A Critical Conversation on Climate Change ... - Green Choices

114 development dialogue september 2006 – carbon tradingAgain, look at home insulation in most states; generally average levelsof attic insulation hover around the minimum state regulationsrequire; a few people may get more, a few are [allowed to makedo with] less; but within a few percentage points, regulatory minimumsare a fair predictor of actual insulation. In European Unionnations, regulation and public spending (especially on rail) are betterpredictors of carbon efficiency than price policies. Again, this is notto say that raising the price of energy does not reduce use; merelythat regulation and public works do so more quickly, more efficientlyand with fewer unintended consequences. 184In the EU ETS, prices for emissions allowances are currently beingdriven by increases in the price of natural gas, or, more fundamentally,the cost of shifting from coal to natural gas – and also by weather.185 Even relatively high allowance prices can do little more thanprovide a moderate disincentive to shift from gas to coal in responseto high gas prices. The UK firm Enviros says that even carbon permitprices of €50 per tonne are unlikely to ‘provide the stimulus necessary’for firms to invest ‘to drive down greenhouse gases’. 186One weakness of carbon permit prices as drivers of change is that theyare likely to be ‘extremely volatile because of the complete inelasticityof supply of permits’ along with ‘inelastic demand for permitsin the short run’. 187 In the US, ‘sulphur dioxide trading prices havevaried from a low of usd 70 per ton in 1996 to usd 1500 per ton inlate 2005. Sulphur dioxide allowances have a monthly volatility of 10percent and an annual volatility of 43 percent over the last decade’.In Los Angeles’s RECLAIM trading scheme, NO x prices suddenlywent through the roof in 2001 due to industry procrastination, a hotsummer, and a cutoff of supplies of electricity purchased from outof-state.The price of the right to emit one pound of nitrogen oxidezoomed from usd 0.13 in 1999 to usd 37 in July 2001, before settlingback to usd 13 in September 2001. 188 In 2005 and 2006, EU ETS pricesfor carbon dioxide jiggled over a wide range between €7 and €30before crashing to €9 in May 2006. According to Vincent de Rivaz,Chief Executive of EDF Energy in the UK, ‘the long-term price oftradable emissions allowances is too uncertain to be a driver of systemictechnological change in an industry whose generating capacityinvestments must be planned over 30-year periods’. 189Yale University economist William D. Nordhaus warns that suchvolatility might make trading ‘extremely unpopular with market participantsand economic policymakers’ if it caused ‘significant changesin infl ation rates, energy prices, and import and export values’. Ananalogy would be the volatile prices associated with the ‘peaking’ ofoil production, which are not expected to provide signals that could