Thursday, January 13, 2022

Climate Change: Here we go again

Last year the government turned the ETS into a farce, flooding the market with 7 million tons of extra pollution in a failed and counterproductive effort to keep carbon prices low. Using the government's internal carbon price of $150/ton, the social cost of this was just over a billion dollars (about a third of which was offset by auction revenues). The social "benefit" it produced was just $15 million. The government had a chance to fix this, by raising the cost-containment reserve trigger price - the price at which it floods the market - significantly, or just by abolishing the system entirely and setting the CCR amount to zero. They didn't. And now, predictably, it looks set to happen again.

This year's CCR trigger price is $70/ton. According to Commtrade, the carbon spot price is already $70.75, having risen by about a dollar yesterday. The auction price usually tracks the spot-market price, so if it stays at this level or rises, then we can expect the CCR to be triggered again at the first auction in March. Which means another 7 million tons of pollution allowed under the ETS, and another billion dollars down the drain.

The obvious question is: when is the government going to fix this? Or are they just going to keep pissing money down the drain while allowing more pollution in a desperate effort to undermine their own policy?