Cap and trade - not the only way to skin the cat

Following his defeat in the mid-term elections, US President Barack Obama has now announced that he will drop his plans for a cap and trade system to reduce CO2 emissions. The idea behind cap and trade is to put a limit on greenhouse gases and then allow companies to buy and sell pollution permits under that ceiling.

President Obama said:

Cap-and-trade was just one way of skinning the cat; it was not the only way...I'm going to be looking for other means to address this problem.

As we've argued many times before, the cost of the EU's Emissions Trading Scheme (EU ETS) is massive and it's far from clear that a cap and trade system is the best way to achieve global emission cuts, while also encouraging investment in alternative energy. Obama's decision is sensible. But it clearly has implications for Europe, not least since the EU might now be put at more of a competitive disadvantage in the absence of a cap and trade system in the US.

Interestingly, former deputy prime minister John Prescott - who was a key UK negotiator at the Kyoto global warming conference in 1997 - today argued that in light of Obama's decision world leaders should ditch their hopes for achieving enforceable targets for emissions reductions. Instead, he said, they should push for a voluntary agreement at the upcoming Cancun summit:

Let's have a voluntary agreement. Let's stop the clock. Instead of Kyoto having to be done by 2012, stop it for about five years, put in a voluntary agreement and a verification system.

For his part, German Economy Minister Rainer Brüderle warned yesterday against imposing more environmental rules on German industry, arguing that global competition doesn't allow for a go-it-alone approach. He has a point.

The better way forward for the EU would be to set overall targets but then allow individual member states to reach them in whichever way they deemed to be the most cost-effective.

There is more than one way to skin the cat - also in the EU.