Time to end Europe’s reliance on emissions trading

Time to end Europe’s reliance on emissions trading

By Magda Stoczkiewicz, director, Friends of the Earth Europe

As the EU prepares for the next round of international climate talks in Mexico, Friends of the Earth Europe believes it’s time to recognise that its principal policy mechanism for reducing emissions - the Emissions Trading System - is failing. The ETS is not delivering the CO2 cuts required by science and historical responsibility, is not financially sound, and is obstructing real action.

The first trial phase of the scheme that covers the power generation and industrial sectors, in 2005- 2007, was an abject failure with a CO2 cap 8.3 per cent higher than verified 2005 emissions. In the current 2008-2012 phase, business lobbying has resulted in an average cap only 2 per cent lower than 2005 emissions. Twenty-one out of 27 member states - including France, Poland and the UK - sought 2012 emissions caps higher than 2005 emissions. The richest country, Luxembourg, pushed for a 52 per cent increase.

There are now so many unused permits that most industries covered by the ETS - which is responsible for almost 50 per cent of EU emissions - can legally avoid making any cuts before at least 2016.

What’s more, there is no obligation to reduce emissions in Europe. The international offsetting permitted enables companies to continue to pollute at home while buying credits generated by questionable projects in developing countries. These projects often fail to reduce emissions, and may also cause significant social and environmental problems.
Acute price volatility is another major flaw: EU ETS prices have varied from over €30 to €0.03 in the past five years. Such unpredictability acts as a major deterrent to anyone investing in renewables and energy savings. It also means Europe is missing out on the opportunity to create hundreds of thousands of new green jobs.

Energy efficiency investments are in fact dis-incentivised under the scheme. “Good” measures, to lower industrial production costs by investing in energy efficiency, can be “bad” for permit prices as they lower overall demand. We can only conclude that the ETS is acting as a counter incentive to the very goal of emissions reductions that it is designed to achieve.

Now the European commission has plans to expand the EU ETS by linking it up with other national cap and trade schemes. The intention is to include Australia, Japan, and New Zealand by 2015, and to set up an even broader market by 2020.

This is at a time when greenhouse gas concentrations are increasing rapidly: time is of the essence and there is no room for error in policy decisions. The folly of extending a failed scheme is plain. A single trading partnership assumes a free flow of emissions credits in a multinational carbon market, but standards within each regional and national system could be very different. This risks a race to the bottom: the country with the lowest standards - for instance high percentages of poorly verified offsetting - would effectively set the benchmark for everyone else.

Any increase in the scale of the carbon markets is also likely to popularise the use of highly complex financial instruments risking a burst carbon bubble with far greater economic, political and environmental consequences than the subprime crash.

In this context, ongoing reliance on emissions trading is a risk that must not be taken. European negotiators in Cancun must not be allowed to push for an extension of carbon trading. Replicating this flawed mechanism will be disastrous for the climate, for people, and will be an escape hatch for rich industrialised countries that have done the most to cause the climate crisis.

The EU must urgently get on track to cut emissions on a scale that will protect the planet for future generations. It must increase its emissions reduction target to at least 40 per cent by 2020 and ensure these cuts are domestic.

Rather than depend on the uncertain, ineffective, and unfair ETS, the EU must embrace other forms of action. We need tougher laws to develop renewables and reduce energy consumption, national legislation to ensure emissions cuts happen year-on-year, carbon taxation, incentives for public and private investment to pay for emissions cuts, and above all, strong political will.

Friends of the Earth Europe’s briefing "The EU Emissions Trading System; failing to deliver" is available at: www.foeeurope.org/climate/download/FoEE_ETS_Oct2010.pdf