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dossier: Carbon trading

Above: the failure of the 2009 Climate Change Conference in Copenhagen to agree new emissions targets left the carbon-trading market in disarray, with carbon prices falling in the immediate aftermath of the talks emissions, although it excludes those from transport, agriculture or domestic use. Meanwhile, the UN and the World Bank operate a scheme based on Certified Emissions Reductions (CER) credits. This allows developed nations to pay for carbon reductions in developing nations under the CDM; in turn, developing countries agreed to reduce carbon emissions and sell carbon credits in international markets. Companies in industrialised countries can then buy the credits in lieu of their own emissions.

Since the CDM began, 439.6 million CERs have been issued, equivalent to a CO2 saving of 439.6 million tonnes, according to the Risoe Centre at the UN’s Environment Programme, which collects this data. By 2012, this is expected to rise to 2.83 billion tonnes. In all, 2,400 CDM projects have been approved and a further 5,529 await implementation.

i n i t i a l e r ror By general consent, one of the major failings of carbon trading was the decision to issue the first round of ETS permits for free, and to base allocations on high, historical records of pollution. This created startling anomalies: until 2008, permits were allocated for 130 million more tonnes of carbon than were actually emitted, causing the price of carbon to crash from €30 a tonne to €10 and then to just €1 by 2007.

According to the CEO, the EU’s steel sector was allocated permits for 185 million tonnes of carbon last year, but emitted just 94 million tonnes. By 2013, the CEO says, the biggest steel firms can each expect to hold up to €100million worth of surplus permits, worth around €1.5billion at current market prices.

top countries by issued CERs 2003–10 Since the start of the CDM in December 2003, 49.5 per cent of all the CER credits issued have been for projects in China. The top eight countries have been issued 96 per cent of all CERs


CERs ofissued illions







India China South

Korea gypt Chile Mexico Brazil


90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

CERs llissued ofa share lative


SOURCE: UNEP Risoe CDM/JI Pipeline Analysis and Database, October 2010

‘It’s scandalous,’ says Balanya. ‘They will be able to bank those permits or sell them for a profit. They won’t make any reductions in carbon emissions – they will continue as normal and actually make a vast profit from doing so.’

Balanya believes that this is unlikely to improve under the next round of credits, known as Phase Three, which will run from 2013 until 2020. Power companies must pay for permits in future, but Balanya points out that they are likely to pass this cost on to consumers. Heavy industry will still get permits for free up to 2020, as will three quarters of all manufacturing companies.

Another concern is the way in which carbon trading has shifted the debate on climate change. ‘It has dominated discussions on how to tackle climate change,’ says Clifton. ‘The cap was set way too high and the system is so incredibly opaque and complex, it’s very difficult to expose what’s going on. Relying on the UN and the EU as our main tools to bring down emissions is a very high-risk strategy. Carbon trading is being pushed as a silver bullet, overshadowing more cost-effective forms of cutting emissions. It also further locks us into high-carbon infrastructure rather than lessening society’s dependence on fossil fuels to generate its energy.’

Freedom of information requests to the European Commission have revealed evidence of the furious – and successful – lobbying of the commission by industry, which ultimately overturned the ambition to force companies to buy permits from 2008. ‘The problem with ETS is that it’s completely permeable to lobbying,’ says Balanya. ‘Many companies, such as BP, supported the creation of ETS because, at the time, there was talk of carbon taxes. Steel, cement, oil and chemical companies took part in massive lobbying. They said that if they were forced to buy permits, they would have to relocate outside the EU, and that [would have] involved huge job losses. Even if that wasn’t true, as a political argument, it worked very well.’

em i s s i ons i mpact Even advocates of carbon trading admit that the system is under severe strain. ‘These are pretty dark days for anybody supporting emissions trading across the world,’ says Henry Derwent, chief executive officer of the International Emissions Trading Association, which advocates business participation in cap and trade. ‘There’s a feeling that there isn’t much support for trading and market mechanisms in the UN negotiations. That lends itself to a grim determination to keep up the ETS, if not to extend it.’

december 2010 45

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