The musical chairs of carbon rights

Ronald Huisman, Professor of Sustainable Energy Finance at Erasmus School of Economics, performed at the VPRO programme series: Tegenlicht Meet Up, at Pakhuis de Zwijger in Amsterdam. The theme of the evening was nature as a business model. 

The programme compared the Emission Trade System (ETS) to musical chairs. It starts with a lot of chairs and gradually more and more chairs go away. Huisman sees this as a good comparison. The origins of the ETS lie with the Kyoto Protocol, where countries pledged to reduce their emissions. In the beginning, the idea was that governments would give away a certain number of allowances each year. Each successive year, allowances would then be taken away, something that could be likened to a game of musical chairs. However, the problem here is that there is no scarcity, as there is a surplus of allowances. In addition, the price of allowances still does not appear to be enough and should be much higher, according to studies. 

A correlation can be seen between the level of the ETS and total emissions. However, there are also other factors at play. For instance, an increasing number of companies are working on sustainability outside the ETS. There also seems to be ethical capitalism, opting for long-term greed rather than short-term. There are also now an increasing number of pension funds choosing to invest in impact. 

For the system to actually work, a carbon killer idea would have to be used. The moment new allowances are released, the old allowances should then be destroyed. This will counteract the surplus and raise the price due to scarcity.

Professor
Ronald Huisman, Professor of Sustainable Energy Finance at Erasmus School of Economics
More information

You can watch the full episode of VPRO, 4 December 2024, here.

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