Tag Archives: carbon
Is This The End Of Carbon Trading, Or Just A Hiccup?
Ratcliffe-on-Soar power station: carbon markets are supposed to be effective, not just hot air. PA/David Davies Just as scientists almost universally agree greenhouse gases contribute to the planet’s changing climate, economists almost universally agree the problem is made worse because polluters don’t pay for the mess they make. A carbon tax is one way to force companies to pay for their pollution. A carbon market is another, established by a “cap and trade” system where a limited number of permits (or “allowances”) are sold or given away each year. Every company must surrender one permit for every tonne of carbon produced. The capped limit is lowered over time to reflect the aim of steadily lowering emissions. The resulting carbon price ensures total emissions do not exceed the limit. Market logic suggests that if permits become more scarce relative to demand, then the cost of the permits, the effective “carbon price”, will rise (and vice versa). Carbon markets have been set up around the world, in Australia and California, Kazakhstan and China. In the UK, companies are covered by the European Union Emissions Trading Scheme (EU ETS). Each system is designed slightly differently, and the resulting carbon prices vary widely. Some policy-makers hope that these systems will one day join to form a global carbon market , so that polluters everywhere pay the same price for their pollution and cannot simply move operations to somewhere cheaper to pollute. But despite a recent agreement on a link between the Australian and EU markets, a global market remains a distant prospect. A really distant prospect, perhaps, given recent headlines that pronounced the EU ETS dead in the water – carbon prices previously above €30 per tonne (which some economists considered too low) have tumbled to below €5 where they have languished for months. In April the European Parliament considered a plan to increase short-term carbon prices by delaying the issue of 900 million permits; MEPs rejected the move and the EU carbon price fell to €2.7 per tonne. Dead, or just sleeping? How has the carbon price fallen so low that it needs “rescuing”? A low carbon price would be a sign of the scheme’s success if it meant companies had developed clean technologies to reduce pollution cheaply over the long-term, lowering demand for permits whose price would fall. Instead, carbon prices are low because the recession has dented economic output, and consequently emissions are lower. Low carbon prices present no incentive for companies to make long-term investments in clean energy, arguably the aim of the EU ETS. When the carbon price rises or falls to extremes, politicians are tempted to interfere with the supply of permits. This means carbon prices can move significantly depending on political developments, as well as factors such as economic output and the weather (cold weather means more carbon is generated as the heating is turned up). This has led some economists to argue that carbon taxes are a more suitable tool for a problem like climate change. A stable carbon tax would give companies a predictable incentive to reduce emissions, year after year. It would avoid the wild price swings of a market. True, taxes don’t guarantee that a set limit on emissions will be achieved – carbon markets have been preferred because they provide this guarantee. But the EU ETS only limits emissions for the five to ten years; what really matters is that emissions fall considerably over the next few decades. A tax that was set to increase gradually over time, with the plan for review after ten years, could meet the overall objective of reducing emissions and send a much clearer message. But supporters argue that carbon markets work well if designed well ; they just need some additional features to keep a lid on wild price fluctuations. For instance, prices might be stabilised by transparent rules that define how many permits are released onto the market as carbon prices rise or fall. Fewer permits would be released onto the market when prices are low, and more when prices are high. The UK has unilaterally implemented something similar, introducing a domestic “ carbon price floor ” in April. This ensures that most UK companies (there are various exemptions) have to pay a carbon price of at least £16 per tonne this year, rising to £30 by 2020. In an EU-wide market, however, the effect is simply to shift emissions out of Britain and into Europe, possibly driving energy-intensive industries abroad in the process. An EU-wide price floor would sensibly prevent the risk of price crashes, leaving only the problem of price spikes to be addressed. In the short term, efforts to “save” the EU carbon market continue. German Chancellor Angela Merkel said recently that she favours systematic changes that would solve these problems once and for all, rather than a temporary fix of withholding permits. But her finance minister opposes intervention. The politics are messy, but the stakes are high. If carbon prices do not provide an incentive for companies to move to cleaner production now, the transition will be forced on them later, with greater urgency, and at much greater cost – to us and them. Continue reading
Carbon Market ‘Champions’ Undeterred: EU Climate Chief
10 May 2013 Carbon-market supporters from China to California will push for emissions trading even as they prepare for the end of the United Nations Kyoto Protocol in seven years, Europe’s top climate negotiator said. Nations including China and New Zealand and some US states have formed an informal group, “kind of the champions of the carbon market,” Artur Runge-Metzger said in a May 2 interview in Bonn, Germany. “It’s that club that’s going to set international standards” rather than UN talks, he said. Countries are increasing links between markets outside of the climate-protection targets set by the UN, which has led global efforts to reduce emissions since 1992. California last month approved rules that allow companies in the world’s ninth largest economy to trade pollution rights in Quebec, while Australia in 2012 agreed to use European permits to cut costs. The 1997 Kyoto Protocol sets market-based emission- reduction targets for the EU and 37 countries. The US and China, the biggest polluters, never signed, making the agreement “something that ended up in a kind of cul-de-sac,” Runge- Metzger said during the climate talks last week. Under the EU’s cap-and-trade system, designed to meet the bloc’s Kyoto targets, tradable permits are allocated to polluters that must surrender enough of them to cover their emissions or pay a fine. The euro area’s second recession since 2008 cut demand for allowances and UN credits, sending prices to record lows last month and reducing incentives to invest in low- carbon technologies. US scepticism Future agreements under the UN’s 1992 Framework Convention on Climate Change may never be implemented in “the real world,” US climate negotiators led by Todd Stern, said in a March 11 submission ahead of the Bonn talks. China has joined the World Bank’s Partnership for Market Readiness, a program which seeks to cut emissions at a faster pace than set out by existing national targets. The biggest energy user is preparing seven domestic carbon markets, covering 28 per cent of its economy. China is unlikely to link its existing and proposed carbon markets to those with emissions targets set by the UN, including the EU market, Su Wei, the nation’s lead climate negotiator, said May 2 in Bonn. “It’s too early to talk of a linkage with the EU market because that is a failed market,” Wei said in an interview. “If there are no ambitious targets there will be no demand. The carbon markets aren’t running very well.” Step back The UN has effectively “stepped back” from managing emissions programs partly because of resistance from countries against market-based climate strategies such as Bolivia, Venezuela and Cuba, Runge-Metzger said. Both international and national efforts to combat climate change are “absolutely critical” because efforts by countries and industries don’t match what’s required to stop temperatures from rising 2 degrees celsius, Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change, told reporters in Bonn. Governments are seeking to keep any increase in global average temperatures below that level. Climate envoys are debating whether allowances and credits used to comply with the Kyoto treaty can be used under a new market system beyond 2020 that may include more nations. Russia has the biggest stockpile of Kyoto units, according to UN data on Bloomberg. The debate over the use of the credits is “going to be quite political,” Runge-Metzger said. “The majority of countries don’t have them.” Price drop EU carbon for December plunged to a record 2.46 euros ($3.20) on April 17 on the ICE Futures Europe exchange in London after the European Parliament rejected a proposal to enable the reduction of the surplus of allowances. They slid 44 per cent in the past year and closed at 3.79 euros today. The EU’s change in emphasis toward nation-led markets is a “sensible shift in policy,” Daniel Rossetto, the London-based managing director of emissions markets adviser Climate Mundial Ltd., said in a May 7 interview. The UN approach “is probably destined to fail, while bilateral negotiations between like- minded countries is more likely to proceed,” he said. Bloomberg Read more: http://www.smh.com.au/business/carbon-economy/carbon-market-champions-undeterred-eu-climate-chief-20130510-2jbgu.html#ixzz2TGXtvt6E Continue reading
EU Struggles To Fix Faltering Carbon Trading Scheme
10 May 2013 Ned Stafford Can Europe’s carbon trading market be fixed? A plan to bolster the flagging price of permits to emit carbon dioxide that are traded in the EU’s Emissions Trading System (ETS) appeared dead last month after being voted down by the European parliament. But now, less than a month later, supporters say momentum is growing to reintroduce the plan for another vote, possibly as early as July. The plan, which parliament rejected on 16 April, would have delayed the introduction of 900 million carbon allowances into the ETS, the cornerstone of EU efforts to reduce industrial greenhouse gas emissions. But what seemed a bitter defeat in April for supporters, is now, in retrospect, starting to look like an unlikely victory. Jesse Scott , head of the environment and sustainable development policy unit of Eurelectric in Brussels, tells Chemistry World that the European parliament vote triggered headlines and debate not only in Europe, but around the world. ‘As a consequence, ETS reform has become a high-profile and urgent issue,’ she says. ‘We have seen the European commission, increasing numbers of MEPs and many member states steadily moving closer to our view of what is at stake and what needs to happen.’ Emission permission The ETS, launched in 2005, places limits on carbon emissions for 11,000 installations, including power stations and the manufacturing industry. In total, it covers 45% of the EU’s carbon dioxide emissions. Each plant is given a set number of carbon allowances, calculated using emissions from previous years, to cover its carbon dioxide discharges. Installations that emit less than their limits, can sell their surplus carbon allowances. Up in smoke: spot prices for permits to emit carbon dioxide have fallen dramatically. Source: Point Carbon In theory, the cost of buying the allowances, either directly from other companies or on the open market, is supposed to provide financial incentives for companies to invest in carbon reducing technology or shift to less carbon intensive energy sources. But after reaching a peak of nearly €30 (£25) per tonne in the summer of 2008, prices have steadily fallen. By January they had crashed to under €5, providing little, if any, financial incentive for companies to reduce emissions. Scott and other supporters of the rejected plan say that fixing the ETS is quite simple: prices of carbon allowances sold within the scheme need to rise much higher from current depressed levels in order to convince industry to reduce their emissions. However, reaching that goal of higher prices is a bit more complicated. One of the quickest methods would be reducing the supply of carbon allowances by delaying the release of 900 million allowances, described as ‘backloading’. The revenge of backloading? The commission issued a report in November saying action was needed to prop up prices, noting that by early 2012 a surplus of allowances for 955 million tonnes of carbon had accumulated. During 2013 the commission sees the surplus growing to as much as 2 billion tonnes – close to this year’s emission allowances for all 11,000 installations. The rejected backloading plan would have postponed the release of permits for 900 million tonnes of carbon dioxide that was scheduled for 2013–15 until 2019–20. After the parliamentary vote, the price of a carbon allowance dipped below €3. On 7 May members of the European parliament’s environment committee discussed in private the possibility of re-introducing the backloading plan. Afterwards, committee chairman Matthias Groote tweeted that the debate had been constructive and that the door is open for another vote as early as July . ‘I’m sure that a compromise with a modified text is possible,’ he said. Industry opposed Peter Botschek , director of energy, health, safety and environment at the European Chemical Industry Council (Cefic) says that they support the ETS. He calls it ‘the best tool we have to reach the agreed emission reduction target at the lowest cost’. However, he says that Cefic and other manufacturing sectors whose emissions are covered by the ETS are strongly opposed to the backloading plan. ‘This intervention will damage any trust in policies and does not solve imperfections of the current scheme,’ he says. Doug Parr , atmospheric chemist and chief scientist at Greenpeace UK, says that he supports the EU’s emissions trading scheme, but only reluctantly. ‘[The ETS] is not an easy thing to like,’ he says. ‘It has been manipulated by industrial interests, in significant part leading to the problems we are seeing. And viewing the carbon price as the main instrument of policy, excluding others, has been confusing means and ends. Even before the backloading vote failed it was clear that deep structural reform would be required.’ Indeed, Marcus Ferdinand, senior market analyst at Thomson Reuters Point Carbon , says that if parliament approves backloading, he sees the average price of carbon allowances during 2013–20 rising to only €8, still far too low to push industry to cut emissions. The commission has already suggested six possible options for structural reform of the ETS, the most straightforward being to squeeze the supply of carbon allowances by permanently retiring a portion of those scheduled to be released. Another option would be to speed up the withdrawal of carbon permits from the market, which is currently happening at 1.74% per year. Scott prefers this option, if the reduction is set at 2.3% per year. She says this would be in line with the European council’s goal of an 80–95% reduction in emissions by 2050, compared with 1990. ‘Backloading does not in itself solve the problem of surplus,’ she says. ‘Its value is as the only available quick signal to the carbon market, and also to international observers, that the EU recognises the crisis, remains committed to a long-term strategy of driving carbon reduction through a strong ETS and intends to take further structural action.’ Continue reading
