Pricing Emissions
Audit Alleges Eurogreens Mismanaging Carbon Market

The European Union unveiled a bloc-wide carbon market ten years ago, but has so far failed to live up to the vaunted eco-expectations surrounding it. Now EU auditors are warning that the carbon trading system needs better oversight to protect its integrity, as the WSJ reports:

The auditors looked at the implementation of the second phase, which began in 2008 and ended in 2012, and observed that despite major improvements, the bloc’s main policy to fight climate change still lacks efficient oversight of the emissions market at an EU level. The report focuses on the integrity of the market, rather than its effectiveness in reducing emissions or creating incentives for low-carbon investments.

The report says that a clearer legal definition of emission allowances and tighter EU-wide monitoring of cross-border transactions are needed for the system to be further improved.

Carbon markets are a favorite eco-tool of many economists, but predictably their implementation is more difficult than their green boosters might expect. China made waves when it announced seven regional pilot markets with the hope of soon creating a national scheme, but that experiment is already running into trouble. Things are even more complicated in the EU, which has to weigh the various concerns of its members against the already precarious balance between economic imperatives and green ambitions.

The EU market, called the ETS, has been plagued by problems from the beginning, most centering around its inability to set a market-responsive carbon price. The 2008 financial crisis dealt a blow to Europe’s economy and by extension its emissions, but the market lacked a mechanism to account for that recession, and as a result the price of carbon plunged to levels too low to really incentivize companies to go green.

According to this latest audit, Brussels isn’t just struggling to find the carbon price sweet spot, it’s also mismanaging the system and leaving it open to abuse. The EU should take this warning seriously—green policies often rely on state- or institution-backed subsidization that leave the door wide open for unscrupulous parties interested in capitalizing on that cash cow.

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