SINCE climate change was identified as a serious threat to the planet, Europe has been in the vanguard of the effort to mitigate it. The policies it has adopted are designed with two aims in mind: to cut European emissions drastically and to push other big emitters into adopting similar policies. By both measures, they have failed.

That America and China have not taken serious steps to reduce their own emissions is hardly Europe’s fault. Yet had Europe’s policies worked better, other countries might have been more inclined to emulate the leaders in the field. That is one reason why the European Commission’s announcement on January 22nd of modest increases in its targets for emissions reductions and renewable-energy use, rather than a complete overhaul of the system, was such a disappointment (see article). Another is that the existing policies impose heavy costs on European consumers and companies, and well-designed ones could cut emissions much more cheaply.

European climate policy has two main strands. One is a carbon market to raise the price of pollution. The other—to give an extra push to investment, research and development in green energy—is a programme for boosting renewable energy through production targets and subsidies on, for instance, wind and solar power. Neither has worked.

Europe’s targets for the proportion of energy that is supposed to come from renewables—27% by 2030 for the EU as a whole—are substantial, and its subsidies generous. As a result, the renewable-energy sector has grown mightily. But much of it is not exactly the fuel of the future. The largest source of renewable energy in Europe is wood. The cost of subsidies has been far greater than anyone had expected: €16 billion ($20 billion) in Germany in 2013, which works out at a massive €150-200 per tonne of carbon dioxide. (Home insulation, in contrast, saves money while reducing emissions.) And the damage to the old electricity providers has been far worse than expected. The 20 largest European energy utilities have lost a jaw-dropping €500 billion in market value since 2008.

The renewables policy also undermines the carbon market—the EU’s emissions-trading scheme (ETS), on which companies trade the permits their governments give them to emit carbon. The trading system is designed to ensure that each tonne of carbon is saved at the lowest cost. But when electricity generators cut emissions under the renewables programme, they end up with more ETS allowances than they need. They sell the excess to other users, who can then emit more carbon than before, so the renewables target does not reduce emissions. But it increases the effective supply of permits, which pushes down the price—now languishing at around €5 a tonne, while companies are cutting emissions at a cost of over €150 a tonne under the renewables programme.

Given that many of Europe’s economies are so weak, it is tempting to say: abandon these failed policies and give up trying to restrict emissions. The trouble is, carbon is still building up in the atmosphere, evidence of global warming is accumulating in the oceans and a lot of the increase in carbon dioxide in the atmosphere since the industrial revolution came from Europe. The continent therefore has a responsibility to get the world to change its ways—and to change its own.

A proper model for others

Instead of tinkering with the renewables targets, Europeans need to scrap them, and to get serious about the carbon market. The numerous exemptions—which include the makers of pianos and crocheted items—which allow companies to ignore it should be removed. That would raise production costs in a few industries, such as steel, but would provide bigger benefits to the economy as a whole. Carbon reduction would be more efficient. Governments would get tax revenues from the sale of permits which could be used to narrow budget deficits. Electricity prices would fall if carbon were no longer squeezed using exorbitant subsidies. Companies would have an incentive to invest in cheaper ways to cut emissions, such as switching from high-carbon coal to lower-carbon gas—which Europeans are ignoring. A switch to shale gas cut American emissions by 12% in 2007-12, more than in Europe. And if Europeans could make their carbon market work, other countries might even take notice and follow suit.