Transatlantic carbon trading


The European Union is keen to link up with the United States and produce a transAtlantic carbon trading system. David Cameron's party has also welcomed the idea of setting up a world system. It's a bad idea.

You know me. I believe markets are the solution to just about everything, from traffic congestion to better healthcare, smarter education, and faster mail delivery. And when tax is debated, my opening bid is to oppose any tax, of any kind, or any size, at any time, for any purpose.

But the trouble with carbon trading 'markets' is that they are run by governments and officials. The European system has always been a complete dog's breakfast. Because to set up such a scheme, you have to negotiate who is going to get what quotas. So from Day One, you're immersed in politics, not markets. Europe was hugely keen to show its good intentions and get Russia into its emissions trading scheme. But the Russians were tough negotiators and ended up with billions of dollars' worth of quotas which they could then sell to others. Were the quotas given to other countries any fairer? I doubt it.

Then at a more micro level, the exact operation of the scheme depends on bureaucrats assessing the outputs of individual producers. The whole structure is based on political horse-trading and bureaucratic judgement. That's no way to run a market. No, I hate to say it, but a carbon tax would be a lot easier.