Emissions Trading Cold Snap Pushes Up Carbon Price

Carbon prices soared yesterday, sparked by a snap of cold weather across Europe in one of the busiest Jays of trading since the market was launched under the European Union’s greenhouse gas emissions scheme Carbon reached Euros 9.08 a ton at the end of trade, the highest closing price since the emissions trading scheme was launched on January 1. The scheme established a new market for carbon by setting emissions allowances for energy-intensive industry which can be bought and sold, putting a price on carbon dioxide for the first time Companies producing less than their limit, usually through improving their energy efficiency or introducing new technologies, can sell their excess allow on an open market. Companies producing more than their limit perhaps because of expansion of their business or a failure to invest in new technologies, must buy extra permits or face fines of Euros 40 .1 ton from the EU [European Union]  The snap of cold weather was one of the most important factors in raising the carbon price and the volume of trades, according to carbon analysts Point Carbon Much of England and southern Scotland saw problems with snow and ice. following strengthening easterly wind and falling temperatures the continent: There were 15 centimeters of snow in Edinburgh. The Met Office said the icy blast would last for the rest of the week. Much of Continental Europe also saw snow amid sub-zero temperatures As cold weather strikes, demand for heating and electricity surges, and with it the output of electricity generators This in turn creates more carbon dioxide-a by-product of burning fossil fuels As generators get to grips with the implications of the sudden onset of more severe winter weather for their output, they might choose to buy more carbon dioxide allowances Other factors that buoyed prices were record power prices in Germany for 2006 and market rumors that the EU would force a larger than expected cut in the amount of carbon that Polish industries would .be allowed to emit.

Economists have little sympathy with this type of’ argument. To economists, good environmental policy begins by acknowledging the first of the Ten Principles of Economics in Chapter People face trade offs Certainly, clean air and clean water have value. But their value must be compared to their opportunity cost-that is, to what one must give up to obtain them. Eliminating all pollution is impossible Trying to eliminate all pollution would reverse many of the technological advances that allow us to enjoy a high standard of living. Few people would be willing to accept poor nutrition, inadequate medical care or shoddy housing to make the environment as clean as possible Economists argue that .some environmental activists hurt their own cause by not thinking in economic terms A clean environment is a good like other goods, Like all normal goods, it has a positive income elasticity Rich countries can afford a cleaner environment than poor ones and, therefore, usually have more rigorous environmental protection. In addition, like most other goods, clean air and clean water obey the law of demand: The lower the price of environmental protection, the more the’ public will want The economic approach of using pollution permits and corrective taxes reduces the cost of environmental protection and should, therefore, increase the public’s demand for a clean environment.

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