WHY INDIA SHOULD CAP&TRADE

Carbon trading: What’s for India?
Varun Dutt, December 7, 2009 (Financial Chronicle)

"…[M]any new ideas will be considered to mitigate the present and future threat of climate change [at the Copenhagen Climate Conference]. For a developing country like India, an important point to keep in mind is that of carbon trading or cap-and-trade and what it entails. At present, the cap-and-trade system is popular in EU.

"Within the EU, far from being successful, the European Union Emissions Trading Scheme (ETS) has been a roller coaster of sorts. Starting in 2005, the idea of reducing carbon dioxide emissions by turning them into a commodity appeared to be an instant hit. In 2005, 362 million tonnes of CO2 were traded on the European market for a sum of 7.2 billion euros. The scheme covered some 12,000 industrial plants across the EU – including power plants, oil refineries, and steel mills, representing approximately 40 per cent of all EU carbon emissions."

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"…[I]n the spring of 2006…the price for a tonne of CO2 emissions plummeted from 30 euros to fewer than 10 euros…By March 2007, carbon credits had fallen to 1.20 euros, eventually bottoming out to a low of ten cents a tonne in September. With emissions credits virtually worthless, companies had no financial incentive to reduce carbon or invest in cleaner technologies…[But the market eventually stabilized with prices in the 15-to-25 euros per tonne range]…

"One possibility at Copenhagen will be whether countries ought to impose a lower limit – a “floor price” – possibly up to 40 euros per tonne, to keep the cost of carbon high. Governments will also want to talk about so-called “carbon leakage”, where heavy emitters in one nation with a trading system simply move abroad…"

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"With more countries preparing for cap-and-trade schemes over the next decade, worries about global competitiveness ought to diminish. But the practical problem of international standards in auditing emissions remains.

"…India should press forward for a neutral emissions auditing agency, which could be formed using existing infrastructure of United Nations…[I]f world fails to impose a carbon floor due to the economic slowdown, we will need other means of increasing the price of carbon, such as national policies of taxation which will nudge citizens in the right direction. In some respects, taxes are more effective than carbon trading because they are more easily controlled and the state can institute them…[For taxes,] a neutral agency's oversight is recommended for proper enforcement…"