Carbon has a cost –
Estimated total EU emissions reduced by 3.8 percent between and .
The EU set up one of these markets in 2010, known as the European Union Emissions Trading System, that covers emissions of industry and power plants. The price for permits has remained quite low on the market, though, prompting criticism that it was too lax to have any impact. Prices started between and euros per ton of CO (2) but have drifted below euros in recent years. A new study by Patrick Bayer of the University of Strathclyde and Michaël Aklin of the University of Pittsburgh argues that it isn’t quite that simple, and the permits are having an effect despite their bargain-basement pricing.
Low, low prices
For starters, the price can be low for a number of reasons. Criticism has generally focused on the allocation of permits by governments — if there are too many given away, there’s little need to trade on the market. The researchers point out that there are other reasons that demand for permits can be low, including emissions reductions progressing faster than the overall cap is being ratcheted down.
So to evaluate the impact of the market so far, the researchers attempt something difficult: estimating emissions in a hypothetical world in which the market did not exist. They used a statistical model based on detailed data from different economic sectors in each country. In essence, the model spits out emissions when you plug in Gross Domestic Product, with knobs to turn for factors like the share of renewables in the electric grid and policies like the carbon permit market.
The model-estimated emissions with the carbon market in existence match what actually happened, and this is compared to the estimate for a world where the market was never created. That’s not the only difference, though, which is important. The market also started around the time of the (last) economic recession, and it’s not the only policy affecting emissions. The model isn’t simply comparing current emissions with emissions — that would be easier but much less useful.
Every little bit helps
The results are calculated by cumulative emissions between and . (The first several years of the market were a pilot phase, so the researchers start from the relaunch.) The model estimates that total emissions in the sectors participating in the carbon cap-and-trade market were reduced by about 7.5 percent because of the market
. If you include all the emissions not covered in the market, that’s a 3.8 percent reduction for the EU.
That’s about half of what the EU had promised to do as part of the Kyoto Protocol. Together with other policies and trends, the market enabled the EU to hit that target .
This model estimate of a world without the carbon cap-and-trade market has to be taken with a grain of salt, but it would indicate that the program has had an impact despite the low prices. It’s possible that some of the apparent emissions reductions actually just moved to other countries outside the EU — what’s referred to as “carbon leakage.” But where the researchers checked sectors that can’t really relocate, they still saw consistent reductions, so this isn’t just sleight of hand.
The Team concludes that carbon trading markets can work, even at low prices, so long as people believe that they’re here to stay. Even if the price is currently low, the fact that it will continue to be non-zero — and could well go higher — is enough to make it part of the long-term calculus for companies. Bayer and Aklin write, “For this to be true, however, strong political commitment to continued carbon regulation in the future and increased scarcity in markets is needed. Absent such political will, low prices will do little to decarbonize regulated economies. ”
PNAS, 1586292042. DOI: . / pnas. (