•Last night I went, with my doughty assistant Alexandra Swann, to a dinner-debate on the European Union's Emissions Trading Scheme (ETS), or as they say in the USA, Cap'n'Trade. We had an industry spokesman telling us that the ETS system was failing to deliver on its key objective, and needed radical reform. Otherwise, he warned, we might end up with a carbon tax.
But he was very bullish about the prospects for a global Cap'n'Trade system, presenting a very optimistic map showing putative Cap'n'Trade systems in most countries in the world.
I think he was indulging in some rather desperate wishful thinking. The USA certainly isn't going down the Cap'n'Trade route (or Cap'n'Tax, as the Republicans call it). I don't believe that Australia will either. A number of Asian economies are making some moves in that direction, but I suspect it's more for diplomatic reasons than any commitment to reducing emissions. After all, China and India are building coal-fired power stations at a rapid lick, and no nonsense about carbon sequestration.
In any case, a complicated bureaucratic carbon accounting system, run on a global basis, offers massive scope for maladministration and multi-billion dollar downright fraud, as the "Clean Development Mechanism" has already shown.
Leave aside the huge and increasing question marks over the whole theory of man-made climate change, and whether we should be pursuing CO2 reductions at all. The ETS is a failure in its own terms. It was intended to send clear price signals to industry, and to incentivise CO2 reductions. But the price has crashed from a maximum of around €17 a ton to a meaningless €7. It has transferred large sums of money to energy companies from other organisations -- like hospitals. It has benefitted countries like Russia, not because they went green, but because their heavy industry collapsed. As a result of the initial allocation policy it also had the effect of transferring billions from the UK to the continent -- with no benefit either to the environment or to the UK.
The failing ETS has had to be accompanied by a host of other measures including feed-in tariffs, renewable obligation certificates, and now, in the UK, a carbon price floor. Instead of sending clear price signals, we're sending mixed messages. And as the Good Book says, "If the trumpet speak with an uncertain voice, who shall prepare himself for the battle?".
In my intervention in the debate, I drew a comparison between the ETS and the €uro. Both are designed with rather less skill and insight that an undergraduate's economic essay. (Lord Lawson's phrase "teenage scribblers" springs to mind). Both have utterly failed, for reasons that were both predictable and, in fact, predicted. Yet in neither case do those who invented it have the decency to come forward and own up. In a rational world we'd say "These theoretical concepts have failed -- now let's start again with a different approach".
Not in Europe. In the EU, when anything fails, we conclude we need more of it. The solution to Europe's failure is more Europe -- what else? I'm afraid that Brussels default position is to reinforce failure.