martedì 23 marzo 2010

Finestra sul mondo: Forbes, E.U. Greenhouse Gas Plan - Better Than It Sounds

Un articolo apparso su Forbes semplicemente interessante sull'Emission Trading europeo. Per esportarlo negli States.

E.U. Greenhouse Gas Plan: Better Than It Sounds, Why the U.S. should consider a similar system.

A. Denny Ellerman

"Mark Twain once quipped, "If you listen closely, Wagner's music is not as bad as it sounds." The same can be said of the European Union's Emissions Trading Scheme to reduce greenhouse gases. It's better--and more straight-forward--than it sounds. And, for the U.S., a similar system would certainly be better than its alternatives.

For starters, let's consider those alternatives: a greenhouse gas tax or conventional regulation. Taxes are a political non-starter, and regulations are a legal nightmare for both the regulated and the regulator. Implementation is delayed for years by court challenges, and applying the regulatory mandate equitably to the varied circumstances of real businesses generates more legal tussles. It is hardly a quick or efficient way to cut emissions.

While the E.U. Emissions Trading Scheme has its problems, it has had a great deal more success than its alternatives. It not only reduced greenhouse gas emissions by 2% to 5% in its first three years, but it put an effective mechanism in place to more aggressively reduce emissions over time.

Of course, the European system has stirred up a lot of debate. Supporters claimed it would transform the economy, while critics argued it was overly complicated, would lead to windfall profits and possibly even wreck the economy.

On its face, the European system is simple enough--a set amount of permits, or allowances, for the emission of greenhouse gases are distributed for free to companies that are then required to surrender allowances equal to their CO2 emissions. The allowances are tradable so that companies with emissions greater or less than the permits received for free can buy or sell them at the market price (about U.S. $18/ton). If they emit CO2 without handing in the required allowances, then they must pay a fine of around U.S. $135/ton.

Yes, companies have made some "windfall" profits as a result of receiving allowances for free, instead of having to buy all of them at auction. However, this was the political price of adopting the system and this aspect of the European system is being phased out. The more important point is that CO2 emissions are now limited by a simple requirement backed up by a credible penalty. Moreover, companies have a lot of flexibility to adjust and innovate as they see best--something that conventional regulation doesn't allow.

As for the claims that the trading scheme might help or hurt the economy, it hasn't made much of an impact either way since it began in 2005. If you visited the E.U. prior to 2005 and again more recently, you wouldn't notice any difference. Life goes on as before even though CO2 emissions are lower than they would be without the new price on CO2. Companies haven't moved offshore to locations without carbon limits. In fact, a price on CO2 emissions within Europe has had less effect on European economic performance than dodgy mortgages in the U.S.

The changes attributable to the new price are imperceptible to most visitors. Half of the decrease in emissions can be attributed to electric utilities increasing their usage of natural gas plants over coal. Other reductions were caused by changes in industrial processes in plants that make materials like cement, iron and paper. Many of those companies chose to conduct low-level maintenance and implement energy conservation measures that are hard to track much less notice on an individual level. Electricity, cement, iron, paper and other products are being produced as before, but with fewer CO2 emissions.

Those considering a similar cap-and-trade system in the U.S. can learn a lot from the E.U.'s experiment. But the most important lesson is, to reprise Mark Twain, if you look closely at the European experience, it's not as bad as it sounds."

A. Denny Ellermanis a former senior lecturer at MIT's Sloan School of Management and coauthor of the book, Pricing Carbon, which was published in March and analyzes the E.U. Trading Scheme.

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