Cap Trade Programs Ineffective As Emissions Shift To Emerging Markets
Sober Look | Dec 10, 2012 01:15AM ET
One of the reasons for the failure of the so-called "cap and trade" program in the US (other than political), has to do with the fact that carbon emissions have declined on their own - without any caps. And why would a company pay for an emissions "allowance" if it can stay under the cap without it? Of course, politically it made no sense to force companies to pay at the time when they were emitting materially less carbon on their own.
Furthermore, there was no incentive for investors to hold these contracts because each year the long-term projections for carbon emissions in the US have declined. Carbon emissions in 2040 US are now projected by the EIA to be below that of 2005.
The sharp declines first took place during the financial crisis, as companies simply produced less and therefore emitted less. Two major factors driving lower emission projections have to do with slower economic growth and increasing usage of natural gas. Other factors are at play as well.
EIA: From 2009 to 2013, key changes in the AEO include:
- "Downward revisions in the economic growth outlook, which dampens energy demand growth
- Lower transportation sector consumption of conventional fuels based on updated fuel economy standards, increased penetration of alternative fuels, and more modest growth in light-duty vehicle miles traveled
- Generally higher energy prices, with the notable exception of natural gas, where recent and projected prices reflect the development of shale gas resources
- Slower growth in electricity demand and increased use of low-carbon fuels for generation
- Increased use of natural gas"
And once "cap and trade" became known as a "tax scheme," while some see discussion ).
Even in Europe, where "cap and trade" has been in place for some time, carbon allowance contracts aren't doing much better. Europe's economic growth prospects are worse than those of the US, resulting in lower emissions. The ECX CER unit now trades below €1.
There has been talk of bringing the program back and some projects in North America (Québec and California for example) have been implemented on a small scale (these are mostly symbolic in nature.) It is certainly positive that the US and Europe emit far less carbon than expected. But the saddest part of this story however is in the bigger picture.
Get The News You Want
Both the US and Europe have effectively "exported" a great deal of their carbon-heavy industries to emerging nations, particularly to China. However countries like China are actually far less "carbon efficient" than factories in the developed world. Making a gadget in China pumps much more carbon into the atmosphere than producing the same gadget in Europe.
Therefore, global emissions increased even as the developed world cut them. And unfortunately carbon is one of those global pollutants - it makes no difference where it is produced, the impact is world-wide. Which means that even if the US had a full fledged "cap and trade" program, the impact on total carbon in the atmosphere would not be dramatically different without the commitment from emerging markets nations.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.