On Cap and Trade, Senators Advised to Learn from ‘Europe’s Dirty Secret’

A contribution from Peyton Knight:

As the U.S. Senate Environment and Public Works Committee prepares to vote this week on the Lieberman/Warner global warming bill (S. 2191), which would strap the U.S. with mandatory carbon dioxide restrictions and establish a cap-and-trade system whereby industries could buy and sell so-called emissions credits, Senators are advised to examine Europe’s failure with a similar system, lest they follow in kind.

Today on Capitol Hill, the Competitive Enterprise Institute hosted a briefing with Neil O’Brien, director of Open Europe, an independent think tank based in London.

According to O’Brien, some U.S. policymakers have not learned the lessons from Europe’s failed Emissions Trading Scheme (ETS) – despite their claims to the contrary.

O’Brien noted that Europe’s market for emissions credits has effectively collapsed. “It’s a Soviet-style system,” he said, “that is open to all kinds of abuses.” He explained that big energy companies, industries and special interests have made windfall profits selling excess emissions credits. Meanwhile, in the first year of the ETS (2005-2006) emissions rose 3.6 percent in the United Kingdom and rose 0.8 percent across the European Union as a whole.

O’Brien also warned that the way the Lieberman/Warner bill distributes emissions credits – namely, giving a good portion of them away – makes it more likely that the bill will resemble a pork-barrel boondoggle along the lines of current U.S. agriculture spending bills, or worse, Europe’s ETS. Because of this, O’Brien said he does not get a sense that U.S. lawmakers understand “the disaster they’re signing on for.”

Although the EU is trying to mend its ETS, claiming to have learned its lessons, O’Brien and Open Europe still see future failure. In order for the ETS to work, he says, there must be a good degree of certainty in the long-term cost of carbon. Without that certainty, companies will not invest in the system. In the initial phase of the ETS, the EU put way too many emissions credits into the system – hence the collapse of the market and the rise of emissions. However, “fixing” this by allowing fewer credits in the future, or adjusting the amount of carbon dioxide that companies are allowed to emit, would only contribute to the underlying problem of uncertainty, O’Brien said.

Click here to download Open Europe’s recent report: “Europe’s Dirty Secret: Why the EU Emissions Trading Scheme Isn’t Working.”

To contact author Peyton Knight directly,
write him at [email protected]

Cap and trade appears to be the granddaddy of all corporate welfare schemes. No wonder some in Big Business (and Big Green) are all for it.

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