Punishing the Good for Being Good

I write the column Punishing the Good for Being Good in TCS Daily on 1 July 2003.

One problem with emissions trading.

By signing the Kyoto treaty in 1997, the EU committed itself to reducing its emissions of greenhouse gases by 8 percent in the years 2008-2012 compared to emissions in the year 1990 (mainly carbon dioxide, CO2). Since then the EU has not been able to fulfil those goals. Economic growth, real and projected, combined with Germany’s decision to phase out nuclear energy and greater than projected coal use among member countries will likely leave the EU about 10 percent short of its Kyoto target. In fact, ten out of 15 EU member states have failed to reach their goals so far.

But emissions trading poses problems of its own. The scheme creates an artificial scarcity, a roof on emissions through a quota of CO2 that each company is allowed to emit per year. Any surpluses may then be traded inside the EU. This system actually makes it quite hard for innovative companies to expand their activities and it particularly penalizes those industries that have already reduced their CO2 emissions.

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