Yet Derwent argues that, despite its failings, cap and trade does work. Emissions dropped by 11.6 per cent in 2008–09, and the European Environment Agency reported this autumn that EU emissions have already dropped by 17.3 per cent on 1990 levels, although green groups say that this is mainly down to the recession, vehicle and building efficiency, and, just as important, an extraordinary 60 per cent drop in steel production.
Calculating the true impact of the ETS on carbon emissions is difficult, because consistent emissions data don’t exist. But, according to the European Commission’s climate action office, emissions among the 500 largest polluters – all of whom are in the ETS – declined by 17.8 per cent between 2005 and 2009.
Derwent, meanwhile, cites academic appraisals of the first phase of the ETS, which he says concluded that between three and five per cent of emissions reductions couldn’t be attributed to any other reason than carbon trading. ‘It’s fair to say that ETS does do what it says on the packet,’ he says.
MARKET BASED APPROACH As you read this article, carbon is being traded in the same ways as wheat, cocoa, sugar or any other commodity: the price of a tonne of the stuff was around €16 in mid-October, and IETA reckons that it will rise to €30 or €35 by 2020. This, according to advocates of cap and trade, is a sign of success. ‘It has created the first international environmental currency,’ says David Abbass, spokesman for the secretariat of the UN’s Framework Convention on Climate Change (UNFCCC), which runs the CDM. ‘It has assisted countries in pursuing their sustainable-development goals. The number of projects registered has been much higher than anticipated. It has done a great deal.
‘Tackling climate change is going to take a lot of resources and there’s a need for the engagement of the private sector,’ he continues. ‘That’s the rationale behind pursuing a market-based approach. CDM’s aim is to engage the private sector in developing countries. It’s pretty straightforward. The amount of carbon within the EU that is permitted is prescribed. Those companies that go below that level have something to trade; those that are above have to go to the market. The question is how you engage people and companies who aren’t under that cap – those in developing nations.’
There is a feeling – even among supporters such as Derwent – that carbon trading is treading water because of the lack of progress of cap-and-trade legislation in the USA. ‘There is no consensus on the view that you need to even reduce emissions,’ he points out. ‘American voters aren’t persuaded that manmade climate change is a reality. Until that happens, it won’t be the driver for the rest of the world. Other countries don’t want to move more rapidly than the USA.’
The decision to issue ETS permits for free was an error, supporters admit, and from 2013, half of permits will be auctioned. ‘We have had a few hiccups,’ acknowledges Jos Delbeke, director general for climate action at the European Commission. ‘Issuing the permits for free was a mistake. But carbon trading was a new instrument, and we were all jumping into the water for the first time. We’ve learnt the lessons of the first phase of ETS and won’t be repeating those mistakes.’
Above: a forest clearing on Sumatra, Indonesia. The country is part of the Reducing Emissions from Deforestation and Degradation scheme, in which developing countries earn carbon credits by preserving their forests
CDM PROJECTS AND CERs BY TYPE
The left chart shows the CDM projects grouped by type; the right chart shows the CERs issued to date by project type. HFC, PFC and nitrous oxide reduction accounted for just two per cent of all CDM projects, but 74 per cent of all CERs issued
Aﬀorestation and reforestation 1%
Demand-side energy e ciency 4%
Fuel switch 2%
Supply-side energy e ciency 10%
CH4 reduction, cement and coal mine/bed 19%
HFC, PFC and N2O
Fuel switch 1.5%
Supply-side energy e ciency 4.5%
CH4 reduction, cement and coal mine/bed 5.9%
Aﬀorestation and reforestation 0%
Demand-side energy e ciency 4%
HFC, PFC and N2O reduction
46 www.geographical.co.uk DECEMBER 2010
SOURCE: UNEP Risoe CDM/JI Pipeline Analysis and Database, October 2010