As the centerpiece of Europe’s pledge to lead the global battle against climate change, the region’s market for carbon emissions effectively turned pollution into a commodity that could be traded like gold or oil. But the once-thriving pollution trade here has turned into a carbon bust.
Under the system, 31 nations slapped emission limits on more than 11,000 companies and issued carbon credits that could be traded by firms to meet their new pollution caps. More efficient ones could sell excess carbon credits, while less efficient ones were compelled to buy more. By August 2008, the price for carbon emission credits had soared above $40 per ton — high enough to become an added incentive for some companies to increase their use of cleaner fuels, upgrade equipment and take other steps to reduce carbon footprints.
That system, however, is in deep trouble. A drastic drop in industrial activity has sharply reduced the need for companies to buy emission rights, causing a gradual fall in the price of carbon allowances since the region slipped into a multi-year economic crisis in the latter half of 2008. In recent weeks, however, the price has appeared to have entirely collapsed — falling below $4 as bickering European nations failed to agree on measures to shore up the program.
The collapsing price of carbon in Europe is darkening the outlook for a "greener" future in a part of the world that was long the bright spot in the struggle against climate change. It is also presenting new challenges for those who once saw Europe’s program as the natural anchor for what would eventually be a linked network of cap-and-trade systems worldwide.
The problems plaguing Europe’s cap-and-trade system underscore the uphill battle for internationai Global Warming "solutions".