Two stories reprinted in Climatewire today provide a funny reminder that politicians can’t set the ‘right’ price of a commodity even when the fate of the Earth supposedly hangs in the balance. 

On Tuesday, Norway decided to follow European Union (EU) policy and establish a carbon ‘compensation fund.’ The program will bribe pay some 80 energy-intensive firms $90 million not to move their operations overseas. The government contends that without such payments, the EU Emission Trading System (ETS), adopted to implement the Kyoto Protocol, will trigger (or accelerate) the flight of capital, jobs, and emissions abroad. Reuters reports:

“The purpose is to prevent the Norwegian manufacturing industry from moving their enterprises to countries with less strict climate regulations,” Prime Minister Jens Stoltenberg said.

Changes to the EU’s Emissions Trading Scheme (ETS) from next year allow member states to compensate big energy users, like aluminum or steel producers, for costs linked to carbon emissions. The plan is to prevent higher costs driving business out of Europe.

Although ETS carbon prices are high enough to make EU manufacturers uncompetitive, those prices are not high enough (according to critics) to spur technology innovation*:

“This shows some of the fundamental problems with emissions trading,” said Steffen Kalbekken, head of research at the Center for International Climate and Environmental Research in Oslo. “We are getting the worst of two worlds.

“The (carbon) prices are too low to produce the technological shift we need” to force big emitters to clean up, he said. “But they are still high enough to cause some problems for industry and international competition.”

EU carbon permit prices for December have fallen to 7.74 Euros ($9.98) per ton — lower than three of the U.S. Government’s four ‘social cost of carbon‘ estimates. The European Commission is now “pressing ahead with a plan to counter an oversupply of CO2 permits in the EU emissions trading market after a 37 percent drop in prices last year,” Bloomberg reports. The commission “is preparing a proposal to postpone sales of an as-yet unspecified number of allowances in 2013.”

Of course, if that plan goes through, and carbon permit prices rise, European countries may have to pony up even larger subsidies to keep manfacturers from moving to Asia and South America.

So are ETS carbon permit prices too low or too high? They’re high enough to spur innovative ways to get the heck out of Europe asap.

* The notion that higher carbon prices will incentivize innovation rather than induce stagnation (and/or capital flight) is highly dubious. As noted previously on this site, gasoline taxes convert into carbon taxes and vice versa. When combusted, a gallon of gasoline emits 8.91 kilograms of CO2. This means that a $100 per ton CO2 tax on gasoline is a gasoline tax of $0.89 per gallon. For decades, Europe has been taxing gasoline at $3-$4 per gallon, thereby imposing implicit CO2 taxes of more than $300-$400 per ton.

Yes, because of high gas taxes, Europeans tend to drive dinkier cars, and more diesel cars, than Americans do, but Europe is not one mile closer than we are to achieving a ‘beyond-petroleum’ (all-electric) transport system. What’s more, despite much higher gasoline prices, EU transport sector CO2 emissions increased by 26% from 1990 to 2006, and EU transport was the fastest-growing source of GHG emissions during 1999-2008.

Green groups in Wisconsin are attacking a bill that would allow utilities and electric cooperatives to comply with the state’s renewable portfolio standard (RPS) by importing hydroelectricity from Manitoba, Canada, today’s Climatewire reports. The bill (SB 81) passed in the state Senate earlier this week.

Talk about dumb and dumber. Wisconsin’s RPS mandates that 10% of the state’s power come from renewable sources by 2015. A soviet-style production quota, an RPS props up electricity sources — such as wind and solar power — that can’t compete on the basis of cost and quality. As economic policy, an RPS is about as cheesy as it gets.

But as long as a state is going to have an RPS, why not at least allow electric service providers to obtain renewable electricity at the lowest price and the highest quality? That is the objective of SB 81.

As Climatewire explains, Canadian hydropower costs less than Wisconsin-based wind and solar power. Canadian hydropower also has a smaller carbon footprint, because it does not need to backed up by natural gas generation when the sun doesn’t shine and the wind doesn’t blow. Keep in mind that the main rationale for RPS programs is the supposed need to mitigate global warming by reducing greenhouse gas (GHG) emissions.

So why are green cheeseheads opposing SB 81?

“If we all depend on Manitoba hydropower, we will be creating jobs in another country,” said Keith Reopelle, a senior policy director at Clean Wisconsin, an environmental group. In the long run, this could make it harder to reduce greenhouse gases in Wisconsin, he said, since the state will not have the renewable manufacturing base it might have otherwise.

Actually, prohibiting imports of lower-priced hydropower will create jobs elsewhere by making the Wisconsin economy less competitive. Conversely, allowing Wisconsin firms to get more bang for their electricity buck will make the state a more attractive place to do business.

As for long-term GHG emissions, who the heck knows whether shutting out Manitoba hydropower would help build a “renewable manufacturing base” in Wisconsin? So far, U.S. and European RPS programs have mainly benefited lower-cost manufacturers in China — the world’s leading GHG emitter.

Besides, manufacturing is an energy-intensive process, so adding any kind of manufacturing base to a state where coal fuels two-thirds of all power plants would likely induce a net increase in GHG emissions.

In discussions of trade and economic policy, China increasingly plays the role that Japan once did — simultaneously vilified and lionized as both threat and model.

In the 1980s, ”trade hawks” warned that Japan would “hollow out” our economy unless we adopted Japanese-style industrial policy to counter Japan’s “unfair” trade practices. Today, “progressives” warn that China will “eat our lunch” in the “clean tech race” unless we aggressively subsidize domestic manufacturers of wind turbines, solar panels, and the like, to counter China’s clean-tech subsidies, which, we are told, constitute “unfair” trade practices.

If there is any consistency in these discussions, it is that subsidies are always either good or bad, fair or unfair, depending on whether they rig the market for “our” companies or “their” companies.

Oh yes, there is one other point of consistency — everybody agrees “clean tech” can’t compete without subsidies. This came out during a conference earlier in the week at the Center for Strategic and International Studies. Sun Guoshun, first secretary of the Chinese embassy in Washington, D.C., defended his government’s use of subsidies as necessary to having a clean-tech sector. 

As reported today in Climatewire (subscription required), Mr. Sun said: “It is the consensus of the international community that renewable energy is not in a position to compete with fossil fuel energy. So if you’re not going to subsidize renewable energy, there will be no renewable energy.”