11 February 2008

EU ETS: the emissions trading handouts continue

Those of you interested in the EU's Emissions Trading Scheme (and frankly, with a title like that, how could you not be?) might be interested to learn that the EU's claims that it will start auctioning its 'permits to pollute' are dubious, at best. Ok, if you haven't got the faintest what I'm on about, click here .

Despite the EU's claim that auctioning will become ‘the basic principle for allocation’ under the new ETS after 2012, the European Commission's draft directive sets up so many exceptions to this rule that it is hard to see what happened to the rule at all:

* First, it names the risk of ‘carbon leakage’ – 'ie. relocation of greenhouse gas emitting activities from the EU to third countries and thereby increasing global emissions.' as a result of its climate policy. This is used to justify the fact that most polluting sectors of the economy will continue to receive free permits to pollute; and that in others the ‘transition’ from free permits to auctioned ones is delayed for several years - despite the acknowledged urgency of the climate crisis.
* Second, the terms of this transition from a system of 'free' to 'auctioned' permits are lax. There will still be free allocation of 80% of allowances in 2013, decreasing year on year ‘by equal amounts’ until ‘no free allocation in 2020’. In other words, the majority of permits to pollute will still be given away until the middle of the next decade.
* Third, it is also proposed that a Commission study will identify by 30 June 2010 which sectors are affected by carbon leakage, and potentially allow these energy-intensive industries to receive ‘up to 100% of allowances free of charge’. This will be re-assessed every three years, so polluters who fail in their lobbying first time out can have several more bites.

To summarise what's happening here (in case you've not read the whole EU Draft Directive): the shift from a system of free permits to allowances is delayed, with the potential that it won’t happen at all. Where allocations are given away, windfall profits for the EU’s most polluting companies will continue. Where they are auctioned, windfall profits for the EU can be expected. Only 20% of that money will be ring-fenced for reinvestment in renewables or for contributing to funding for the poorer electricity users and countries… from whom the property rights to this ‘carbon’ were stolen in the first place!

It strikes me that there is a genuine problem that is being addressed here – ie. the EU can set rules on pollution domestically, but if these are not matched elsewhere in the world then factories could fly to those places where there are fewer environmental restrictions. However, (1) threats of this nature tend to be overstated as a lobbying ploy by industry to extract favourable terms from the EU: the real costs of relocation and the infrastructure needed to maintain certain industrial locations are high and may outweigh what could, in practice, only be a short-term economic benefit of relocating to avoid EU caps. A far more important point is (2) that this is a problem of the EU’s own making, since it is aggressively pursuing free trade policies (now rebranded as ‘global Europe’) that encourage a race to the bottom to undermine standards; (3) the EU's caveat to all this - namely, that it must also abide by WTO rules - disavows the EU’s role in making those rules in the first place. If you don’t worship at the alter of free trade, by contrast, this is a non-issue: there are various was of regulating to ensure emissions reductions without having to make concessions to insure against flighty capital.

And finally, in case you were ever stuck on how to rebrand failure as success, try taking some lessons from the EU:

The failed 2005 to 2007 ETS is now referred to as the “first ‘learning-by-doing’” phase. This phase ‘successfully established free trade of emission allowances across the EU, set up the necessary infrastructure… developed into the world’s largest single carbon market…’ etc….. hang on, there’s something missing from this list… successfully established a market, right, but what about actually achieving any emissions reductions? … “However, the environmental outcome of the 1st phase of the EU ETS could have been more significant [you don’t say…] but was limited due to excessive allocation of allowances in some Member States and some sectors, which must mainly be attributed to reliance on projections and a lack of verified emission data.” Ah, I see, nothing to do with excessive corporate lobbying meaning that the caps on this ‘cap and trade’ scheme were set so high that they didn’t actually cap anything…

1 comment:

marry said...

oho good dear !!!! very interesting blog and a good posting !!! you must maintain your blog, its interesting !!! Nice Buddy
________________________________

Research Papers Help