Tag Archives: countries
Carbon’s Unburnable Truth
21/03/13 The coal industry has made a feeble attempt to pop the concept of the carbon bubble and its investment consequences. The Australian Coal Association commissioned Alan Oxley to examine The Climate Institute and Carbon Tracker’s recent research into Australia’s Unburnable Carbon. Oxley attacked the carbon bubble concept in the AFR yesterday. If you accept the science of climate change, the carbon bubble concept is based on a simple unburnable truth. There is a limited budget for the heat trapping greenhouse gases we can put in the atmosphere to avoid global warming goals. Our research, and that of the International Energy Agency amongst others, examines the budget in terms of the goal that Australia, China and the US amongst over 190 other countries have agreed upon, of avoiding global warming of two degrees. This research is not the realm of radicals or “extremists” as the Minerals Council of Australia would have it. Two years ago the now CEO of Anglo American Mark Cutifani said “… the global carbon budget makes simple logical sense.” Investors like Warren Buffett and Jeremy Grantham have embraced the concept and begun applying it. Just last week investors representing $22.5 trillion held an historic summit in Hong Kong focused on their role in avoiding the economic costs of dangerous climate change and launched a new global low carbon investment register. Central to Oxley’s arguments is that national governments are unable or incapable of organising to avoid two degree warming and that investors should stick to their knitting and avoid public interest goals not supported by policy. In Oxley’s report he makes the old short-termist argument that the job of business is to maximise profits within current policy. This ignores the very real interest that investors such as superannuation and insurance funds should have, and are beginning to take, in the consequence of their investments. These funds are both legally obliged to manage funds for long term outcomes and invest in a range of asset classes that will take, and arguably are already taking, climate hits. They are awaking to the fact that their old ways of investing actually add to the risks they are now attempting to manage. Limiting average global warming to two degrees above pre-industrial levels is an extremely challenging task especially as there is already almost one degree warming with 1.4 degrees locked in by lag effects. There are however a number of social, political and technological scenarios where effective action to avoid two degrees warming will be taken. We don’t pretend to predict the exact course, but the International Monetary Fund and the World Bank – hardly a bunch of left-wing greenie extremists – are warning of the economic consequences if we don’t. Global leaders at the G8 concluded its meeting two days ago with a communique restating their commitment to this goal noting “climate change is one of the foremost challenges for our future economic growth and wellbeing.” The history of financial bubbles, such as the dot.com and sub-prime mortgage bubbles, is based on the assumption of never ending demand. History has shown those assumptions to be high risk indeed. All bubbles are theories until they crash. This bubble rests on very solid foundations of basic carbon physics and budgets. Contrary to Oxley’s claim yesterday, nowhere does the IEA say there is “little risk” of stranded assets for the coal industry. The IEA report does say that, for its two degree scenario, “more than two thirds of current proven fossil-fuel reserves are not commercialised unless carbon capture and storage is widely deployed.” The prospects of that are not good at the moment – the prospects of a bubble are therefore real, exposing as bizarre the report’s claims that a mining company’s reserves of fossil fuels are disconnected to its valuation by the market. It should be noted that The Climate Institute can hardly by labelled as ignoring the importance of carbon capture and storage. We have repeatedly called on industry and government to speed up the technology’s deployment, and have been public on why Australia and the world should pursue it. The ACA on the other hand appears in retreat, turning its billion dollar Coal21 fund, previously focused on low emissions technology into a vast slush fund now also able to “promote the use of coal.” Finally, our analysis challenges current valuation methods but does not, as Oxley’s report falsely asserts, call for full divestment. Our call is for far greater consideration and disclosure of carbon and climate risks from investors, as well as greater investment in low carbon solutions. In that we are joining and being joined by a swelling rank of NGOs investors and regulators. Denying the concept of the carbon budget is like denying climate science. That is carbon’s unburnable truth. This article was originally published in The Australian Financial Review (online). Republished with permission of the author. John Connor is CEO of The Climate Institute. Read more: http://www.businesss…h#ixzz2WrSQmCwt Continue reading
We’re Putting A Price On Carbon, But Is It Making A Difference?
More than 20% of global emissions are now either taxed or traded. But the question remains: will adding economic incentives to cleaner energy actually work? Putting a price on carbon emissions is seen as crucial to curbing climate change. And the good news is that much of the world is doing just that (though not the U.S.). A new report from the World Bank identifies 40 national, and 20 sub-national, mechanisms globally. The European Union, South Korea, Australia, and New Zealand all now have emissions trading systems, or are implementing them. Other countries, like Denmark, Finland, Ireland, Japan, Norway, and South Africa have (or are implementing) carbon taxes. And then there are regional trading initiatives, such are those in California and Quebec. The fact that so many carbon pricing schemes have emerged shows a political will to mitigate greenhouse gases. Altogether, current schemes cover more than 20% of global emissions. And with China, Brazil and Chile all considering carbon trading, the prospect is for far more to be covered–perhaps up to 50%. “The fact that so many carbon pricing schemes have emerged shows a political will to mitigate greenhouse gases as countries increasingly use carbon pricing to deliver benefits both to our climate and to a sustainable economy,” says Joëlle Chassard, of the World Bank’s Carbon Finance Unit. “A transition towards a new generation of carbon markets is in the making.” What is more, the World Bank sees hopeful signs in links between schemes: for example, between E.U. and Australian systems, and California’s and Quebec’s. In time, such relationships could be a “step towards establishing a global carbon market,” it says. And, newer entrants are learning from earlier mistakes. The price of carbon in the EU’s system has collapsed several times, notably during the recession. So, the new schemes are putting in “price floors,” or stopping participants from hoarding allowances (a major problem in Europe). Still, the Bank isn’t exactly confident about averting dangerous global warming–which is the question that matters. “The international community has agreed to limit the increase in average global temperature to 2 degrees Celsius (°C) above pre-industrial levels,” it says. “The current level of action puts us on a pathway towards a 3.5–4°C warmer world by the end of this century.” And, the effectiveness of mechanisms like carbon trading remains in doubt. Emissions in Europe–our best test case–have fallen. But this was in a faltering economy, when businesses and individuals use less energy. A price in itself is meaningless; what matters is the number. So, it’s good news that more of the world is pricing carbon. But we should be wary about banking the outcome. http://www.fastcoexist.com/ Continue reading
Backloading Is A Temporary Fix, The Emissions Trading Scheme Needs Bolder Reform
Policy Exchange’s Simon Moore makes the case for ambitious carbon market reform based on a demanding 2035 emissions cap By Simon Moore, Policy Exchange 19 Jun 2013 Later today the European Parliament’s Environment Committee will attempt to fix Europe’s flagship decarbonisation policy, the beleaguered Emissions Trading System. The proposal will see some permits (permission to emit a tonne of carbon) withdrawn temporarily from the carbon market. If this sounds familiar, it is because it tried exactly the same thing in April, only to be voted down by the full parliament. The committee has made a few tweaks, but the premise remains unchanged. Unfortunately, the premise is a political fudge masquerading as an important intervention. It tries to prop up the carbon price in the short term without addressing fundamental weaknesses of the current cap-and-trade system. The EU would be better served by turning its attention to fixing the long-term problems afflicting the ETS. If it fails to do so, then the backbone of Europe’s climate policy will remain fractured and Europe will have shown it is not serious about tackling climate change. Getting carbon pricing policy right is an important way to stop pumping more greenhouse gases into the atmosphere. The current scientific consensus argues for cuts in carbon emissions to mitigate risks from dangerous climate change. But many potential responses to climate change are expensive. Only a system that can identify the cheapest low carbon technologies can help keep those costs as low as possible. The ETS, which is designed to cap carbon emissions and then allow technologies to compete, should deliver such an outcome. Like all markets, it may lead to surprising and innovative outcomes. But it should find the cheapest way to a low carbon economy. As long it achieves the carbon cuts expected of it, does it matter whether it is achieved by better insulated homes, new nuclear power stations or wind turbines? And the cheaper the cost of decarbonisation, the more likely it is that the effort is politically sustainable and that other countries, notably the US and China, will follow Europe’s example. In a report we launched this morning, Policy Exchange calls on the EU to radically strengthen the ETS. That means setting an ambitious, carbon target that stretches out to 2035 giving investors clear, long-term direction. It also entails ditching the expensive renewable energy targets that have added unnecessary costs to European energy bills. Moreover, it means establishing a system that can respond to major changes in the economic, political or scientific circumstances. The slack under the current ETS cap has led to the current price having collapsed to €4/tonne, compared to about €20 just three years ago. The “business as usual” case used to set the cap turned out to be highly inaccurate in the wake of the financial crisis. Without any straightforward means of tightening the cap, Europe has resorted to the current highly politicised process for intervention. Recommendations stumble back and forth between the European Commission, Parliament and its committees. Each time it is lurches in a different direction, its political credibility is damaged. As a result, even coal, the most polluting of power sources, is having a mini-renaissance. Our report argues that an independent agency, modelled along the UK’s Committee on Climate Change is imperative if we are to avoid the current chaos. The body would make firm recommendations on when politicians should intervene (with politicians still making the final decisions). It should be set up with clearly defined rules and on a set timetable. Intervention would only be necessary if: macroeconomic circumstances changed significantly (as in the global financial crisis); if progress on an international deal failed (or was more ambitious than expected); or if the climate science changed. Crucially, such a body would not intervene just because the price was lower or higher than expected. If you want a market system, you have to trust the price signal. So long as emissions are being cut sufficiently, low prices should be celebrated. Such an agency would be better placed to navigate between the need to retain stability, giving longer-term investment signals and ensuring that decisions taken about its ambition keeps pace with world events. The EU is now contemplating a package of climate policies for 2030, with separate carbon reduction and renewables targets. The consultation, out only a few weeks ago, suggests a 40 per cent carbon reduction target and a 30 per cent renewable energy target. The Commission should be more ambitious on carbon and ditch the distraction of the renewable target. However, unless it fixes the ETS and trusts market processes to deliver the low carbon economy, all the political posturing in the world will not hide Europe’s empty words. Simon Moore is an environment and energy research fellow at Policy Exchange Continue reading
