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Is emissions trading unfair?
Economist meets Photographer / #39
P: Good morning, Economist.
E: Good morning, Photographer.
P: Summer heat brought me to the climate issue. How can we mitigate global warming? So I’ve read about the European Union Emissions Trading System.
E: Good boy. Did you get it?
P: It is a system to reduce greenhouse gas emissions by limiting emissions for certain sectors of the economy. CO2 may only be emitted by those who have a certificate. Each year, a limited amount of so-called EU Allowances is made available for trading in the market, and this is reduced yearly in order for the EU to meet its target of a 55 per cent reduction in greenhouse gas emissions by 2030 relative to 1990 and net zero by 2050.
E: You should become an economist, Photographer.
P: But here is my question, Economist. Isn't this certificate trading unfair? Anyone who wants to pollute the environment buys a certificate. Isn't that a modern sale of indulgences?
E: Would you prefer that people are allowed to exhaust CO2 without paying for it, as has been the case since the beginning of industrialization?
P: I would prefer if we didn't produce any CO2.
E: That is the goal of certificate trading. The number of certificates is reduced over time, and CO2 emissions are reduced to the same extent.
P: But wouldn't it be better if CO2 emissions were banned by simply banning the technology that produces CO2? In Germany, for example, heating regulations are about to be passed that will work with such bans.
E: Every transformation needs a transition. The question is how to shape this transition in a way that not only is the goal achieved, but it is also achieved at the lowest possible cost. This is economics at its best.
P: And you're telling me the best way to do it is with certificate trading, right?
E: Correct. The constant reduction in certificates not only ensures target achievement, the reduction also succeeds with the greatest possible prosperity. This is because the certificates are tradable. So they get to where they can be of the greatest benefit. The goals of prosperity and spot landing are are much more difficult to achieve with other means.
P: Example, please.
E: Let’s take traffic. Instead of integrating traffic into the European emissions trading system, engine exhaust gas regulations have been steadily tightened. As a result, people have used increasingly economical engines to buy heavier and heavier cars. End of the story, the transport sector's total greenhouse gases fell less than planned.
P: I get it, emissions trading is spot on. But you didn't answer my question, Economist. That was about injustice. Only those who can afford it may emit CO2.
E: As I said, CO2 emissions used to be free for everyone, with the terrible consequences that we are experiencing today. So that wasn't any better. But it's true what you say, being allowed to emit CO2 depends on the size of your wallet. But that's how it is with all things. You have to pay for cut flowers, for going on vacation – and for buying the limited resource ‘CO2 emissions’. Also: The sale of CO2 certificates brings a lot of revenue to society, more precisely the state. This money could be returned directly to the citizens, possibly taking into account the wealth and income of these citizens.
< silence >
P: You must like lecturing, Economist.
E: You’d asked.
P: Have a nice day, Economist.
E: You too, Photographer.
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