Europe Needs a Higher Price on Carbon

Europe’s promise to lower greenhouse-gas emissions looked bright a dozen years ago, when its leaders created the first big market for trading carbon permits. Sadly, though, its system has failed to encourage investment in clean technology and appreciably lower carbon dioxide emissions. Until the European Union trims the number of permits traded enough to drastically raise the cost of emitting carbon dioxide, its market will remain dysfunctional.

The idea behind the Emissions Trading System was simple: Cap the total amount of greenhouse gases each industry can emit, let companies receive or buy allowances according to their needs, and lower the cap over time. The price of carbon would gradually rise, nudging companies to invest in cleaner energy.