Just came home from a small forum session with Greg Baker, Minister of State for Energy and Climate Change. He was talking about creating a low carbon economy and how the UK was best positioned to develop economic growth in the direction of an environmental economy. Besides making his adoration for Margaret Thatcher and David Cameron clear (this must be endemic amongst politicians), he did make a good point about building a broader economy around renewable energy in the form of marine technology, wind power, nuclear power and solar power. We really cannot rely on a single form of energy the way we have been on coal and oil for the past few decades. This is indeed an important issue that we are always looking to today, after all, economic efficiency and productivity has always been prized as top values to pursue in our society, and so if we can promote environmental values by linking it with the intrinsic need of people to turn everything into money making business, based on sound economic theory, it is the way to go. While exasperated by this idea that we need to constantly use economics to justify why the environment should be conserved or protected, I concede that this is possibly the only way to convince people that we can have a good quality of life whilst protecting the environment.
Recently, the European Union announced that it aims to transfer carbon permits from a 3.3 billion-euro ($4.5 billion) reserve to the European Investment Bank this month so that investment can be made into innovative energy projects:
EU to Transfer $4.5 Billion of CO2 Permits to EIB This Month
What we see here is that they are treating carbon dioxide as a tradable good. If we see carbon dioxide as an absolute negative externality (well we know it isn't entirely, plants and humans need carbon dioxide to survive), what they are trying to do here is to place a quota on the externality. After all, we don't want NO externality, we just want the optimal amount of it. Well the intentions of this system is good. However, they have often been accused of setting a quota that is still too high and not giving real commitment to reducing carbon dioxide emissions in the atmosphere. Furthermore, all forms of markets are prone to market failure. I suppose that is why they have introduced the EIB into the equation to govern such market failures, provided government failure doesn't happen before that. Carbon trading markets are really interesting things to follow in the near future to see if it really works in reducing carbon dioxide emissions. The idea of a global carbon market does not look too feasible in the near future because of the exploitation and possible inequitability that it would bring about. But nationally, many governments believe that it is a good growth sector to look into.
However, in the present, whatever efforts put in by governments and businesses don't seem to be working:
No let up in greenhouse gas rise
Maybe this is just a transition period. Maybe there are natural forces at work here that have started a carbon dioxide positive feedback loop. But whatever the case, it is clear that we have a long way to go before we reach a low carbon society, not just a low carbon economy.
Oh haha!! And for those who want to learn more about cap and trade, albeit in a not too objective manner, you should watch this video. Its really cute and really easy to understand.
I really didn't start this post wanting to talk about carbon markets.
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