Tag Archives: carbon
Harvard Don Tells EU Kill Grants to Save Carbon: Energy Markets
By Mathew Carr on April 17, 2013 Europe may have to change course to save the world’s biggest carbon market after an unprecedented plunge in pollution-permit prices, according to a pioneer of so- called cap-and-trade systems designed to help the environment. The European Union should consider moving away from costly subsidies for renewable energy and carbon-efficient projects, which compete with the market in meeting nations’ emission- reduction targets, said Robert Stavins, the director of Harvard University’s Environmental Economics Program. Carbon permits for December fell to an all-time low after lawmakers yesterday rejected a rescue plan to tackle a record surplus of allowances. Prices in the EU’s 54 billion-euro ($71 billion) emissions market have slumped 63 percent from a year ago as the euro area’s second recession since 2008 cut industrial demand for permits, exacerbating the glut. The cap-and-trade system, started in 2005, is the bloc’s main tool in meeting greenhouse gas-reduction targets, a model gaining favor from California to China and Australia. “This would be a foolish time for the EU to back away from cap-and-trade because the rest of the world is starting to follow,” Stavins, who helped set up a market system to control acid rain in the U.S. 30 years ago, said in a phone interview yesterday. “The climate and energy directorates in Brussels need to work together going forward to ensure they’re interacting benignly instead of in perverse ways.” Carbon Plunge Carbon fell as much as 19 percent to a record 2.50 euros a metric ton on the ICE Futures Europe exchange in London, compared with 31 euros a ton in 2006. It traded at 2.57 euros at 2:04 p.m. Australia will lower its expected revenue from selling carbon allowances after the EU, its partner in a cap-and-trade system set to start in 2015, failed to win support for its surplus fix, Climate Change Minister Greg Combet said today. Europe’s emissions-trading system imposes limits on about 12,000 power plants and factories. The program allocates permits to polluters that must surrender enough allowances to cover their discharges of carbon dioxide or pay fines. Declines in the cost of allowances erodes the incentive for them to stop burning cheaper fossil fuels and invest in carbon-efficient technology. Backloading Critics EU parliamentarians opposed a proposal to alter the bloc’s emissions trading law yesterday, which would have enabled the European Commission to withhold the sale of some allowances through 2015 and reintroduce them at the end of the decade in a strategy known as backloading. The Parliament’s vote followed criticism from lawmakers including the European People’s Party, the biggest group in the assembly, which argued that the move amounted to market intervention and would boost energy prices at a time when the economy is shrinking. Gross domestic product in the region contracted 0.6 percent last year and will decline in 2013 by 0.4 percent, according to the median of 61 economist forecasts compiled by Bloomberg. EU Climate Commissioner Connie Hedegaard, who proposed backloading as a stopgap measure, said the vote was “not the total end of everything” and she would continue to work on a more permanent fix. “Many of those who don’t support backloading believe in the emissions-trading approach,” Dirk Forrister, president of the International Emissions Trading Association, a Geneva lobby group, said yesterday by e-mail. “Emissions trading continues to be the policy of choice for addressing climate change.” Renewables Cost EON SE, Germany’s biggest utility, estimated in November that solar technologies were costing consumers at least 10 times more than prices suggested by the carbon market at the time, when permits were more than 6 euros a ton. “The emissions trading system has sadly become marginalized, and we are concerned that it has lost its ability to prompt low-carbon investments,” according to Oeystein Loeseth, chief executive officer of Vattenfall AB, the biggest Nordic utility. “Against this backdrop, the EU needs to recalibrate,” he said in a statement yesterday. The bloc provided $50 billion of renewable-energy support in 2011, the highest level in the world and more than double the U.S.’s $21 billion, according to International Energy Agency estimates from Nov. 12. The commission, the EU’s regulatory arm, said in a March 27 paper that the bloc needs better coordination between its energy efficiency, renewables and climate policies. Those targets “do absolutely nothing for the environment” in an economy with a cap-and-trade market because they merely shift emissions to other industries, Stavins said. U.K. Floor EU carbon permits will fall to near zero as the bloc seeks to repair the market, said Patrick Hummel, an analyst in Zurich for UBS AG. “There is no plan B in my view,” he said yesterday by e- mail. “Instead, we might see some national governments thinking about carbon taxation, but of course this debate is at the very beginning.” The U.K., the market’s second-biggest emitter, set a floor on carbon prices this month to encourage investment in clean- energy projects. The EU vote shows policy makers shouldn’t start “a war” against their emitters while most of the rest of the world isn’t regulating greenhouse gases, said Matteo Mazzoni, an analyst at NE Nomisma Energia Srl in Bologna, Italy. The EU will probably take two years to address the oversupply because of resistance from manufacturers and other energy-intensive industries, which lobby lawmakers, Mazzoni said. “Some people may object to the fact that the EU got out in front” in its bid to tackle climate change, said Harvard’s Stavins. “I’m not going to applaud and I’m not going to jeer.” To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Continue reading
Europe’s Carbon Market Left In Disarray
http://www.ft.com/cm…l#ixzz2QjRydLI8 By Pilita Clark in London and Joshua Chaffin in Brussels The world’s largest carbon market was in disarray on Tuesday after the European Parliament voted against a plan to rescue the EU’s flagship climate change policy. The 334-315 vote sent carbon prices in the EU emissions trading system tumbling to a record low of €2.63 a tonne. Analysts described the vote as a “body blow” for carbon markets in Europe – traditionally a world leader in efforts to tackle global warming – that was likely to reverberate abroad. Carbon industry executives said the EU parliamentarians had sent a worrying political signal about the bloc’s support for what has long been a cornerstone of its environmental policies. MEPs voted down a measure that would have temporarily withdrawn some 900m allowances, each of which permits a polluter to emit one tonne of carbon dioxide, from the heavily oversupplied market. Prices have fallen from a high of more than €30 in 2008 to less than €3 this year as the glut in supply was exacerbated by the economic downturn. The EU’s climate commissioner, Connie Hedegaard, vowed to press on with other measures to prop up the flailing market and pointed to a statement from the Irish EU presidency issued immediately after the vote that said there was now a “clear priority” for the 27 EU member states to act on the carbon price. “This vote is a wake-up call. We’re talking about a €1bn market,” said Ms Hedegaard. “It doesn’t mean that now it’s all over for the emissions trading system.” Ms Hedegaard is working on a separate set of more long-term measures to shore up the market, including the permanent cancellation of allowances. But carbon analyst Stig Schjølset, of Thomson Reuters Point Carbon, said the plan was now “politically dead”. “We do not envisage prices rising much above the current €3 mark and they may well drop lower,” he added. “Certainly this vote makes the EU ETS irrelevant as an emissions reduction tool for many years to come.” Some business groups welcomed the vote, saying a move to raise carbon prices during a downturn was ill-timed. “There is no need to interfere with this system,” said Markus Beyrer, director-general of Business Europe, the continent’s largest employer group. “We think once the economy picks up, carbon prices will pick up.” Continue reading
Carbon Market Flaws Evident
TIM WILSON From: The Australian April 18, 2013 A European Commission plan to cut emissions permits for up to seven years and thus push up their price was rejected on Tuesday by the European parliament because it would pass on higher costs to struggling industries and consumers. Emissions trading is supposedly a market system based on supply and demand. But behind the jargon, trading schemes are just government-mandated markets influenced by political interests. When too few companies are required to buy emissions permits, or too many permits are allocated, or both, the price collapses. This reality is unfolding in Europe. A tonne of emissions is now $3.20, and is expected to fall to $1.20 compared with $7 earlier this year, a 2008 starting price of nearly $50 and Australia’s $23 carbon tax, which will increase to $24.15 on July 1. The European carbon price crash is not unprecedented. The voluntary Chicago climate exchange traded permits for about $7.50 in 2008, but bottomed out at 5c when the scheme closed in 2010. Political manipulation of carbon pricing for private interests was always likely. Even Ross Garnaut argued in his 2008 review, “If there is a chance that political pressure will reap rewards in the form of special treatment, then the system will promote a large diversion of management resources towards rent seeking from governments”. European politicians have recognised how little public appetite there is to increase their hip pocket costs to cut emissions and reward rent seekers. All this bodes poorly for Australia. Under the government’s plan the Climate Change Authority will recommend our emissions target with the assumption our elected officials would blindly adopt it. That assumption is now exposed for the hokum it always was. Politicians can always make political capital opposing tax increases. The only difference with Europe is Julia Gillard included an automatic target cut if the parliament can’t agree on an alternative. The capacity for political manipulation ensures carbon markets never deliver the certainty their supporters claim. That might not matter if they cut emissions, but they fail there too. A report by the UN’s climate change secretariat concluded Europe would largely meet its Kyoto targets because of economic decline. By comparison the US Energy Information Administration reported a rapid drop in US emissions last year, to their lowest level since 1992. This was achieved “during a year of positive growth in gross domestic product” from expansion in the use of cheap, fracked gas. Meanwhile the Treasury’s Strong Growth, Low Pollution modelling shows that despite having the world’s most broadly applied, highest cost carbon tax Australia’s emissions will continue to rise. It’s probably the only assumption Treasury got right. Comprehensive modelling would have assumed realistic scenarios about whether countries would impose their own equivalent schemes and sign up to a global carbon cutting agreement. Instead Treasury assumed an utterly unrealistic global carbon price of $29 in 2015, and that each country would have carbon taxes, or their equivalent. The scheme, linked to the lower European price, exposes a fiscal gap between the fixed “over-compensation” and the billions in expected government revenue. It is a mess. Technocrats advocate for trading schemes in theory because it is the most efficient way to price emissions, in practice they can be manipulated like any other regulation. The European parliament’s action this week to avoid increasing taxes on households has exposed the problems of emissions trading. Europe should abandon its structurally flawed scheme, and Australia should learn from their mistakes and follow. Tim Wilson is director of the IP and Free Trade Unit and Climate Change Policy at the Institute of Public Affairs. Continue reading
