photo credit: Compound Eye

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.

photo credit: alibaba0

photo credit: alibaba0

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.

photo credit: CatDancing

This week, drowned out by the clamorous roar of the global recession a small but significant event occurred simultaneously across both the UK and France. IRENA, established in 2008, convened formally for the first time on 26th January 2009, it’s a new organisation, similar to the IEA designed to provide policy advice and coordination for renewable energy among its members and to encourage technology transfers to developing countries. 55 countries, including many of Europe’s big hitters such as Germany, Denmark and Spain  have signed on and the US is expected to join in the near future, however the UK and France, despite leadership rhetoric on Climate change have both decided to watch from the sidelines.

IRENA’s founders, argue that the IEA, the current global energy body, favours fossil fuel energy sources and underestimates the role renewable energy can play (see a report by the EWG (Energy Watch Group) which emphasises this). With investment in renewable energies ramping up, IRENA has every chance of becoming a key player in the coordination of international renewable energy policy, so why are both the UK and France on the sidelines?

According to Le Monde despite some support from the French Minister of Ecology Jean-Louis Boloo, the French Foreign Ministry indicated resistance to joining IRENA; noting that it disagreed with English as the sole language of negotiation and that the Elysee was distinctly cool on the idea. Taken at face value you would think these reasons to be petty or disingenuous and you’d be right.

While we can only speculate as to the exact reason, one reason for France’s cool attitude could be a strategic one. Nearly three-quarters of French power comes from Nuclear power station, with partially state owned company EDF a world leader in this field. France has been a vocal proponent of exemptions for nuclear power stations in EU climate negotiations and EDF is licking its lips at the prospect of a new generation of  nuclear power stations as a green alternative to coal and gas.  This isn’t to say the French are against renewable energy, but approach with distinct caution.

By contrast, the UK could only dream of such strategic detachment, its non-participation masks far deeper problems with UK energy. While the French are looking at future energy markets with a view to guarding their share of investments, the UK’s energy policy has been one of total disarray , in fact the UK hasn’t had a coherent energy policy since the 1980s and is now looking at a bleak picture for at least the next 10 years, given an expected shortfall is set to occur around 2015, as evidenced in leaked Government documents reported in the Guardian.

The problem for the UK is twofold. On the one hand, an energy shortage has severe implications for the economy, from rising energy costs, to power shortages as well as the rising cost to the UK of every tonne of carbon in the cap and trade system. On the other hand the UK as yet still has no coherent energy policy making the likelihood of a shortfall period all the more likely.

The UK’s scatter gun approach to energy policy can be seen in its recent announcements. They range from from the good, a Department of Energy and Climate Change report indicating that offshore wind could power every UK home by 2020. To the bad, the possible construction of Kingsnorth power station without even carbon capture technology fitted, (flying in the face of the UK’s attempts to position itself as a leader on global climate change). To the ugly, the potentially messy attempt to build a new generation of nuclear power stations and renew old sites, such as Brown’s recent support for a Sellafield plant – sure to engender serious environmental protest and not just from green groups, but also MP led NIMBY-ism.

Britain’s lack of coherent energy policy has also led it into conflict with the EU as it seeks to water down the LCPD (Large Combustion Plant Directive) legislation which seeks broadly, to phase out dirty power plants. The UK is not unused to being out of step with Europe but being out of step with the global community, a critical portion of which IRENA may come to represent poses greater risks.

Both countries, undoubtedly, are waiting to take the temperature on the Obama administration’s commitment to Climate change. If the US presses for more aggressive action and a global treaty  then both will have the political capital from a globally binding treaty to press for a greener domestic energy policy , both able to placate their citizens that the burden of higher costs will not be theirs alone to bear.

The waiting game strategy isn’t entirely unreasonable, if the US puts its weight behind a global treaty not only would that bring China and India to the table, both of who have indicated that any negotiations are meaningless without the US but would also guarantee a more stable future investment climate for renewable energy. If that occurred the UK and France may well switch from laggers to leaders to put their companies at the forefront of rising investment in renewable energy and their current absence excused.