In theory, a U.S. Federal Cap-and-Trade System provides market incentives to lower our nations’s carbon emissions. That is why the U.S. Senate Environment and Public Works Committee is seriously considering adopting the Warner-Lieberman Bill this week (albeit with currently over 150 amendments). But the E.U. experience with a Cap-and-Trade market shows that carbon emissions have increased under this policy. The author of a recent report, “Europe’s Dirty Little Secret; Why the E.U. Emissions Trading Scheme Isn’t Working,” is interviewed on E&E’s OnPoint today. Neil O’Brien says that a fluctuating carbon value may be less effective in mitigating carbon output than a straight carbon-tax and additional incentives for the adoption of eco-efficient technology. Watch the video here.
A Cap-and-Trade system is attractive because it appears to be less “punitive” than a carbon tax and more “responsive” to market changes. In Europe, the reality is that this flexibility has actually led to a steady decline in carbon value. As a result, there has been less market pressure under this program to curb emissions. In many cases, it is now cheaper to purchase credits instead of reducing carbon.
According to O’Neil, the policy has also led to increased organizational uncertainty about how best to formulate an effective corporate carbon policy. Fluctuations in carbon value make it more difficult to plan how and when to reduce carbon output. Corporate leaders who are serious about reducing their company’s eco-footprint may find their efforts compromised by wide availability of cheap carbon credits.
If we take the European experience as any indication of what may occur here in the U.S., it should at least make us a little hesitant. Although the U.S. has been criticized for not yet developing a climate change policy, it has given us the opportunity to watch and learn from other’s experiences. This hindsight could work to our advantage, if our leaders are wise enough to pay attention.