Hurrah! The price of carbon credits is approaching zero

This is very much a time for celebration as the carbon credit price in the EU's trading system rapidly approaches zero. Of course, we do have people taking the wrong message from this, such as our own UK government who reacted to the price falls by insisting that there must be a minimum price for such credits. But then none of us really thought that governments were going to approach this particular problem with even a modicum of good sense, did we?

December EU carbon permits dropped 4.4 percent to 5.22 euros ($7.23) a ton at 4:59 p.m. on ICE Futures Europe in London. The contract earlier slumped as much as 6 percent, the most since April 25. December CERs were unchanged at 15 euro cents a ton, while no ERUs were traded. The program’s rules curb offset use in the 13 years through 2020 to about 1.59 billion tons, 25 percent of which remains unused after today’s announcement, according to New Energy data.

There are two roughly market based ways of dealing with emissions. We could tax them at some rate and see what emissions were. Or we could limit emissions through permits and then see what the price would be. Obviously, the higher we put the price of the tax then the more we would expect emissions to fall. However, the corollary often gets missed (as HMG missed it). Once we've limited emissions though the number of permits then we obviously want the cost of each permit to be as low as possible.

For we have already defined the emissions limit and are now looking to the market to tell us the price of achieving that limit: clearly and obviously a lower price to meet the goal is better than a higher one.

Thus, if we've set a limit, if 25% of those permits won't ever be used, and if those that are being cost somewhere around spit, then we're solving the emissions problem much more cheaply than anyone thought we would. Which is excellent news, isn't it? Thus, and inevitably, those who blather about how awful it is that permits are cheap have got entirely the wrong end of the stick. Which is where HMG comes in again with their imposition of a m,inimum price for such permits. They're deliberately making it all more expensive than it need bem, the very fact that permits are cheaper than their minimum being all the proof that we need.

Climate change is bad enough without people deliberately, or perhaps through ignorance, making dealing with it more expensive than it need be.

We could of course insist that the original targets were wrong: but that would also be saying that government is incompetent in dealing with climate change. Which isn't a great argument for having them do more, is it?