China may be distributing too many emission allowances for its new emissions trading system. According to a new study, a surplus of these allowances will cause the price of CO2 emissions to crash to zero. Too low a baseline for the efficiency of participating coal-fired power plants will lead to a surplus of pollution allowances, Bloomberg quoted Matt Gray, co-founder of Transition Zero in London, which says it advises governments and companies on how to transition to carbon-neutral economies. The problem is that if the price of emissions certificates is too cheap, older power plants with high CO2 emissions, for example, have no incentive to reduce them – because they can buy the certificates at low prices from efficient power plants.
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