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The fundamental defect in our system

Climate change is an indication that we’ve created a dysfunctional system. We have built a system that allows us to hurt others without facing the consequences. In economic terms: we have not set a price for the adverse side effects of our operations. If the sources of emissions were accountable for the damage they caused, we would not be facing anthropogenic climate change.

We must establish a factual price for the emissions, a price that would be paid as an integral part of the consumption causing the emissions. For certain products and services, a nominal price premium – in the form of environmental protection tax and emissions trade - is already included. However, the current system is not fully functional or comprehensive. The clearest indication of this is, that even when consuming responsibly, each one of us is still increasing the amount of atmospheric carbon dioxide.

A frequently proposed solution for this is a carbon tax. While a significant improvement to the current state, it would not be sufficient. The greatest challenge regarding the carbon tax is its permanent link to politics: the level of any tax is determined in political decision-making processes, and politicians would face a constant pressure to keep the level of taxation too low. Whenever carbon taxes were raised, populists would gain more ammunition for their demands. This would make the prevention of climate change even more challenging.

Emissions trading would be notably more practical. This system determines the maximum allowable level of emissions. Operators generating the emissions will have to purchase emissions rights in order to continue their operations. When fewer emission rights are released annually, the supply of emission rights presumably decreases. And since the price level of emission rights is determined by the laws of supply and demand, the price level automatically adjusts to a ”correct” level. Consequently, the burdensome discussion about the right level becomes trivial.

The rising prices of emission rights generate an incentive for enterprises to reduce their emissions, and subsequent investments in cleaner technology will save money and provide the companies with a competitive edge. Due to competition, companies reduce their emissions in those locations where it is the most cost-efficient. As an added bonus, emissions trading will provide us with an understanding of the total level of current emissions. This would not be the case with carbon taxes, which do not set a top limit for the emissions.

Not even the emissions trading is immune to bad political decision-making: the size of the emissions trading sector is limited, and the total amount of granted emission rights is higher than the amount our atmosphere can currently tolerate. Also, politicians often fail to allocate the funds strictly for climate change prevention, spending the money for other purposes. Both carbon tax and emissions trading come with one fundamental flaw: both of them still allow the climate to change.

As the name implies, emission rights system allows the amount of carbon dioxide in the atmosphere to increase. The climate change crisis is not resolved by paying for emissions. The amount of atmospheric carbon dioxide would continue to rise, and consequently, the climate change would intensify. All the funds must be used solely for solving the problem, not for mitigating the consequences. Money needs to be allocated for reducing the amount of atmospheric carbon dioxide, not just for slowing down the increase.

We must fix the defects of emissions trading. The trading as such could remain the way it is, but instead of us politicians, the decisions on the allocation of funds should be made by those parties absorbing corresponding amounts of carbon dioxide. Since it would be expensive to release emissions, the incentive to reduce them would still be in place. We would not set a price for moderating the consequences, but for solving the problem by removing carbon dioxide from the atmosphere.

We must establish a marketplace for absorbance of carbon dioxide, and we must do it as rapidly as possible. Finland now has its chance of a lifetime to impact the whole future of humankind. When Finland assumes the chairmanship of the EU in summer of 2019, our goal must be to have the EU implement a marketplace like this.