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Carbon crunch clouds U.S. cap program

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Kai Ryssdal: Go ahead and think about this if the economy is keeping you up at night. As demand for everything from toys to rolled steel has dropped, so too has the amount of pollution generated by all the plants that make all those things. That in turn is playing out in the European carbon markets, where traders buy and sell permits for the right to pollute.

Applying the laws of supply and demand here, there is less demand for pollution if there is less demand for production. And in fact, since July, those permits are down nearly 70 percent. From the Marketplace Sustainability Desk, Sam Eaton reports.

Sam Eaton: The European carbon market was set up by countries that signed on to the Kyoto climate treaty. It basically allows polluters to buy and sell the right to release greenhouse gas emissions into the atmosphere. Each credit is the equivalent to a ton of CO2. And as recently as July those credits were fetching as much as $40. But Mark Trexler with the consulting firm, Ecosecurities, says with the global economy in a slump those days are over.

Mark Trexler: People just aren’t emitting nearly as much CO2 as they thought they would.

Now heavy polluters like Europe’s cement, steel and paper industries are all trying to unload their excess credits at once. That’s driven the price of carbon down from its $40 peak to this week’s record low of about $13 a ton.

Trexler: People have invested a lot of money in these markets over the last four or five years. And a lot of that money is vanishing right now.

And as the money vanishes, so does the confidence many people have in carbon markets as a way to reduce global emissions. President Obama wants the U.S. to take a leadership role at December’s U.N. climate meeting in Copenhagen. But critics of passing a similar cap and trade program here in the U.S. say the European carbon market isn’t working. Jonathan Lash with the World Resources Institute disagrees. He says the falling price of carbon isn’t necessarily a bad thing.

Jonathan Lash: The fact that supply temporarily exceeds demand and prices fall doesn’t seem to me an indicator that markets aren’t working but that they are.

He says unlike a carbon tax, which imposes a set price on emissions, cap and trade allows prices to rise and fall with the economy.

In Los Angeles, I’m Sam Eaton for Marketplace.

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