While the United States and Australian legislatures are bogged down in political disputes over the introduction of carbon trading schemes, a group of economists, climate scientists and academics has released an analysis for the the German Marshall Fund of the benefits and lessons that have come from the European Union’s Emissions Trading System.
The EU introduced a cap-and-trade system in 2005 and now has a carbon market worth 40 billion euros ($AU 67 billion) annually.
The report, titled "Climate Policy and International Competitiveness", lists ten main "insights":
- Despite initial setbacks, carbon trading has been a success in reducing carbon dioxide emissions by an estimated 50 to 100 million tonnes (2.5 to 5%) annually.
- Everyone learns after the system has been introduced, so it must be flexible enough to be adapt over time.
- Prices can be volatile and are impacted by unforeseen circumstances. In Europe, these have reduced prices below initial expectations.
- The impact on gross domestic product has been small and consistently less than predicted.
- Those industries which engage contructively in the system profit from it.
- The impact on international competitiveness is small and isolated to a few industries.
- Free allocation of credits degrades efficiency and can create new inefficiencies.
- Free credits can also create windfall profits for dirty industries.
- The best way to allocate credits is by auctioning them.
- Any international trade difficulties should be dealt with by multilateral negotiation rather than unilateral trade barriers or subsidies.