So the EU’s Emissions Trading Scheme is two years old. How’s it doing?

As US states mull setting up their own market to trade in carbon dioxide (CO2) emissions, they are casting a worried eye on the almighty crash in the European Union’s Emissions Trading System, the first and so far only significant market in carbon.

A year ago, CO2 was changing hands in the ETS at 30 euros (HK$304.30) a tonne, triple that at the market’s launch in January 2005.

Today, a tonne of CO2 can be bought for little more than one euro.

That’s the trouble with this market — if the price is high, emissions reduce, but customers face the squeeze and the carbon companies grow rich (as explained here by Fred Smith), but if the price is low, nothing much happens.

A far better way to reduce emissions would be by means of a carbon tax. The fact that so few people are talking about that — even in tax-happy Europe — speaks volumes about the seriousness of the issue.