EU Carbon Trading Scheme Copyright David Strom

What You Absolutely Need to Know Carbon Trading Scheme CANNOT ACHIEVE Carbon reduction goals—Means not commensurate with the ends. Europe has achieved carbon reduction since base year 1990, but NOT because of any climate change policy.

Recent studies commissioned by EU demonstrate that even the modest carbon trading scheme of today will have serious economic consequences. Carbon reductions in Europe will probably result in increased carbon emissions elsewhere as economic activity moves. System as it exists today is based upon political allocation/economic inefficiency, NOT reduction in carbon. What You Absolutely Need to Know

Point 1: Cannot Achieve Goals The goal set by political leaders in Europe and by President Obama is to reduce CO2 emissions by 80% in Current Carbon trading scheme covers ~10,000 point sources of emissions, which emit 40% of CO2 in Europe. 100% reduction in these sources=40% reduction in carbon, or half of goal. As these sources are industrial and power plants, obviously they will continue to emit substantial carbon.

Point 1: Cannot Achieve Goals Ergo the carbon trading scheme is only the first tentative step in plan to reduce CO2 The main thrust of carbon reduction plan has just begun to be discussed: carbon taxes that will directly impact consumers and transportation industries.

Point 1: Cannot Achieve Goals TAKEAWAY: CARBON TRADING SCHEME IS NOT A VIABLE MECHANISM TO ACHIEVE GREENHOUSE GAS REDUCTION GOALS; IT IS CAMEL’S NOSE UNDER TENT

Point 2: CO2 Reductions Due to Economy Europe HAS seen carbon reductions since 1990—Kyoto base year. Pretty much all of that reduction took place in 1990s, not because of carbon trading scheme which began this decade. Years in which reduction took place: early 90’s and 2008 primarily.

Point 2: CO2 Reductions Due to Economy Why have EU CO2 reductions taken place? THE LARGEST SINGLE CONTRIBUTOR TO CO2 REDUCTIONS WAS THE COLLAPSE OF COMMUNISM AND THE RETIREMENT OF INEFFICIENT EAST GERMAN FACTORIES.

Point 2: CO2 Reductions Due to Economy EU Carbon Trading Scheme was set in motion in 2003, long after reductions were made. Trading began in 2005

Point 2: CO2 Reductions Due to Economy Emissions again went down considerably (6%) in 2008, after rising during much of the trading period. 2008, of course, is when the full-blown economic crisis began to hit. Industrial production plummeted.

Point 2: CO2 Reductions Due to Economy TAKEAWAY: Carbon trading has had little or nothing to do with Greenhouse Gas reductions. THE BEST WAY TO REDUCE GREENHOUSE GASES IS TO HOBBLE THE ECONOMY.

Point 3: Carbon Trading Scheme Projected to Harm Economy Unsurprisingly recent studies show that forced reductions in CO2 emissions will harm EU economy. Some economic sectors disproportionately hurt, especially heavy industry. Power generation companies unlikely to be directly hurt, as they pass on costs to consumers.

Point 4: Carbon Trading Scheme Displaces Production, Unlikely to Reduce Emissions Carbon Trading Scheme, or rather adding a cost to carbon use, is likely to displace economic activity to regions with less stringent regulation. Quite likely to accelerate trend to de- Industrialization of 1 st world, moving activity overseas.

Point 4: Carbon Trading Scheme Displaces Production, Unlikely to Reduce Emissions Developing world less environmentally conscious. You do the math. This phenomenon is called Carbon “leakage,” where carbon emission is not actually reduced, just moved.

Point 4: Carbon Trading Scheme Displaces Production, Unlikely to Reduce Emissions TAKEAWAY: EU or Developed World Carbon Trading Schemes or other mechanisms to reduce Greenhouse Gas Emissions very unlikely to work as planned. Instead they will de- industrialize the Developed World.

Point 5: Carbon Trading Scheme Actually Based on Political Spoils System, Not Economics Carbon trading scheme is promoted as a means to bring market forces to bear with the goal of reducing CO2 emissions. Actual practice shows what should be obvious with any massive government program: it is a spoils system that transfers wealth from the less powerful to the more powerful.

Point 5: Carbon Trading Scheme Actually Based on Political Spoils System, Not Economics How it works: permits given away for free, then traded on the open market. In other words, there is huge economic benefit to getting more permits than necessary. Huge costs associated with getting fewer than necessary.

Point 5: Carbon Trading Scheme Actually Based on Political Spoils System, Not Economics Under current system some companies have experienced huge windfalls, as they have raised prices to consumers AND sold their excess permits. Other companies have of course suffered greatly, as their allocation of permits was insufficient to meet their needs.

Point 5: Carbon Trading Scheme Actually Based on Political Spoils System, Not Economics TAKEAWAY: It is a basic fact of political/economic life that when resources are distributed based upon the exercise of power, then the powerful will benefit at the expense of the less powerful.

Point 6: Carbon Trading Creates Inefficiencies In practice the price of carbon permits has varied wildly, by more than 400%. Huge variations in price further increase the costs of production in developed world, as industry cannot plan adequately for the cost of their inputs.

TAKEAWAY: Carbon Trading can’t achieve its goals Carbon costs will harm the economy West will de-industrialize as carbon intensive industries move to developing world Carbon trading has created a spoils system where wealth is transferred from the less powerful to the more powerful The only way to achieve greatly reduced carbon emissions with current technology is to crush the economy.