Carbon Price Will Determine Climate Success of Cap-And-Trade

February 16, 2009

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The effectiveness of a cap-and-trade program will depend on the cost of allowances, notes Cambridge Energy Research Associate. CERA told the Dallas Morning News that if allowances cost only $20 per metric ton, power plant emissions will still rise 26 percent by 2030. That’s because it would be cheaper for power companies to buy allowances from other industries than invest in technology to cut their own emissions.

At $60 per metric ton, emissions drop 22 percent, and at $100 per metric ton, emissions drop 60 percent by 2030, observed CERA.

But it’s uncertain whether a cap-and-trade program would actually reduce emissions. Earlier this month, EL reported that Europe’s carbon trading is not actually cutting carbon. What’s more, a GAO report issued last December found that Europe’s cap-and-trade system had created “a functioning market for carbon dioxide allowances, but its effects on emissions, the European economy, and technology investment are less certain.”

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