Carry on polluting.

• Author: Lohmann, Larry
• Position: Emissions trading

Of all the schemes under discussion to stop or limit catastrophic climate change, one of those getting most attention is pollution trading. This popular but little-tried idea lies at the heart of some of the most prominent international approaches to the problem, including the Kyoto protocol and the European Union's Emissions Trading Scheme (EUETS). The trouble is, it won't work.

Pollution trading was developed in the US in the 1980s and 1990s to make reducing emissions cheaper and more palatable for heavy polluters. The idea is that if business A can reduce emissions more cheaply than business B, then B can pay A to make reductions for both of them. Moreover, by putting a price on emitting greenhouse gases, trading is meant to encourage businesses to invent new technologies to replace fossil fuel use.

This approach is misguided. Arguably, the US sulfur dioxide trading program of the 1990s helped businesses save money in meeting modest short-term reduction targets for a single substance. But global warming requires a more radical solution: nothing less than a reorganization of society and technology that will leave most remaining fossil fuels safely underground. Carbon trading can't do this. It just encourages the industries most addicted to coal, oil and gas to carry on much as before. Why bother making expensive long-term structural changes if you can meet your targets by buying pollution rights from operations that can cut their carbon cheaply?

What's more, carbon trading schemes have tended to reward the heaviest polluters. Heavily polluting industries and nations are being granted roughly as many free pollution rights--which they can trade lucratively--as they need to cover current emissions. Under the EUETS, some of the worst greenhouse offenders, such as the German utilities group RWE, have earned hundreds of millions of euros in windfall profits just for pursuing business as usual. Meanwhile ordinary citizens suffer higher electricity prices, and renewable energy developers must beg for funds.

The EUETS and the Kyoto Protocol are further weakened by loopholes that allow big polluters to buy cheap "offset" credits from abroad. A British cement firm or oil company lacking enough EU permits to cover its emissions can make up the shortfall simply by buying credits from, say, a wind farm in India, a scheme to destroy HFC refrigerants in Korea, an energy efficiency program in South Africa or a project to burn landfill gas to generate...