Emissions
trading schemes promoted by G8 defer genuine
climate action and generate massive profits for the largest polluters
The hegemony of the G8 in international
forums such as the United Nations Framework Convention of Climate
Change means that global climate policy is been chosen for its
compatibility with the existing economic system rather than its
effectiveness in reducing emissions.
Carbon trading is central to this approach.
It turns the earth’s carbon-cycling capacity into property to
be bought or sold in a global market. This use of market forces
to address environmental problems takes two forms. Firstly, governments
allocate permits to big industrial polluters who then trade these
‘rights to pollute’. Secondly, surplus carbon credits are generated
from carbon offset projects that claim to reduce or avoid emissions
in other locations, usually in Southern countries. These credits
may be purchased to top up any shortfall in permits. Under the
Kyoto Protocol, such offset projects are carried out in the South
through the Clean Development Mechanism (CDM), or in Northern
countries through Joint Implementation (JI).
The market is growing enormously. A
World Bank report valued it at US$21.5 billion for the first three
quarters of 2006, up 94 per cent on its value of $11.1 billion
in 2005.
Gleneagles Onwards
Despite the hype, the 2005 G8 summit
in Scotland produced little in the way of concrete action in dealing
with climate change. The final communiqué made limp resolutions
to ‘promote’ better practice on climate change, with no mention
at all of reducing the rate of extraction and consumption of fossil
fuels. Blair was widely praised, however, for bringing the heads
of state of Brazil, China, India, Mexico and South Africa to the
negotiating table, and it was with these countries that the G8
plus 5 Climate Dialogue was launched. The dialogue brings senior
legislators together with international business leaders, civil
society representatives and opinion leaders to discuss a post
2012 climate change agreement, with the aim of agreeing a consensus
statement at the G8 2008 Japan summit.
The dialogue has a heavy bias towards
trading schemes as the best way of dealing with climate change,
with one of its four working groups dedicated specifically to
developing market mechanisms. Furthermore, the G8 plus 5 summit
has mandated the World Bank to facilitate the creation of a framework
for climate change management, clean energy and sustainable development.
This is in spite of the fact that the World Bank is part of the
climate problem rather than the solution: since the UN Climate
Convention was signed at Rio Earth Summit in 1992, the Bank Information
Centre calculates that the World Bank has single-handedly financed
over $25 billion in fossil fuel based projects.
In response to the G8 mandate, the World
Bank produced a report called ‘Clean Energy and Development; Towards
an Investment Framework,’ an updated version of which was presented
at the G8 plus 5 meeting in Mexico in October 2006. The report
promoted carbon trading as the main means of financing the development
of clean technology.
The Bank’s promotion of emissions trading
through the G8 plus 5 creates a clear conflict of interest in
that it is also the largest public broker of carbon purchases,
with over $1 billion in its carbon credit portfolio. It generates
a great deal of revenue for itself through receiving a percentage
commission on all the carbon credits it purchases to administer
through its Prototype Carbon Fund. Through its influence in political
processes like the G8 plus 5, it has actively lobbied to make
the CDM a more attractive proposition for investors and less effective
in terms of actually reducing emissions.
The G8 plus 5 met again in February
2007 in Washington, at a meeting spearheaded by five US senators
who have introduced a congressional bill that would allow US companies
to certify emissions reductions, which may be traded on the international
market to other nations. Keynote speakers included German Chancellor
Angela Merkel as well as Nicholas Stern, whose influential Stern
Review on climate change has been promoted as providing the economic
rationale for the global carbon market, and Paul Wolfowitz, president
of the World Bank.
It is not yet clear what targets there
are for dealing with climate change at the 2007 G8 summit in Germany,
but the majority of governments, industry and International Financial
Institutions are keen to see the groundwork laid for an international
emissions trading framework that extends beyond the 2012 Kyoto
commitment period, that will include the other greenhouse gases
and other emissions producing sectors, such as the airline industry.
Carbon trading won’t work
The G8 and free-market environmentalists
have been at the forefront of championing a rosy narrative of
‘win-win’ scenarios where the quest to maximize corporate profits
can go hand in hand with addressing the climate crisis. But this
is largely an act of faith, as there is no evidence that climate
change can be tackled while maintaining an economic growth pattern
based on the ever-increasing extraction and consumption of fossil
fuels.
Carbon trading encourages the industries
most dependent on coal, oil and gas to delay shifting away from
fossil fuels. There is little incentive for expensive plans for
long-term structural change if you can get by in the short term
by buying cheap permits from operations that can reduce their
emissions. Yet for G8 countries seeking to demonstrate their commitment
to climate action, these inherent problems of emissions trading
are swept aside in favour of a system that sustains the economic
dominance of the most powerful industrialised nations.
The G8 nations and emissions trading
France, Germany, Italy and the UK
Since the start of 2005, France, Germany,
Italy and the UK have been participating in the European Union
Emissions Trading Scheme (EU-ETS), the biggest experiment yet
in carbon trading, and the harbinger of the global market that
will begin in 2008. The EU-ETS works on a ‘cap and trade’ basis.
The amount of permissible carbon pollution is divided up between
industrial locations (called ‘installations’ in the scheme) across
Europe – this is the ‘cap’ part. If any installation goes over
its limit, it must purchase the equivalent amount of permits on
the market, and conversely, if an installation is under its limit,
it can sell its shortfall on the market – this is the ‘trade’
part.
The first phase of the Scheme has been
a disaster. Under sustained corporate lobbying, almost all EU
governments made huge over-allocations of permits to industry
in the first phase. In 2005, the first year of trading, the relevant
industries across Europe emitted 66 million tonnes less than the
cap that had been allocated. This meant that the cap was effectively
meaningless as it had not forced any net emissions reductions.
A preliminary analysis of the 2006 data shows that 93 per cent
of the 10,000 installations covered by the ETS emitted less than
their allotted quota.
These over-allocations have resulted
in windfall profits for the biggest polluters who, in successfully
exaggerating their need for emissions allowances, received enormous
amounts of permits that they could then profitably sell on. The
companies also made money by passing on the nominal ‘market costs’
of these free permits to consumers. The German Environment Minister
has claimed that the four biggest European power producers – Eon,
RWE, Vattenfall and EnBW – have profited from this to the
tune of €6 billion and €8 billion.
With the second phase of the EU-ETS
due to start in 2008, the evidence suggests that lessons haven’t
been learnt. A working paper released in November 2006 by German
researchers said that of the 25 second phase National Allocation
Plans submitted for EU approval, 18 were too generous, and many
of the new caps were set above 2005 emissions levels.
Japan
As the most energy-efficient country
in the industrialised world, Japan is struggling to meet its Kyoto
commitment to below 6 per cent of 1990 levels (current are 8 per
cent higher than the 1990 level). Consequently, Japan is heavily
committed to using emissions trading to make up the shortfall.
The Japanese government set aside 5.4 billion yen (US$45.9 million)
in its 2006 budget to purchase carbon credits from abroad, and
has approved some 41 predominantly CDM projects, in countries
such as Malaysia, India, South Korea, Indonesia, China and Vietnam,
with even greater numbers of such projects in the pipeline. In
addition, Japan is one of the biggest investors in the World Bank
Prototype Carbon Fund, with eight out of the 17 corporate investors
being Japanese corporations, as well as the government’s own Japan
Bank for International Cooperation.
Canada
Canada’s conservative government has
been making disgruntled noises about its Kyoto commitment of reducing
its emissions to 6 per cent below 1990 levels. Environment Minister
Rona Ambrose has stated this target is ‘impossible’, that the
EU trading scheme was a failure, and that the CDM was little more
than a recipe for corruption and wasted money. The conservative
administration has not delivered on promised funding for the CDM
executive board, the international body that oversees and approves
CDM projects, and it has underfunded the Canadian office for administering
CDM and JI schemes to the point of its near irrelevance.
Russia
The collapse of Russia’s economy during
the 1990s has seen a slump in emissions, at one point reaching
40 per cent below 1990 levels. This has resulted in Russia having
a huge supply of surplus carbon credits that it can sell on to
other countries when the global emissions market opens for business
in 2008 – but these have been achieved by external circumstances
rather than by the country having implemented any sort of energy
efficiency or renewable energy measures, an example of how emissions
trading can be profitably exploited with no sustainable action
to tackle climate change. Not surprisingly, Russia has been enthusiastic
about its opportunities to profit from emissions trading, with
one World Bank estimate suggesting that it could profit by $11
billion under Kyoto.
USA
George Bush famously refused to ratify
the Kyoto Protocol in 2001, so the US is not taking part in emissions
trading in order to meet any domestic compliance targets at the
national level. Yet several private initiatives, including the
Chicago Climate Exchange, are trading in offset credits. With
the recent Democrat takeover of Congress the US attitude to emissions
trading looks set to change. Ten US corporations, including DuPont
and General Electric, have joined with green groups to form the
US Climate Action Partnership to urge Bush and Congress to create
a carbon market for the US. At the 2007 World Economic Forum in
Davos, chief executives of European and US power and industrial
companies said that the US needs to lead the way in setting up
a global carbon emissions trading regime.
By Kevin Smith, e-mail: kevin@carbontradewatch.org,
sent by the author.
