EU Carbon Trading not showing results.

European Union CO2 emissions rose in 2006, despite the implementation of a cap-and-trade system, according to new reports:

Europe’s big polluters pumped more climate-changing gases into the atmosphere in 2006 than during the previous year, according to figures that show the EU’s carbon trading system failing to deliver curbs.

Critics said the data underlined the gap between the rhetoric of European leaders, who have promised to cut C02 emissions by one-fifth by 2020, and the reality of delivering reductions.

Yesterday’s figures relate to the carbon produced in 22 nations by big industrial users that accounted for almost 93 per cent of emissions reported in 2005. The European Commission said that carbon output from these sources rose between 1-1.5 per cent in 2006 over the previous year. The statistics suggest the EU is still allocating too many carbon permits to enable the system to work properly.

It’s pretty well understood that reductions would accelerate rapidly as the deadline for caps nears, so it’s unsurprising that we’re not already seeing big reductions. That said, there is some question here as to the role of individual governments in terms of keeping to the mandates.

The point of the trading scheme is to use the market to curb pollution by making firms buy extra credits if they emit too much CO2. But that discipline only applies if the cost of buying the right to pollute acts as a genuine incentive.

In 2005 the European Commission allowed member states to produce 3 per cent more C02 than they needed. In 2006, the difference between the ceiling and the emissions was closer to 1 per cent. That gap has closed partly because the amount of carbon produced rose. Only Denmark, Ireland, Italy, Spain and Britain gave businesses too few permits in 2006.

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