CLIMATE CHANGE:
Emissions Trading Up In Smoke
Sanjay Suri
LONDON, Feb 25 (IPS) - The EU emissions trading scheme is off to a start -
- in name, not in the factories producing the emissions.
EU (European Union) governments have in effect sabotaged the market they
have created by setting quotas for emissions by their industry that are
so generous that it is nowhere near feeling the squeeze that would make
trading possible.
The European emissions market was claimed as the trendsetter here even
before the Kyoto protocol came into effect on Feb. 16 after Russia
ratified the agreement last November. The EU emissions scheme began
officially Jan. 1 this year.
The emissions trading scheme (ETS) is one of three market mechanisms
designed to give effect to the Kyoto protocol, whose declared aim is for
a set of industrialised countries to cut emissions by 5.2 percent
relative to 1990 levels. That means a reduction principally of carbon
dioxide and methane among the greenhouse gases that are believed to cause
global warming, leading to climate change.
Under the ETS in the EU, each country gets a certain quota of greenhouse
gases it is allowed to emit, and within the country industries get their
own quota. The EU scheme covers at present about 12,000 industrial units
thought to generate about 46 percent of EU greenhouse gases. The quota
significantly excludes transport, the fastest growing pollutant, and
household energy use.
The principle behind the trading is that industry is forced to cap
emissions either by introducing technology to cut emissions or
by 'trading' its quota. If a power plant, for example, is producing 10
percent more emissions than the government has determined it can, then it
can buy carbon tonnes of emissions from a cleaner company that is
emitting less than it has been allowed to.
If everyone can emit so much that few will need to buy leftover carbon
tonnes from cleaner companies, the market will never get going. This is
just what is happening in the EU.
Much of the present trading appears to be tentative and speculative. On
Thursday (Feb. 24) about 800,000 allowances were traded in the EU around
nine euro (11.9 dollars) a carbon tonne. This works like any other
market; these units can be sold for a profit should the market price
rise. But the generous allowances mean that the market is not being
driven by industry needs, or by emission pressures.
''If there are no tight caps, it becomes just a game of trading, like
Monopoly,'' Mahi Siteridou from Greenpeace in Brussels told IPS. ''The
market will not do what it is designed to do.''
The trading scheme was intended to give companies the choice between
implementing clean technology or buying credits earned by cleaner
others. ''But the lax quotas mean that it is difficult for companies to
face that question,'' Siteridou said.
Early speculative trading has placed the price of a carbon tonne of
emission around ten dollars. Many environmentalists believe it would need
to be at least double that before industry can wake up to emission costs
and bring 'life' to the market.
Quotas have had a clear domino effect across the EU. Almost every country
has set high quotas in order to reduce costs to national industry and so
keep it more competitive in the international market. Britain set a quota
that was initially guided by consideration of emissions. It then
submitted a higher quota seeing the generosity of other governments to
their industry.
The European Commission, the executive arm of the EU, was given a set of
11 criteria to determine the national allocation plans. The principle
criterion was to determine whether these plans are in line with Kyoto
targets. The present allocation process has clearly failed.
The allocation plan is due to be reviewed later this year. ''The whole
scheme will have to be strengthened, and obligations under the scheme
examined,'' Siteridou said.
The present ETS is a pilot scheme up to 2007. EU governments will be
obliged to meet Kyoto targets over 2008-2012, the first phase over which
the group of industrialised countries have agreed to implement Kyoto
targets.
But the ETS up to 2007 could ''encourage a psychological shift,''
Siteridou said. ''Industry is recognizing that there has to be a limit on
emissions, and it is an important signal both internally and externally
that governments and industry must be committed to carbon dioxide
reduction.''
The other two market mechanisms under the Kyoto protocol include Joint
Implementation (JI) under which the signatories to the Kyoto protocol
listed in Annex-1 of the United Nations Framework Convention on Climate
Change (UNFCC) can earn credits from projects in other Annex-1 countries.
These would mean in effect East Europe where implementation costs are
likely to be lower.
The third is the Clean Development Mechanism (CDM) under which Annex-1
countries can earn credits from projects implemented in developing
countries.
(END/2005)
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