Europe’s cap-and-trade system effectively puts a price on carbon emissions by requiring emitters to buy permits on the open market. Trouble is, the price has fluctuated wildly, peaking at €30 in 2008 and slipping to just €8 last year, making it hard to plan and undercutting incentives for green investment. Hence the attraction of the British Conservative Party’s new proposal to tax power plant emissions when the free market price of carbon permits fell below a predetermined level. Why didn’t we think of that?
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Cap and Trade and Tax |
Professor Dieter Helm (Oxford) is a very fine fly fisherman, and an even better economist. If you haven’t done so, take a look at his new book “The Carbon Crunch: How We Are Getting Climate Change Wrong — and How to Fix It” for a bit of unconventional wisdom. He argues that politicians and the general public have not shown any real interest in addressing climate change. Helm argues that places like Europe should focus on setting a price for carbon that would cover consumption (and not just production), and that fracking could be a good “bridge” technology for reducing consumption of coal. The book is readable and insightful for those interested in the inside track on climate policy. 
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