Europe's five-year-old carbon trading market continues to suffer from a glut of government giveaways to favoured industries, according to a report on a New York Times blog.

The inter-governmental carbon trading system --- also known as cap-and-trade --- is distinct from the regional carbon offset trading system being facilitated on behalf of British Columbia schools and municipalities by the Pacific Carbon Trust, a crown corporation.

Conceived to make it more expensive to emit greenhouse gases, the fledgling system in the European Union has been rocked by extreme volatility, cyber-attacks, tax fraud, recycling of used credits and suspicions of profiteering.

Despite those difficulties, carbon trading has developed into a business worth about $140 billion annually. While most of that business is concentrated in Europe, Asian nations are rolling out systems and Australia and the United States are still considering using trading as a tool for cutting carbon in the future.

The Green Blog post notes that under the E.U. system, governments both set pollution caps and issue permits to trade carbon dioxide emissions. The permits sell for about 16 Euros -- or $22 Canadian dollars -- per tonne.

Five years ago, European governments gave away excessive numbers of the permits under pressure from industry. The surplus was so substantial that the permits became nearly valueless.

The system eventually recovered. But the price of permits has never been high enough for long enough to force polluting companies to make deep and lasting changes to the way the use or generate energy.

A major issue is that giving away large numbers of permits has been a hard habit for governments to break.

The Union already has decided to require most electricity utilities to buy all of their permits, starting in 2013. But powerful lobbies from energy-intensive sectors like steel and chemicals have argued as forcefully as ever that they would have trouble competing internationally and might need to cut jobs, if made to pay for all of their permits.

B.C. industries are not required to become carbon neutral, though many are subject to the provincial carbon tax. B.C. municipalities and schools are required to become carbon neutral this year. For most, purchasing offsets is only way to achieve carbon neutrality.

Monte Paulsen reports on carbon shift for The Tyee.