green is the color of money: the eu ets failure as a model for the “green economy”

7/31/2019 Green is the Color of Money: The EU ETS failure as a model for the green economy

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Green is the Color of MoneyThe EU ETS failure as a model for the green economy

The big greenwash circus

23rd June 2012

Ricardo Coelho - Carbon Trade Watch


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Structure:

I. Introduction

II.The EU ETS: Failing by its own standards

III.Changes in the air?

IV.From carbon trading to the green economy

V.Conclusion

Green is the Color of MoneyThe EU ETS failure as a model for the green economy


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Introduction

The European Union Emissions Trading System (EUETS), implemented in 2005, is the main instrument forclimate action in the European Union. It was created

following the approval of the Kyoto Protocol, whichgave industrialized countries the right to exceed theirbinding greenhouse gas emissions targets.


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The two pillars of the EU ETS: Cap and trade + offsets

Introduction


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The EU ETS covers 30 countries, about 12,000industrial installations and about half of the EU's CO2

accounted emissions.

Introduction


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TheEUETS:Failingbyitsownstandards

In the first phase (2005-2007), free permits wereallocated according to historical emissions; a practiceknown as grandfathering that acts as a de facto

subsidy for the biggest polluters. Given the over-allocation, permit prices were low and emissions roseby about 7.5 per cent.

The second phase (2008-2012) saw the same pattern of

'grandfathering' permits. Emissions were 12.5 per centlower in 2011 than in 2008, but can be attributedmostly to the significant decrease in electricity andindustrial goods production, reaching 13.85 per cent by

2009.


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From polluter pays to polluter gets paid:

Almost all of the value of the permits given for free tosteel, iron and refineries sectors were passed through to

consumers. The windfall profits accrued from passingthrough these costs reached 14 billion between 2005and 2008 (CE Delft estimate).

By increasing electricity prices according to the priceof the permits utilities that were allotted for free, thepower sector may profit anywhere between 23 to 71billion in the second phase of the EU ETS (Point

Carbon estimate).


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Volatile and low prices in Phase I:


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Volatile and low prices in Phase II:


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The main drivers of emissions waves:

Emissions reductions in the 1990s can be attributed tothe replacement of coal for gas in power generation,

mainly in the UK and Germany, due to economicconcerns, as well as to the deindustrialization of theformer German Democratic Republic after the fall ofthe Berlin Wall.

The large emissions reductions registered after 2008can be attributed mostly to the economic crisis, whichresulted in a considerable decrease in industrial and

power production.


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Changes in the air?

I Including Aviation

Emissions from flights departing or arriving in EUcountries have already been included in the EU ETS

from the start of 2012.

Reductions are estimated by an impact assessmentcarried out for the EC at a mere 2.8 per cent in 2020,which is about equivalent to one year's growth inemissions estimated under a business as usualscenario.

The International Air Transport Association lobbied

the EU institutions to water down the proposals made


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Changes in the air?

II From grandfathering to benchmarking andauctioning

The method chosen to allocate emissions permits to

polluters so far has been the free distribution of permitsaccording to historical emissions, known asgrandfathering.

Now, permits will be auctioned... not!

Power producers will have to buy permits excludingthose in Central and Eastern European countries.They'll be compensated through NER300 subsidy to

CCS.


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Changes in the air?

III - Fixing the unfixable? The carbon market price

In December 2011, the Environment Committee of theEuropean Parliament passed a resolution stating that

1.4 billion permits should be permanently removedfrom the EU ETS.

However, the European Commission merelyconsidered a set-aside of 500 to 800 million in its draftRoadmap for moving to a low-carbon economy in2050.

In the end, the Roadmap did not include any

quantitative target for a possible set-aside.


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Changes in the air?

Intervening in the market?

I am also concerned about the too-low price we havefor the time being, and we are also considering what to

do and what not to do But on this discussion onhaving floor prices and things like that, its easy to seethe logic behind that. If you start to toy with that idea then you will also have a ceiling and very soon you

will not have a market-driven system. And we thinkits important to have a market-based system.

EU Climate Change Commissioner, Connie Hedegaard


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Changes in the air?

IV Expanding offsets

CDM offset credits generated from industrial gasprojects, which result from the elimination of

hydrofluorocarbons (HFCs) from refrigerant gasproducers and nitrous oxide (N2O) from synthetic fibre

producers, will be excluded.

In 2010, these credits represented 81 per cent of thetotal surrendered for compliance in the 2008-2010period, a figure that reflects an upsurge in the demandin 2010 as a reaction to the EC plans for phasing them

out.


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From carbon trading to the green economy

In a recent report on the green economy, UNEP framesthe current ecological crisis as a result of amisallocation of capital, away from environmentalservices and green technologies and into fossil fuelsand financial derivatives. The solution involves the useof market-based instruments to put a price onenvironmental damage, such as permits markets,environmental services markets and taxes.

The EC fully supports the transition to a greeneconomy, using the EU ETS as an example of howenvironmental damage can be turned into a business

opportunity. In its communication on the Rio+20


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From carbon trading to the green economy

Other ideas on the table supported by the EU:

Reducing Emissions from Deforestation and ForestDegradation (REDD+)

Biodiversity offsets

Water trading


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Conclusions

Proponents of carbon trading argue that all problemscan be designed away.

Our research shows, however, that all design changes

have followed industries' needs.

This is hardly surprising, given that carbon tradingtransfers the power of making decisions and acting onclimate action from citizens and governments to

polluters and traders.


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Conclusions

More importantly, carbon trading gives an incentive toend-of-pipe solutions in detriment of more ambitiousand socially just policies that would facilitate thetransition away from fossil fuel dependence.

By focusing on abstract data of emissions or volume oftrading as criteria for success, carbon tradinglegitimizes the continued use of fossil fuels, the over-

production and consumption model, and actuallymakes the climate and environmental crisis worse.


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Conclusions

Dropping the EU ETS would not imply giving up onpolicies to address the climate crisis. On the contrary, itwould leave the field open to effective, just anddemocratic climate policies, which are now being

blocked by the existence of the EU ETS.

Insisting on trying to fix a system that is broken fromthe start deviates attention and resources away from

such policies. Insisting on exporting the EU ETSfailure to other countries, under the cover ofleadership, hinders cooperation with the rest of theworld.


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For the full report and more resources visit:

www.carbontradewatch.org

green is the color of money: the eu ets failure as a model for the “green economy”

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