EU ETS carbon spot price, 2011-2013. Graphic: The Economist

25 January 2014 (The Economist) – Since climate change was identified as a serious threat to the planet, Europe has been in the vanguard of the effort to mitigate it. The policies it has adopted are designed with two aims in mind: to cut European emissions drastically and to push other big emitters into adopting similar policies. By both measures, they have failed.

That America and China have not taken serious steps to reduce their own emissions is hardly Europe’s fault. Yet had Europe’s policies worked better, other countries might have been more inclined to emulate the leaders in the field. That is one reason why the European Commission’s announcement on January 22nd of modest increases in its targets for emissions reductions and renewable-energy use, rather than a complete overhaul of the system, was such a disappointment (see article). Another is that the existing policies impose heavy costs on European consumers and companies, and well-designed ones could cut emissions much more cheaply.

European climate policy has two main strands. One is a carbon market to raise the price of pollution. The other—to give an extra push to investment, research and development in green energy—is a programme for boosting renewable energy through production targets and subsidies on, for instance, wind and solar power. Neither has worked.

Europe’s targets for the proportion of energy that is supposed to come from renewables—27% by 2030 for the EU as a whole—are substantial, and its subsidies generous. As a result, the renewable-energy sector has grown mightily. But much of it is not exactly the fuel of the future. The largest source of renewable energy in Europe is wood. The cost of subsidies has been far greater than anyone had expected: €16 billion ($20 billion) in Germany in 2013, which works out at a massive €150-200 per tonne of carbon dioxide. (Home insulation, in contrast, saves money while reducing emissions.) And the damage to the old electricity providers has been far worse than expected. The 20 largest European energy utilities have lost a jaw-dropping €500 billion in market value since 2008. [more]

Worse than useless



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