Abandon ETS, switch to CO2 tax: a new argmument

A Dutch professor is pleading to totally abandon the ETS system. Her argument  is that by using subsidies to reach their country targets countries are effectively pushing so much renewable generation capacity into the market that the cap-based system of the ETS will never set a serious price. This comes on top of lack of demand due to economic crisis.

Another market side effect is that so much low marginal value (sustainable) production is entering the market that energy prices are falling. Natural gas based generation is far too expensive. Only cheap coal (due to the fracking boom in the US)  and very inflexible German lignite plants (probably even their fuel counts as sunk cost) are running. Excess capacity in Germany is exported leading to depressed prices in neighboring countries.

Instead of trying to revive the ETS he pleads to introduce a simple tax on CO2. She is not the only one. And there are other advantages of a tax based system. The predictability of prices making investments is making abatement viable earlier. Also  the location of the tax is tied to the place of economic activity, and it is less susceptible to political manipulation (the free permits handed out in the ETS system). But energy intensive industries that are in international competition will require relief.

Here is the link to the Dutch newspaper article: Hoogleraar: Stop EU-belasting op CO2-uitstoot – Groen – TROUW.

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