That there exists something called carbon trading is about all that most people know. A few know, too, that Europe has created carbon exchanges, and traders who buy and sell. Few but the professionals, however, know that this market is now failing in its purpose: to edge up the cost of emitting CO2. The theory sounded fine in the boom years, back when Nicholas Stern described climate change as “the biggest market failure in history” - a market failure to which carbon trading was meant to be a market solution. Instead, it’s bolstering the business case for fossil fuels.
Understanding why is easy. A year ago European governments allocated a limited number of carbon emission permits to their big polluters. Businesses that reduce pollution are allowed to sell spare permits to ones that need more. As demand outstrips this capped supply, and the price of permits rises, an incentive grows to invest in green energy. Why buy costly permits to keep a coal plant running when you can put the cash into clean power instead?
I guess selling AIR was not such a good idea after all.