seemed like a good idea at the time

As the United States moves toward taking action on global warming, practical experience with carbon markets in the European Union raises a critical question: Will such systems ever work?

Europeans took an early lead in efforts to curb global warming, championing the Kyoto Protocol and imposing a market-based system in 2005 to cap emissions from about 12,000 factories producing electricity, glass, steel, cement, pulp and paper.

Companies buy or sell permits based on whether they overshoot or come in beneath their pollution goals. European Union officials acknowledge that establishing such a vast market has been more complicated than they expected.

“Of course it was ambitious to set up a market for something you can’t see and to expect to see immediate changes in behavior,” said Jacqueline McGlade, the executive director of the European Environment Agency. “It’s easy, with hindsight, to say we could have been tougher.”

A major stumbling block arose at the outset, when some participating governments allocated too many trading permits to polluters when the market was created. That led to a near-market failure after the value of the permits fell by half, and called into question the validity of the system.

Heat Is Online – originally The New York Times, June 20, 2008