The European Union's eight-year-old Emissions Trading System (ETS), the world's largest cap-and-trade carbon market, is broken.
Thomas K. Grose in London
The European Parliament this week voted 334-315 (with 60 abstentions) against a controversial "back-loading" plan that aimed to boost the flagging price of carbon, which since 2008 has fallen from about 31 euros per tonne to about 4 euros (about $5.20). Since the vote, the price has fallen even farther, to 2.80 euros. The collapsing market is hardly the kind of firm foundation needed for building a clean-energy economy.
"Now, the market is dead, as far as I can see," said Steffen Böhm, director of the Essex Sustainability Institute at Britain's Essex Business School.
What will be the aftermath of the ETS collapse? Here's a quick primer on what happened, and what it could mean elsewhere, particularly in California, which inaugurated a new carbon market at the start of this year. (Related: "California Tackles Climate Change, But Will Others Follow?")
Q: First of all, what's a carbon market?
A: The U.S. introduced the concept of using market forces to rein in greenhouse gas emissions during the talks that lead to the 1997 Kyoto Protocol, an international agreement to combat climate change. Ironically, Europe wasn't initially keen on the idea. But after it failed to enact an EU-wide carbon tax, Europe ultimately launched the ETS in 2005.
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