The carbon emission offset market in Europe is in crisis because of an unexpected 50% price drop in the last couple of weeks. True to Europe, the traders are demanding government intervention to prop up the price(!) of carbon offsets. While it is true that the governments can afford to buy more, why would they want to? The high price of hydrocarbons will curb carbon emissions.

Assuming that the coal/methane/nuclear balance continues to move toward nuclear for electricity, high gasoline prices mean less carbon. So either we will run out of oil or we will have high CO₂, not both.

Students of emissions trading will note there was a crash in the sulphur dioxide offset price when it first started trading too. It turns out it is a lot cheaper to offset emissions after people start trying than before. The basic price expectation is formed by the emitters and the captured regulators who have a strong interest in getting the grandfathered rights to be as high as possible by highlighting the extreme expense of emission reductions. Since many of the emitters are or at least were cost plus electric utilities, this can be quite high and have credible history. The price ends up being lower as decisions get decentralized by trading.

As I understand it, there's also the little matter than buyers are not responsible for ensuring the CO2 credits are 'real', under Kyoto. So I would not be surprised if the market is being flooded with bogus credits. The selling countries become responsible, but the penalty is to be assigned a tougher target in the next treaty round. If that country drops out, there's no penalty at all.

Selling "restraint" from carbon emmissions, filtered through a regulatory transnational treaty huh? I suppose selling "restraint" could work, but it's far more dependent on me not being a cheating crook than, say, selling a used car.