Pricing Carbon Emissions
Economic Reality and Utopia
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Pricing Carbon Emissions provides an economic critique on the utopian idea of a uniform carbon price for addressing rising carbon emissions, exposing the flaws in the economic propositions with a key focus on the EU’s Emissions Trading System (ETS).
After an Executive Summary of the contents, the chapters build up understanding of orthodox economics’ role in protecting the neoliberal paradigm. A salient case, the ETS is successful in shielding the Business-as-Usual activities of the EU’s industry, however this book argues that the system fails in creating innovation for decarbonizing production technologies. A subsequent political economy analysis by the author points to the discursive power of giant fossil fuel and electricity companies keeping up a façade of Cap-and-Trade utopia and hiding the reality of free permit donations and administrative price control, concealing financial bills mostly paid by household electricity customers. The twilights between reality and utopia in the EU’s ETS are exposed, concluding an immediate end of the system is necessary for effective and just climate policy. The work argues that the proposition of shifting to a global uniform carbon tax is equally utopian. In practice, a uniform price applied on heterogeneous cases is not a source of benefits but one of ad-hoc adjustments, exceptions, and exemptions. Carbon pricing does not induce innovation, however assumed by the economic models used by IPCC for advising global climate policy. Thus, it is persuasively demonstrated by the author that these schemes are doomed to failure and room and resources need to be created for more effective and just climate politics. The book’s conclusion is based on economic arguments, complementing the critique of political scientists.
This book is written for a broad audience interested in climate policy eager to understand why decarbonizing progress is slow as it is. It marks a significant addition to the literature on climate politics, carbon pricing and the political economy of the environment more broadly.
The Open Access version of this book, available at www.taylorfrancis.com, has been made available under a Creative Commons Attribution-Non Commercial-No Derivatives 4.0 license.
Table of Contents
1.1 The Scene of Climate and Energy Policy, Carbon Pricing and Emissions Trading
1.2 EU-ETS History in a nutshell
1.3 Some Economic Concepts behind Carbon Pricing
1.4 Equal impact of emitted CO2-eq. molecules is no argument for uniform pricing
2 Diversity disqualifies global uniform carbon pricing for effective climate policy
2.2 The concept of diversity and its implications for policy
2.3 Amalgamation versus specificity
2.4 Global uniform carbon pricing: discourse and performance
2.5 In conclusion
3 Anatomy of Emissions Trading Systems: What is the EU ETS?
3.2 Goals of EU policy (component [i])
3.3 Allocation of tradable emissions permits (component [iv])
3.4 Carbon emissions prices (component [iii])
3.5 Costs of abatement (component [ii])
3.6 Linking the four components of ETS
4 What could the EU ETS founders learn from US SO2 emissions permit trade?
4.2 Differences between US SO2 and EU CO2 emissions permit markets
4.3 Salient characteristics of the US acid rain programs
4.4 Choices made by the architects of the EU ETS
4.5 Concluding reflections
5 Early European experience with Tradable Green Certificates neglected by EU ETS architects
5.2 Directive 2001/77/EC on the promotion of electricity produced from RE sources
5.3 Flanders market construct for Tradable Green Certificates
5.4 Flanders TGC experiment holds important lessons
5.5 The EC’s formal evaluation of RE support instruments (EC 2005)
6 Critique on Price Induced Technological Innovation and on Fringe Pricing
6.2 Corporate strategy maximizes financial returns
6.3 Pricing carbon emissions and industrial firm’s likely reactions
6.4 The gap between ‘marginal cost pricing’ and ‘fringe pricing’
6.5 The impact of higher EU ETS permit prices
6.6 Concluding considerations
7 A political economy of the EU ETS
7.2 Climate Policy in the 3rd Millennium
7.3 Actors on the EU ETS scene
7.4 The EU ETS Policy Arena
7.5 Permits trading in artificial markets
7.6 Economics critique on the EU ETS
7.7 Bewildering EU ETS discourse
8 From evaluation to a well thought-out ‘Act Now’
8.1 Issues on Carbon Pricing (CP)
8.2 Climate Policy and ‘Act Now’ transformations
Annex A Environmental policy-making and carbon pricing
Annex B Cost-Benefit Analysis in the context of Climate Change
Annex C Cost-effectiveness and diversity of emitting sources
Annex D The German Feed-in-Tariff (FIT): successful financial incentive
Annex E Ageing Electricity Economics: Marginal Cost pricing - Fringe pricing
Aviel Verbruggen is Emeritus Professor at University of Antwerp, Belgium. His experiences and knowledge focus primarily on the subjects of politics, engineering and economics.
"[A]n important and timely book...The strength of the book is in the criticism of arguments uncritically favoring the so-called market for buying and selling of permits to emit carbon dioxide as the solution to avoid climate change...Highly recommended."
Poul Thøis Madsen, International Journal of Sustainable Energy Planning and Management