Europe's Cap-and-Trade System Did Work, After All

It's clearly carbon-reduction day here at Market Movers, and I make no apologies for that, because there's some very interesting stuff coming out. The latest, which I've just discovered via Alexander Campbell, comes from the first issue of new journal, Review of Environmental Economics and Policy. It turns out that the European cap-and-trade scheme has not at all been the disaster that carbon-tax proponents say that it is, and that in fact, despite over-allocation of emissions allowances, the scheme has already brought Europe's carbon emissions down to about 7% lower than where they would have been had there been no cap-and-trade scheme at all.

Now that the exact level of emissions is better known, of course, there's much less room for fudging and over-allocation, and the second phase of the scheme, from 2008-12, is likely to be more impressive still. If the US joins it, or creates something like it, it could well be the world's best hope for a significant reduction in global emissions.