Carbon Trading System

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A critique of the current implementation of the carbon trading system in Europe.

European Trading System

Critique by Peter Barnes at

"A main focus of ire was the European Trading System, in which governments issue tradable carbon emission permits to polluting industries.

The European governments that set up the system are doing two huge things wrong: first, they're handing out too many permits, and second, they're giving them free to polluters, who then raise prices and reap windfall profits.

In Germany, the big winners have been coal-burning utilities, and the losers have been nearly everyone else. As one German steel maker complained, “the utilities get windfall profits, and energy users get windfall costs.” In Britain, the first-year windfall to polluters was estimated at £1 billion.

What's going on here, of course, is a large-scale transfer of wealth triggered by a massive enclosure of a commons. The commons in this case is the earth's atmosphere, a shared inheritance if there ever was one. It's being sliced into valuable private property rights that are handed free of charge to polluting corporations, in rough proportion to their historic pollution. The more they polluted in the past, the more new wealth they receive. Not just once, but year after year.

There's no defensible rationale for this giveaway; the only reason for it is the political power of polluting corporations. As Peter Ainsworth, a spokesman for Britain's Conservative Party put it, “The problem will not be sorted out until the market is made to work properly by forcing firms to bid for their permits instead of being allowed to lobby government for them free of charge.” (

The Alternative

"America can learn from Europe's early - and costly - mistakes. Seven northeast states, plus California, are now designing their own carbon trading systems. These states can do carbon trading the right way: by making polluters pay for 100 percent of their permits. The windfall that's necessarily created when a previously free resource is converted into a priced commodity would then be captured by the public rather than by private corporations. It could be used for per capita dividends (as Alaska does with oil revenue), transition assistance to affected workers, communities and businesses, and investments in clean energy, public transit and the like. Billions of dollars that would otherwise go to a few corporations' pockets would instead benefit everyone.

Let me be blunt here, as I was at the Berlin conference. It would be a tragic irony if the 'solution' to climate change included a massive transfer of wealth to corporations that largely created the problem. This would be like rewarding tobacco companies with billions of dollars for all the lung cancer they caused in the past." (