Sub-prime carbon - government failure?
This will be a teaching topic I return to in the spring, but Radio 4 today carried an excellent report by Roger Harrabin from the BBC on criticisms of the EU’s carbon trading scheme. The report focuses on new research from Friends of the Earth that is highly critical of the emissions trading scheme. “FoE says most trades are done not by polluting industries, but by speculative traders packaging carbon credits into complex financial products similar to those which triggered the sub-prime mortgage crash.” More here from Friends of the Earth which included a link to their report (in pdf format).
Here is the link to the Radio 4 discussion - CEO of the European Climate Exchange Patrick Birley and the author of the FOTE report, Sarah Jane Clifton, discuss the rise in the carbon trading market.
Steelmakers stock up on surplus carbon permits
Grist to the mill of those who believe that the EU carbon market is flawed - it appears that some of Europe’s biggest steelmakers have been given a huge financial windfall from the carbon trading system This article from the Guardian explores the background.
Surplus carbon credits - consumer subsidise the polluters
This is not how carbon trading is supposed to work. Roger Harrabin has a new column on the BBC news site and his first piece looks at alleged weaknesses and distortions in the nascent market for carbon credits - the EU emissions trading scheme
Australia delays carbon trading because of recession
Here is an interesting example of environmental policy coming into conflict with short run macroeconomic priorities. The Financial Times reports that “In an effort to ease the strain on an economy now on the edge of recession, Prime Minister Kevin Rudd said the government would delay the start of the world’s most sweeping cap and trade scheme outside of Europe until mid-2011, but still aimed to push the emissions trading laws through parliament this year.” The government has come under huge pressure from organised business who have argued that in a recession, imposing extra costs through a carbon allowance scheme could damage profits, jobs and investment in the short run.
And given the volatility of carbon prices within the EU emissions trading scheme, it worth noting that Mr Rudd has said there would be a fixed carbon price within the embryonic Australian scheme for 1 year to July 2012. According to this BBC report, “Australia has the highest per capita emissions in the developed world and coal is its biggest export.”
Economic slump cuts EU carbon emissions
First the good news - greenhouse-gas emissions from heavy industry and utilities in the European Union fell 6% last year raising hopes that the EU will be able to meet and possible exceed their targets for cutting emissions as part of the Kyoto protocol. Cement factories, steel works and power stations are among over 10,000 industrial installations that are covered by the EU carbon emissions trading scheme which was launched in January 2005.
But how much of this welcome decline in emissions is down to the working of the carbon market is open to question. The price of carbon permits has slumped as the EU economy has nose dived into a deep recession. Indeed the price for a 2009 carbon permit is currently hovering just above Euro 12 a tonne - hardly the short of price that will give businesses the incentive to spend big sums of money on adoption of low-carbon technologies in factories and power plants. Putting a price on carbon is designed to change behaviour - but the price needs to make a difference and be sustained over a long enough period of time.
UK emissions decreased 6.8% to 254 million tonnes, while German emissions dropped 3.2% to 457 million tonnes - German industry is suffering greatly from the collapse in world trade and decline in demand for manufactured goods and capital equipment.
A quick extra point - under Phase 2 of the EU ETS, up to 10 per cent of carbon emission allocations can be auctioned off. The UK Debt Management Office has this responsibility for the UK and this section of their web site might be a useful port of call for teachers and students wanting to know more.
New Revision Presentation on European Carbon Emissions Trading
This new tutor2u revision presentation looks at:
- Can carbon markets be part of the answer in controlling climate change?
- What is the basic economics of carbon trading?
- Is the EU system working?
- What are the alternatives / complements?
- Should carbon trading be replaced with a carbon tax?
Download PowerPoint presentation
Carbon trading for down under?
The Australians may be making headway towards their own carbon emissions trading scheme with the publication of a new report from economist Ross Garnaut. Here is the link to the Garnaut Report web site. And this BBC news video provides coverage from the world’s driest continent.
Carbon Trading - News Update
Here are three good articles on carbon trading for students wanting to be up to date and have some more arguments to hand:
BBC: “Carbon market’s value hits $64bn”
Nova Scotia News: “Canada may hook up with the EU carbon trading scheme”
Reuters: “British government shelves plans for personal carbon trading”
Jeffrey Sachs on Carbon Trading
Jeffrey Sachs features on “You ask the Questions” in today’s Independent. There are loads of interesting questions and answers - Sachs remains positive about China’s growth potential although he expects it to decelerate to around seven per cent in the years ahead. Here he is on a question about carbon trading .... good evaluation here for students preparing for a question on carbon trading versus carbon taxes versus other policy measures:
“There is a good case for putting a price on carbon emissions but it is more straightforward to do it as a tax rather than a system of tradable permits. It would be easier to tax carbon at source – coal, oil, and gas companies. Tradable permits or carbon taxes will not help develop low-emission technologies. We need to combine carbon pricing with initiatives to promote sustainable energy and farming technologies.”
Catch the remainder of his article here
Carbon prices head higher as emissions targets start to bite
There was some important information this week from over 10,000 power generators, steel, cement and aluminum manufacturers. The effectiveness of carbon trading in creating the right incentives for power users to cut emissions depends on there being a scarcity of carbon permits reflected in a price high enough (and sufficiently predictable in the medium term) for investment in improved fuel efficiency to be commercially viable. A couple of years ago the market price of carbon collapsed when it became clear that the EU had been overly generous in handing out free gifts of carbon permits. The criticisms were valid and the long term future of the carbon trading scheme was called into question.
But the signs for the second phase of this innovative market mechanism look more promising.
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