Government schemes that regulate greenhouse gas emissions through the trading of carbon credits can actually increase profits for high-polluting companies if carbon credits are initially given to these companies free of charge, says new Brock University research. Economist Marcel Oestreich and University of Guelph economist Ilias Tsiakas analyzed the impact on German industries of the European Union’s Emissions Trading System, launched in 2005 to combat climate change.

Under the system, regulators place a specific limit – or “cap” – on the amount of greenhouse gasses that factories, power plants and other companies are allowed to emit into the environment. Some companies emit less than their limit, while others emit more. The ones that emit less can sell the difference to companies that emit more than their limit through certificates commonly known as “carbon credits.” Responding to industry concerns that complying with the Emissions Trading System would make EU companies less competitive than their North American or Asian counterparts, EU regulators kick started the program by giving carbon credits to companies for free rather than charging for those credits….

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