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It could only be EU…

Posted by Richard Thursday, December 30, 2004

In the ultimate bureaucrat's dream, this week sees the start of the EU's Emission Trading Scheme (ETS), whereby more than 15,000 power plants and factories across Europe have been given allowances for the amount of carbon dioxide (CO2) they will be allowed to emit.

These include plants with an energy use above 20 MW/hour, covering combustion plants, oil refineries, coke ovens, iron and steel plants; and factories making cement, glass, lime, brick, ceramics, pulp and paper.

Those that cannot meet their emission limits are allowed to buy credits from companies which have not used their quotas on a newly established trading market, to avoid financial penalties for overshooting their targets, set at €40 for every excess ton of CO2 they emit.

Needless to say, with handling commissions, this new and entirely artificial market promises to be lucrative for a number of financial institutions, given the scale of the market to judge from non-official trading schemes. Some 2.3 million ton exchanged hands in October on the informal CO2 futures market, as much as the first nine months of the year.

Currently on the unofficial carbon market, one tonne of CO2 trades for an average price of €8.5 ($11), although the price has fluctuated widely, from €5.0 to €13.4 since informal trading began in February. Analysts forecast a market worth €50 billion during the 2005-07 contract period, with 5.0 billion tons of CO2 being traded at an average price of €10 a ton.

Of course, nothing is for nothing and the eventual losers will be thee and me, paying for what amounts to a new "stealth" tax through higher electricity prices and increased commodity costs. There will also be a social cost as large energy users, like aluminium smelters, will be tempted to relocate abroad, taking jobs and their profits with them.

This, of course, comes from an EU that is continually prating about increasing competitiveness, making schemes like this a spectacular "own goal", effectively adding €25 billion a year to the costs of the productive economy, with no long term benefit to the environment. When it comes to green madness, therefore, it could only be EU…