The failure of the EU carbon trading scheme


Richard Moore

Carbon Emissionaries

In 2005, the European Union (EU) put into place a carbon trading scheme. Prices for carbon permits promptly plunged, and have remained depressed since then. The price for a permit to emit a tonne of CO2 went from 21.59 Euros in 2005, to 17.28 in 2006, to 0.68 in 2007, to 2.16 in 2008, to 13.03 in 2009. Today, however, you will be glad to know that some academics declared the scheme a resounding success …

Say what? Here’s what Reuters News Service had to say:

(Reuters) – The European Union’s Emissions Trading Scheme (EU ETS) is a success and its flaws have not harmed its basic aim of reducing carbon dioxide emissions, multi-national research showed on Friday.

Experts at French state bank Caisse des Depots, the Paris-Dauphine University, the Center for Energy and Environmental Policy Research in the United States and University College Dublin collaborated to evaluate the scheme’s trial period, which has widely been viewed as a failure.

The EU’s flagship carbon trading scheme requires companies to buy permits for each tonne of carbon they emit. Carbon output is capped and the level is lowered year by year.

The scheme’s first trading phase ran from 2005 to 2007. Installations in the 27-nation bloc were over-allocated with carbon permits and the carbon price fell to zero.

The research concluded that although there were many problems in the first phase, they were overcome and did not hamper the scheme’s ultimate objective of reducing emissions. …  SOURCE

Now, as some of you might have noticed, I’m a suspicious fellow and I like to run the numbers myself. So, what numbers should we be looking at here?

After some thought, I decided that I would look at the change from the four years prior to the institution of the carbon trading scheme (2001 through 2004), to the first four years of the scheme (2005 through 2008). [Figures for 2009 are not yet available] That would let me see if things improved or got worse.

The most logical measures to look at, it seemed to me, were per capita fuel use and CO2 emissions . (Excel spreadsheet) Using per capita figures removes the effects of population changes .  If we just looked at fuel use, for example, a population increase would affect the fuel use. I didn’t want to be measuring the effect of population changes, so I used per capita figures.

Using those measures, I decided to compare the EU with the US. Their economies are of a comparable size and development. Since the US is the global CO2 pariah, and has no carbon trading scheme, that would give me a good baseline to compare with the EU performance.

Without further prologue, here are my results:

Figure 1. Percentage change from the period before the EU carbon trading scheme (average 2001-2004) to the period after the carbon trading scheme (average 2005-2008). All measurements are per capita.

By every single measure, the US has outperformed the EU. And the most telling point is that per capita, EU carbon dioxide emissions have increased since 2005 when the scheme started, while US carbon dioxide emissions have decreased. For a scheme designed to reduce emissions, that’s not good news.

The US did better by every measure than the EU, and did it without any restriction on carbon. Now perhaps some folks in a think-tank somewhere call that a whacking great success for the trading scheme … but not on my planet. Call me crazy, but my conclusion is that the EU carbon trading scheme was a failure.