Is carbon trading a good thing?

In my view, in the absence of a personal carbon rationing scheme, the response to climate change has to be led by governments rather than individuals. The current response has started at the top using the much maligned emissions trading scheme (EU ETS), this is now being followed up with the soon to be introduced Carbon Reduction Commitment (CRC) for mid sized energy users. Both schemes are cap and trade or, if you like, carbon rationing schemes. The fact these exist at all shows that although personal carbon rationing has drifted out of mainstream public debate, the principles are being used elsewhere.

The schemes I mentioned above have had mixed success so far. The EU ETS got going in 2005 and mandated that 10,000 of Europe’s largest power users and generators had to measure and report their emissions. In the beginning free credits were allocated based on current consumption. The idea is that as the total number of credits is reduced, their value would increase and it would become cheaper to invest in plant that reduced emissions and any excess could be sold on.

The problem was that because credits were allocated rather than auctioned, the level of allocation became the subject of huge political manipulation. Each country wanted its own industries to have plenty of credits and each sector lobbied hard so their operating costs did not increase too much. Rather unsurprisingly, the result of the lobbying was that the too many permits were allocated and soon everyone realised that no one would be caught short and so the carbon price collapsed. The Carbex graph shows this happening in 2007 and 2008.

Data comes from: (http://www.eex.com/en/Download/Market%20Data/EU%20Emission%20Allowances%20-%20EEX)

But not to worry, to be honest you can’t blame the Politians for adopting a cautious approach, imagine if the costs had rocketed to thousands of euros per tonne and power stations had to be shutdown because of carbon prices. That would have done more long term damage to the credibility of schemes like this.

In 2008 all member states submitted their new allocations and since then the carbon price has remained relatively stable, many advocates suggest that the allocations should be cut much quicker to provide a higher price of carbon.

Many see the emissions trading scheme as merely making money for traders and speculators, more of what got us into all the mess we’re in. But in its simplest form I think is actually a good idea. If I own a power station in Poland and I’m thinking of upgrading something, I work out that if I improve efficiency (in terms of carbon) by 10% I will no longer need all my credits and can sell the excess to people plants where upgrades would cost more than mine. Every possible upgrade or project that will generate a reduction in carbon can be modelled and the necessary carbon price to make it viable can be worked out. As the total number of credits is reduced the price will rise making more projects viable.

The beauty of the whole thing is that it doesn’t rely on forward thinking CEOs or public pressure only on something that can be monetised and factored into corporate decision making.

The main problem with the the EUETS and other schemes is that most of the trade doesn’t occur between European power stations but other international projects. The UNFCCC accredits projects from the developing world under the Clean Development Mechanism (CDM), which was invented as part of the Kyoto Protocol, this then allows developing country projects to offset some of the emissions reductions of the European scheme. This means that if we can persuade the developing world to build enough CDM accredited energy schemes we won’t need to change anything back in Europe. We can still meet our binding targets and as long as the developing world has only aspirational targets it won’t matter that they sold off all the ’cleanness’ to the Europeans.

To conclude, carbon trading is a useful tool but carbon markets should be restricted so when the EU commits to reducing carbon emissions by 30% the carbon emitted by the EU will actually drop by 30%. Offsetting just provides a another chance for people to play the system and shy away from what actually needs to happen.

Intellectual property and climate change

Bear with me on this post. It spans intellectual property, green energy, other bloggers and UK energy policy .

Yesterday, I attended the Regen South West Renewable futures conference. You can read about what was said here. I even get a quote!

One of the speakers on the event was a guy called John Geesman who is an American who had a startling grasp of UK energy policy. He also has a blog called “Green Energy War

He’s just written a post called “Free Trade, Global Warming, and Beliefs of Elites”, sounds great doesn’t it? In it discusses (briefly) the role of trade and IP relating to clean energy tech and developing countries. Arguing that the US hardline on IP damages the ability of countries to mitigate or adapt to climate change.

He also draws attention to an excellent report from Third World Network on the fact that through the “Foreign Relations Authorization Act” the US have established a policy that they will “oppose any global climate change treaty that weakens the IPRs of American green technology”

This seems to offer a new front on the IP rights vs human rights debate. The argument has been well rehearsed in between the pharmaceutical industry and developing country health campaigners. But at Copenhagen we may see the same debate between clean tech companies and environmental groups. As if to underline the point General Electric borrowed pharma’s script and told congress:

“Such measures would be counterproductive from the point of view of combating climate change because they would deter innovation and technology deployment. In addition, they would be severely detrimental to US export interests … Companies will be careful to avoid licensing technology or even selling products to customers in countries where those customers could reverse engineer, take and use the intellectual property rights.”

So this begs the question, are patents and IP rights a desirable way to incentivise things that need be deployed for a global good?