Amid an awful lot of recessionary gloom, Europe may have taken a small but significant step forward with a new report out by the New Carbon Finance group, which shows that the EU’s ETS (Emission Trading Scheme) may actually be working. I don’t know how authoritative this report is, and the difficulties of tracking carbon emissions across Europe force us to take each report with a grain of salt. Indeed, I would hesitate to call this authoritative until further reports can confirm. However, if it is true, this could well be a turning point in the struggle against Climate Change.
The problem with all Climate Change solutions, apart from political will power, is actually designing a system to contain them. With competing influences, from the problems of levying further direct taxes, to interfering with the free markets (which as everyone knows always work flawlessly without exception) cap and trade – the broad idea of which the ETS was a derivative of, was seen as the best compromise solution to all.
It works very simply,( and you can read the wikipedia article here, or the specific EU ETS here) but essentially each country in the EU is assigned a certain number of permits to cover its pollution, these are then sold/auctioned/given away ( a point of much controversy) to polluters. Polluters then need to pay for permits, and those who reduce their pollution can then sell their permits to polluters (as they have an excess). Essentially it increases the cost of pollution, with each new stage the total number of permits given out across the EU are reduced, raising the price of pollution, making polluting ventures less and less profitable, and creating greater incentives not to invest in polluting energy/industrial activity or to find ways to reduce pollution. A market based solution.
However, unsurprisingly with a scheme which has to cover thousands of businesses, there have been a large number of problems..
1. As the WWF documented, there were loopholes, some companies were able to evade pollution costs by carbon offsetting ( itself a contentious issue in Climate Change circles). The benefits of this to the environment are difficult to measure, many are based on theoretical increases in emissions (e.g. buying more fuel efficient stoves for people instead of the coal stoves they were probably going to buy…)
2. Another problem was the first phase handed out far too many permits were handed out, this crashed the price of pollution, and where it didn’t crash the price could result in effectively handing out money to energy and industrial companies.
3.The third problem, is that carbon trading only accounts for 40% of Europe’s emissions. In part, its difficult to regulate some areas of personal emissions, but key industries like aviation were missed out, making the ETS limited at best. National lobbying also saw some countries such as Germany gain opt outs for its heavy industry.
Nevertheless, I think of these problems more as teething issues in what is a highgly complex system to regulate. As WWF asserts, and what this new report may indicate is that fundamentally Cap and Trade systems can work.
Perhaps the biggest problem is simply a lack of political will to shoulder a burden that other countries aren’t shouldering in and that alone will not halt Climate Change.There is an urgent need for a global greement. European countries were only able to agree to this scheme because it was a collectively shared burden, but Europe was hardly like to shoulder an excessive burden if the US and China did nothing to reduce their own emissions.
However, things are looking decidedly different, a new wind is blowing through Washington. President Obama has not only talked of Climate change he’s started to walk the walk.
His key picks were : Holdren as a Science adviser, someone who has been vociferouson the perils of climate change and the need to act.Stephen Chu for the Department of Energy was crucial – another Scientist with exceptional credentials and Lisa Jackson as Environmental Chief. Furthermore the stimulus bill saw a cool $60 billion for green works. This was disappointing givent he size of the bill and the potential for green energy in job creation, long term energy security and the economic benefits of leading the wolrd in green technolgoy but nonetheless remains an important boost to the industry.
However, even more important than the domestic solutions is the need for a global agreement, and Secretary of State Hillary Clinton put the issue front and centre, by selecting a special envoy Todd Stern for Climate change. The message is clear, the US is gearing up for a global treaty on emissions reductions.
A global agreement would not only forcibly strengthen the resolve of the EU to improve and expand the coverage of ETS, but the ETS itself could become the foundation for a workable global system to reduce carbon emissions. Heady times to be sure and undoubtedly there will be further setbacks but don’t underestimate the landmark potential of this report.
March 8th, 2009 at 16:36
[...] wrote previously about the role of Cap and Trade in Europe, noting cuatiously that it appeared to be working. However, there are some convincing argument that [...]