Friday, December 19, 2008

Emissions trading

In general, I tend to be optimistic about the prospects of emissions trading. If properly designed, a scheme for emissions trading should lead to an optimal allocation of mitigation funds which, if nothing else, may at least slow down the growth in carbon emissions, leaving us with more time to develop breakthrough technologies.

The pitfalls however are many. In Europe, in the first round of the European trading system (EU ETS), too many permits were handed out and the most polluting industries were exempted. In Australia, under the Rudd government’s new climate strategy initiative, any voluntary reductions (such as individuals putting up solar panels on their roofs) will allow polluting industries to increase emissions by a corresponding amount, thereby creating the perverse effect that every tonne of carbon dioxide saved by dedicated individuals simply frees up a tonne that can be used by the industry.

What is worse, talk of emission rights and abatement costs may in effect counter bright-green thinking since it consolidates the idea that climate change mitigation is a necessary cost while it should be looked upon as a transformative opportunity. This is the time in history when we should make good on the promise of modernity by gearing our societies towards radical innovation and investment. Furthermore, emissions trading may create the treacherous illusion that if we only meet the negotiated emission targets, dangerous climate change can be avoided, a belief that does not take into account the deep uncertainties involved (including potential tipping-points and lags).

Despite these risks, I believe that we definitely should give emissions trading a chance, requiring that our politicians set stringent targets and not yield to the collective action dilemma posed by industries crying that they are exposed to foreign competition (here we truly see the need for a global agreement).

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