Cap and trade: a failing gamble in Europe

With cap-and-trade policies coming from the presidential nominees of both parties, one might think that earlier adopters of these carbon-trading systems had enjoyed wild success.  As Business Week reports, that’s not been the case in Europe, and people there have begun to worry.  Like a Ponzi scheme, the only way that they can avoid taking huge losses in jobs and new businesses is if they can convince everyone to play along:

The continent’s bureaucrats hope their counterparts in China, India, and the US will embrace carbon regulation next year in Copenhagen.

The bureaucrats that run the European Union’s day-to-day business aren’t known for taking risks. Yet back in 2005, when they devised the EU Greenhouse Gas Emission Trading Scheme (EU ETS), these pencil pushers gambled that a cap-and-trade scheme would help cut the EU’s carbon dioxide emissions. Now, three years on, the environmental benefits from the EU ETS remain unclear: The continent’s CO2 output actually rose 1.1 percent last year. …

The continent has banked its financial future—and moral authority—on creating a low-carbon economy. This gamble’s efficacy now depends on the likes of China, India, and the U.S. deciding whether to embrace carbon trading. “Copenhagen will play a big part in showing that Europe’s creation of a cap-and-trade carbon market will pay off,” says Mark Spelman, global head of strategy at consultancy Accenture (ACN).

If, however, a global agreement for CO2 isn’t reached, many energy-intensive industries reckon their European businesses will be the only one to shoulder the higher costs needed to cut emissions. The extra financial burden eventually could send European jobs overseas and increase costs there.

That’s exactly what could happen here, as well.  Assuming we implement a cap-and-trade system of any sort that burdens American businesses, those that have the ability to shift jobs overseas will do so, and the rest will fail in competition.  This hurts small businesses the most, which have the least flexibility to outsource manufacturing operations, which will bear the brunt of any carbon capping system.

The same issue sunk Kyoto.  Bill Clinton signed the treaty, but the Senate unanimously passed a resolution rejecting it, specifically because it did not bind China, India, and other developing nations to the same kinds of limitations.  Ten years later, cap-and-trade still is exclusively Western, and the same economic risks remain.

Europe can’t even point to success in its own cap-and-trade system to entice the US or any of the developing nations.  They’ve tried to cook the numbers by jiggering the baseline calculations for their metrics, but the truth is that carbon outputs have increased under the European system.  Meanwhile, the US has cut emissions by 1.3% during the same period without a cap-and-trade system.

The EU hopes that the US doesn’t notice its failure, and that we use our clout to bring in a few more saps.  At this point, the only thing that can save Europe’s business class is the hope that everyone else is too stupid to realize that they’re being conned.

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David Strom 5:21 PM on March 31, 2023