Advocates of carbon-trading schemes in the United States like to point to Europe's cap-and-trade program as a model worthy of emulation. The European Union's Emission Trading System, which has been in place since 2005, puts a price on carbon dioxide pollution for the purpose of inducing industry to cut emissions of greenhouse gases and reduce the effects of climate change. European governments set annual caps on total carbon dioxide emissions that may be produced by a group of energy-intensive industries. They then hand out a number of allowances to each company, allotting them on the basis of past emissions. Each allowance, called an EUA, permits the company to release a ton of carbon dioxide into the atmosphere. Companies whose emissions exceed their allowances for a given year must buy more; those with fewer emissions can sell their allowances.

While other governments and authorities (including a consortium of U.S. states) are experimenting with carbon trading, Europe's system accounts for more than three-quarters of such trading on a global scale. The trade in EUAs has amounted to more than 140 billion euros ($196 billion). Yet Europe has vanishingly little to show for all this.