Selling indulgences for carbon emissions does not work

Regular readers are probably well aware that I am not exactly a big fan of cap-and-trade.  I have a whole vocabulary of slander for the idea.  But if you read the following articles, it becomes quite clear that in the world where neoliberals run the economic debate, cap-and-trade is the only game in town.  For those young enough to have grown up after the neoliberals convinced everyone that there was no alternative to their worldview and that history was over, ideas about well-regulated capitalism that were part of the normal discussion in my youth are considered impossible to smart, highly-educated folks as old as 50.  So for them, the failure of cap-and-trade eliminates their best hope for addressing climate change.

We can hope that this set-back for cap-and-trade will force the green policy planners to come up with better alternatives.  I wouldn't count on it, however, because if you actually believe something is impossible at 50, the chance your thinking will evolve is not high.  But here is a thought for those who believe that there are no alternatives to some cut-rate version of Thatcherism.  We are cooking the planet.  The ONLY solution is to stop burning so much carbon.  There. Is. No. Alternative.  The only flexibility comes from deciding on what approach will put out the greatest number of fires.  Cap-and-trade wasn't putting out many (if any) fires so it wasn't a very good idea.  So let's not even TRY to flog that dead horse back to life.

It's time to think big.  We want an all (or nearly all) electric society.  We want the equipment that powers our society to be at least 99% recyclable.  We want economic policies that put our citizens to work building that sustainable society.  And we want to put our fellow citizens to work NOW!  Jeers to the folks who think debts that exist only in a computer chip somewhere are enough reason so that we cannot address the very real debts we owe the planet.  (A longer version of this argument can be found here.)

EU strikes down carbon-cutting plans

mz/msh (Reuters, dpa, AFP)  16 APR 2013

A vote at the European Parliament saw a measure designed to cut carbon emissions in the bloc fail by a narrow margin. The move saw the price of CO2 credits drop.

In Tuesday's vote, European Union Parliamentarians rejected a scheme conceived by the European Commission last year that would have frozen a large portion of the bloc's carbon emission credits.
There were 334 votes against the proposal and 315 votes for. Sixty-three EU parliamentarians abstained.

The idea behind the measure was to reduce the available number credits in the EU's Emissions Trading System (ETS) in an effort to drive up the price of the credits. That way, companies would have had a greater incentive to invest in more environmentally-friendly equipment.

However, the vote actually sent the price of the credits down, meaning companies are better off continuing to pay for the credits than investing in alternative technologies.

The European Union's Climate Change Commissioner, Connie Hedegaard, was disappointed by the vote.

"Europe needs a robust carbon market to meet our climate targets and spur innovation," she said in a statement. "We will now reflect on the next steps to ensure that Europe has a strong EU ETS … the market, the investors and our international partners are all awaiting."

The argument against the Commission's proposal went that it would discourage competition and harm the economy.

"A limiting [of carbon credits] would further burden our industry and harm the competitiveness of Germany and the whole EU," said Germany's Economy Minister Philipp Rösler. He called the vote "an excellent signal for the economic recovery process in Europe."

The country's environment minister, Peter Altmaier, however, said the vote was "a step backward for the system of European emission trading."

Ireland, which currently holds the rotating EU presidency, said it would take up talks with individual member states about generating support for the carbon market. more

Failed Emissions Trading Reform: 'The End of a European Climate Policy'

Much of Germany's energy supply still comes from burning brown coal.

Europe's once celebrated cap-and-trade system to limit carbon emissions has languished. The economic crisis has caused the price of emissions licenses to plummet, and a recent remedy to the problem has been rejected by EU lawmakers. Climate policy expert Felix Matthes tells SPIEGEL ONLINE that an opportunity has been squandered.

The European Parliament on Tuesday voted down a proposal to make it more expensive for companies to burn fossil fuels, in what environmental advocates are calling a major setback in the fight against climate change.

The European Commission, the EU's executive branch, had proposed measures that would have increased the price per ton of emitted carbon dioxide that companies must pay under the bloc's Emissions Trading System (ETS), which was set up in 2005. EU lawmakers narrowly rejected the bill 334 to 315, with 63 abstentions.

The ETS was initially lauded by environmental advocates as the world's most ambitious effort to combat climate change. The number of certificates granting permission to emit carbon dioxide is capped, and companies can trade those certificates on the open market, in theory giving an economic incentive to invest in cleaner energy.

However the economy slump in Europe has caused the price of the emission certificates to drop dramatically, currently hovering around €5 ($6.50) per ton of carbon dioxide. The European Commission's plan would have delayed the auctioning of 900 million additional pollution certificates. While the European Parliament voted down the bill, it sent it back to committee for revision, leaving the door open for future reform.

SPIEGEL ONLINE spoke with climate policy expert Felix Matthes about the consequences of the proposal's failure.

SPIEGEL ONLINE: What does this vote mean for the emissions trade?

Matthes: This will have grave consequences. The price for certificates, which is already much too low today, will collapse. On top of that, I foresee a re-nationalization of climate policy.

SPIEGEL ONLINE: Is Europe-wide emissions trade threatened with extinction?

Matthes: I would go even further: The decision means the end of a European approach to climate policy. The paradox is that all the politicians who are constantly calling for more harmonization of climate policy in the EU and internationally are sending the policy back to the national level. That is an enormous step backwards -- also for global climate policy. Even China is now starting to pursue emissions trade. South Korea and Australia have already implemented it, and California has started a very ambitious system.

SPIEGEL ONLINE: Why do you find emissions trading so important?

Matthes: The advantage is that you can connect the systems worldwide. That would achieve what the United Nations has been unable to accomplish for years -- a global climate policy. And this opportunity is being intentionally destroyed.

SPIEGEL ONLINE: Why did the parliament reject the Commission's reform?

Matthes: There were largely two kinds of opponents. For the larger contingent, the opposition on the right, this wasn't at all about emissions trading. They want to break the climate change policy itself. And they might even manage to do that on the EU level. But they won't achieve that in Britain, France and Germany. The big member states have agreed on this policy. The German government is a leader with its transition away from nuclear energy.

SPIEGEL ONLINE: But there was also opposition from the left.

Matthes: Yes. They say it's not good for the markets to regulate it. They want environmental protection by other means. But they recognize that we need efforts that are feasible on a global scale. CO2 taxes and renewable energy laws are interesting tools, but in the end they are not feasible across the globe. Emissions trading, despite all its problems, is the measure with the greatest perspective. And now it's being broken.

SPIEGEL ONLINE: In its current form, emissions trading has proven ineffective. The certificates have become so cheap that investments in environmentally friendly technologies aren't worth it anymore. What happened?

Matthes: There are two main reasons for the problem. The first is that no one could have imagined an economic crisis of the proportion that we experienced in 2008. Economic activity in 2020 will be 15 to 20 percent lower than what we expected in 2008. That also means less energy consumption and industrial production, resulting in a surplus of some 500 million certificates.

SPIEGEL ONLINE: What's the second reason?

Matthes: Europe's Emissions Trading System is very generous in recognizing emissions reduction certificates from projects in China and other places as equal measures. So 1.5 billion certificates have flooded into the system, which you can see in today's current prices of just a few cents. There's no real emissions reduction there. We in Europe always assumed that the price could never realistically fall below €10. Now there are certificates for 30 cents and less. All together that means that there's a surplus of 2 billion certificates in the system. That just about corresponds to the annual CO2 emission of all regulated facilities. The tightening (of certificates) would have been a signal to the markets and the world that an effective emissions trading system will be in place beyond 2020, and it would have built the decisive framework for a long-term climate policy. The European Parliament has squandered this chance. more