Is Europe's Emissions Trading System Broken?

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http://www.spiegel.de/international/europe/europe-looks-to-fix-problems-with-its-carbon-emissions-trading-system-a-863609.html

Europe's carbon market is in deep trouble and it's not just environmentalists sounding the alarm. Back in April, the CEO of Shell said that the European Union's system for trading allowances for the emission of greenhouse gases was "in danger." But that's about as direct as anyone will get in this world of bureaucratese. Most simply talk of "price weakness" (meaning that emission credits are absurdly cheap), a desire for "long-term policy certainty" (the system needs a fix!), and the need to "restore confidence" (and the fix has to come fast!).

The simple fact is that the most important tool in Europe's fight against climate change needs a major fix. When it was introduced in 2005, the idea was to make pollution expensive. And in the summer of 2008, the price for emitting a ton of carbon peaked at a price of around €30. But the global financial crisis and ensuing economic downturn in Europe have taken their toll. Prices are currently hovering around €8 euros per ton of carbon emissions, hardly the disincentive policy makers had hoped for.
"The emissions trading system is not very credible," said Jo Leinen, a Social Democratic member of European Parliament from Germany, in a recent phone interview. "It doesn't look like it has credibility in the near future. So we need to give it back its real function to be an incentive for low carbon investment and low carbon technology."

The regime, known as the Emissions Trading System (ETS), is now entering a third phase intended to begin the process of reducing the number of credits available, thus forcing prices up and pollution down. It will also dramatically increase the number of credits that are auctioned off rather than handed out. But its problems this year are more obvious than ever. Far too many carbon credits were given out in the beginning of the program and companies produced less in the downturn, resulting in a huge surplus of credits. Current prices for emissions certificates hardly act as a disincentive to continue emitting CO2.