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Market Failure
Carbon Markets Are Failing on a Global Scale

Everywhere you look, carbon markets are failing to achieve their stated purpose of incentivizing companies and individuals to not emit greenhouse gases. As Bloomberg reports, the price of carbon in markets around the world is too low to affect change:

[C]arbon markets in the U.S., Europe and Asia are collapsing, with prices so low they’ve become virtually valueless. The credits auctioned in the U.S. Northeast in June, for instance, sold for just $4.53 a short ton, a 40 percent drop from December. […]

The problem is that the permits are selling at a slower and slower rate. The surplus of allowances is becoming so large in systems run by Europe, California and Quebec — which together account for more than 90 percent of global trading — that by 2022 it could cover the emissions spewing from every car on Earth for a full year, according to estimates by the London environmental group Sandbag Climate Campaign CIC and Bloomberg New Energy Finance. […]

The markets are crumbling just as the U.K.’s vote to leave the European Union throws into question the future of the world’s largest market by threatening to shrink demand. Nor does the collapse bode well for China, as the world’s top greenhouse-gas emitter prepares to start its own next year.

It isn’t hard to trace the source of these too-low carbon prices. The designers of these various markets have a job that is both delicate and high stakes, as they attempt to set a price for carbon permits that is at once high enough to change behavior, but not so high that businesses (and the jobs and economic clout they carry with them) decide to pack up and move to a region or country with lower carbon costs, or even better a part of the world that doesn’t price carbon at all. So far, policymakers have (understandably) erred on the side of economic caution, choosing to over-allocate allowances at the risk of making their markets effectively worthless, which is where we find ourselves today.

But it’s a much more difficult task to try and figure out how to fix this problem. The EU is planning to withdraw credits from its system in the coming years to help inflate the price of carbon, and other markets elsewhere can use similar mechanisms to try and chase down that “Goldilocks” price. When push comes to shove, will politicians be willing to stand by a system that could potentially force out energy-intensive industries? That would be the worst case scenario—both economically harmful to the state, region, or country implementing the carbon market, and completely unhelpful in cutting global emissions—and unfortunately it’s something of an inherent risk in any piecemeal market solution in today’s globalized world.

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  • M Snow

    Market failure? Sounds more like a government failure.

    • f1b0nacc1

      Precisely right. This rather clueless article illustrates the fraud that lies at the core of government mandated ‘markets’….the government establishes a commodity by fiat, and controls the supply (also by fiat)…that isn’t a market, it is a bureaucrat’s idea of musical chairs. The governments are trying to establish a price, whereas in the real world markets set prices based upon interaction.
      This is the sort of cargo cult thinking that dominates modern progressivism. You go through a few rituals that look like what successful people do, you create a few superficially similar props, and then act surprised when things don’t work out.

      • M Snow

        Thanks. You said it way better than I did.

      • LarryD

        On top of that, it’s a scam based on a hoax. The hoax is that CO2 has a significant effect of global temperature, compare all of the outputs of the climate models vs the actual temperature. In a real field, the the models would have been judged refuted long ago. The scam is that carbon credits were invented to collect rents off of the economy, not to discourage CO2 emissions.

        CO2 levels have been rising for thousands of years, and a good thing too. We came uncomfortable close to an extinction event cause by CO2 levels dropping below what plants need to survive. And CO2 levels hundreds of millions of years ago were more than double Hanson’s tipping point, yet Earth did not turn into Venus.

        • f1b0nacc1

          I entirely agree. While I am not a climate physicist (nor are most of those ‘scientists’ who apparently monolithically argue that this is a dire threat), but I am something of a specialist in model design and data analysis. The models that are used to support the AGW hypothesis are the worst sort of tripe, and the data are laughably bad.

        • Bill_Woods

          “… yet Earth did not turn into Venus.”
          The Sun was significantly cooler then. The greenhouse effect is very well established, qualitatively. Doubling the CO2 level will increase the temperature — maybe a lot, maybe not. Recent estimates based on empirical data have been running toward ‘not’.

  • Bill_Woods

    “… a price for carbon permits that is at once high enough to change behavior, but not so high that businesses (and the jobs and economic clout they carry with them) decide to pack up and move …”
    In other words, a change in behavior, but not the wrong sort of change in behavior. Tricky — there may be no Goldilocks zone between too low and too high.

    • Andrew Allison

      The Goldilocks zone is the market price, a price which can only be discovered by the market, not by some bureaucratic monkey throwing darts.

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