Buying, but not using, carbon credits

2008-09-04

in Economics, Politics, The environment

One attractive element of a cap-and-trade system for reducing greenhouse gas emissions is that it would permit entities other than firms to buy credits, which they could then choose not to actually use. For example, a cap-and-trade system might mandate that emissions in 2020 return to 1990 levels and require that all credits be auctioned, rather than issued for free to past polluters. In Canada, that would mean selling 596 million tonnes worth of emission permits.

Firms wishing to emit greenhouse gasses would then need to buy permits for whatever quantity they choose to emit. Given the cap on the total number of permits to be sold, the price of permits will rise to the point where a sufficient number of emissions are cut. Because of the economic incentive produced to cut out whichever emissions within the economy would be cheapest to eliminate, the overall cost of compliance is minimized.

If, however, groups exist that feel that cuts deeper than 1990 levels by 2020 are required, they could buy permits on the same market. In so doing, they would reduce the supply available and increase the price of those remaining. This would induce firms to eliminate emissions where the cost per tonne is between what the price of permits would be without this independent action and what the price has become along with it.

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{ 3 comments… read them below or add one }

R.K. September 4, 2008 at 10:01 pm

Is it at all possible that conservation groups buying credits will be a major factor in how a cap-and-trade system would function?

Milan September 5, 2008 at 6:17 pm

Probably not, but it is nice to give people the option of voting with their dollars.

It would also create quite a credible form of carbon offset, since you could be sure that someone else would otherwise have emitted the number of tonnes worth of credits you bought.

. September 27, 2008 at 5:22 pm

Buy yourself a tonne of CO2 emissions

By lucia__is__dada on climatechange

sandbag.org.uk is a not-for-profit website that allows members to buy up surplus “permits to pollute” that form the currency of the European Union’s emissions trading scheme (or EU ETSs). Members can then “retire” them so that they cannot continue to be traded between the industrial polluters – cement, steel and car manufacturers etc – forced by EU regulation to operate within the system. “I suppose it’s a bit like burning money in front of someone so they can’t spend it on something bad,” says the founder, Bryony Worthington, to the Guardian.
Their site also has a map where you can see the locations of the UK’s biggest carbon emitters and their annual allowances.

A tonne of carbon is priced at about €25 or £20 or $35.

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