Europe made a major commitment under the Kyoto protocol that U.S. conservatives have been telling us for years they would never achieve. It now seems clear they will meet their commitment under the terms of the protocol. It will become increasingly difficult for those who don’t want a U.S. cap-and-trade system to point to the European Trading System (ETS) as an obvious failure — as discussed in this June CP post. CAP’s Austin Davis has some lessons learned for U.S. legislation.
This week the German Marshall Fund of the United States released a useful new analysis of the European Union Emissions Trading System (EU ETS) designed to offer powerful and positive recommendations to U.S. policymakers as they debate the design of a potential cap-and-trade program.
The paper’s authors hail from a wide range of prestigious academic and the clean energy backgrounds: Michael Grubb, chief economist of the UK’s Carbon Trust and chair of Climate Strategies; Thomas L. Brewer, research director of Climate Strategies; Misato Sato of the London School of Economics; Robert Heilmayr of the World Resources Institute; and Dora Fazekas of Climate Strategies. Their premise for the report is straightforward: While American opinion makers and policy makers vaguely know that Europe has a cap-and-trade system in effect, the lessons we can learn from it and its real and substantive benefits are too often ignored in our public debate. This report aims to fix that.
And the reason Americans should know more about the EU ETS is because it’s working. Since 2005, Europe’s cap-and-trade system has established a carbon market worth €40 billion (US$56.6 billion) annually and, despite initial stumbling blocks, has reduced emissions by 50-100 million metric tons of CO2 per year (or by around 2.5-5%). Simultaneously, European businesses benefit from Europe’s transition to a carbon-free economy since “the EU ETS has increased overall profitability in all participating sectors” while supporting a sizeable boom in clean energy jobs in spite of the global recession.
However, Europe’s multifaceted successes required Europeans to carefully evaluate their ETS and reconfigure it on the fly – uncertainties and tribulations that American consumers business can largely avoid. The Europeans divided their cap-and-trade scheme into three phases to provide pause for analysis and reevaluation; this allowed them, for example, to halt the unfortunate practice of European utilities whereby they passed almost all of the costs of carbon onto consumers, reaping huge windfalls from the ETS’s free carbon allocations. While Waxman-Markey effectively shields consumers from these abuses “by giving power sector allowances to distribution companies, which then sell these to generators and have an obligation to use the revenues in part to support energy efficiency programs,” this kind of acumen seems rare among American policymakers and rarer still in the public debate:
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