Sunday, August 5, 2007

European companies are not yet taking full advantage of carbon markets

IT SOMETIMES seems that plans for emissions trading are piling up even faster than the greenhouse gases they are designed to curb. In late July the first emissions exchanges in Australia and Canada opened, in anticipation of mandatory carbon-trading schemes in both countries. America already has a healthy voluntary carbon market, and will soon add an obligatory one for utilities in certain states. But the evidence from the most advanced such “cap-and-trade” programme, the European Union's Emissions Trading Scheme (ETS), suggests that companies are struggling to make the most of carbon markets.

In theory, cap-and-trade schemes allow firms to reduce their emissions at the lowest possible cost. Governments put a limit on the amount firms can pollute, and issue an equivalent number of allowances. Those companies that find they do not have enough must either cut emissions or buy spare allowances from others. But for the system to work efficiently, firms must take advantage of all opportunities to reduce the costs of participation....

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