmaker quite plainly did not wish to hear. Further, the latter’s deflections of the European’s message were verbatim what, e.g., Greenpeace says publicly: “it’s just too early to state that the EU Emissions Trading Scheme has been unsuccessful.”

Indeed, (now paraphrasing), “the ETS’s problems were an expected result of a ‘learning-by-doing’ exercise which – in addition to it being too immature to declare as not having worked – will have its problems fixed, and the U.S. will also avoid with its own very clever cap-and-trade scheme.”

Here are some key truths, therefore, for anyone interested in and involved with this debate:

The EU did not expect, but was in fact deeply surprised by, the ETS’s problems. Neither have they figured out how to fix these problems. This is largely because the pitfalls are inherent to such an effort to apply the gentle ministrations of bureaucrats to rationing not a pollutant, like sulphur dioxide from 400 facilities, but to the most ubiquitous, intended product of industrial society (the more efficiently one combusts hydrocarbons, the more CO2 one produces).

Here’s what Europe has identified so far as tweaks of two self-inflicted wounds, that it will attempt to correct and which U.S. policymakers tout the U.S. will avoid (though congressional proposals to date belie that claim):

- governments over-allocated quotas such that more were given out (for free, which is Point 2) than emissions that are actually expected, and

- they will auction some percentage of the quotas as opposed to giving them all away for free.

First, no one seriously suggests that avoiding these two pitfalls will avert the problems inherent in trying to ration CO2. Second, no one – either in Europe or the U.S. – has manifested anything close to the political will needed to require covered industry to buy any appreciable portion of their quotas instead; industry is pressuring lawmakers already skittish about transparently increasing consumers’ costs into promoting schemes that allow covered parties to sell or write down assets that the state gave them for free (hence the furor over “windfall profits” for EU utilities arising from the ETS). Europe was allowed to auction a small percentage the first time around, too…some tried to make that happen; all failed.

About this canard that it is too early to tell if the ETS has succeeded, let us admit for these purposes that if EU emissions had gone down over the three-year period for which there has been an ETS, as opposed to up, there is no doubt we would hear of its rousing success. Instead, EU economy-wide and, critically, ETS-covered sector emissions have gone up over that period, and much faster than U.S. emissions. Further, there has been a price spike on an order of several magnitudes of what EUrocrats promised would result, and a market collapse when the predictions of gaming the system proved true (with a swing from about €33 to €0.20).

There are two obvious benchmarks by which to gauge the ETS’s success, and both of them leave one wondering, if this isn’t failure, what would be?

First, compare what the EUrocrats promised vs. what came true: they promised that emissions would be down — they’re up; they promised that emissions would be dropping — they’re rising; they promised the price wouldn’t go above about 5 euros…see above. One Eurocrat, Environment Commissioner Stavros Dimas, even had the temerity to claim that because the EU promised the price would never go high as it did, the collapse didn’t really occur (!).

Second, although Brussels doesn’t possess “competence” to tax, it is trying to find a way to impose a pan-European Kyoto tax (because leaving it to the member states means that select actors, if any, would find themselves having committed to something that most others ultimately hedged on). The simple reason for this is that not only did ETS not deliver but they can see it will not. To paraphrase Churchill, you were given a choice between taxation and cap-and-trade; you chose cap-and-trade, and now you shall have taxation. Expect the same here.

Again, other than that, Mrs. Lincoln, is this not a spectacular success?

t would be very useful for some European(s) to begin wondering aloud if Congress would share with Europe their magic insight to fix/avoid ETS’s many, expensive problems, since Europe has no idea but only throws out superficialities like “won’t give all quotas away” and “won’t overallocate”. Here’s one: they won’t succeed.



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