EU carbon trading failed

The free market has got us into this mess, and the free market will get us out of it.

This nonsensical idea is at the heart of all carbon trading measures, the Rudd government’s Carbon Pollution Reduction Scheme (CPRS) included.

Nicholas Stern, the economist asked by the Blair government in 2006 to present a report on the global warming threat, described climate change as “the biggest market failure in history”.

The solution advanced by Stern and Europe’s capitalist governments: let’s create a new market.

It’s a perplexing example of the kind of irrational thinking George Orwell coined as “doublethink” in his classic dystopian novel 1984: the ability to hold two contradictory ideas at the same time — and believe both of them to be equally true.

It’s not that the world’s political and corporate heads just aren’t thinking clearly, however. Carbon trading is the favoured policy of the powerful vested interests determined to defend their market share above all else.

Carbon trading provides many advantages for the corporate polluters that profit most from the fossil fuel economy currently devastating the Earth’s ecosystem, and placing the future of literally billions of people under a cloud.

Partly, it is designed to alleviate the political pressure building on governments and polluters to take serious action to reduce emissions — pressure applied by the growing numbers of people around the world sincerely concerned about the dire threat global warming poses.

At the same time, it creates a brand new commodity — carbon emissions — which, like any other commodity, is open to speculation and profiteering.

Most of all, carbon trading schemes are all designed to keep polluting industries in business for as long as possible — regardless of the warnings from climate scientists that there is already too much carbon in the atmosphere to ensure a safe future.

For proof of this, one need look no further than the dramatic collapse of the European Union’s carbon trading scheme in recent weeks. A frank assessment of this stunningly flawed model has been largely absent from the carbon trading debate in the Australian mass media.

The British Guardian’s Julian Glover pointed out the obvious on February 23: “Set up to price pollution out of existence, carbon trading is pricing it back in. Europe’s carbon markets are in collapse.”

Under the EU scheme, now in its second phase, the price of carbon has plunged from a high of more thanr €30 a tonne in mid-2008, down to €8.2, according to the Guardian.

Armed with arguments eerily similar to Australia’s minister for climate change, Penny Wong, the EU’s carbon market boosters promised that carbon trading would allow market forces to provide an incentive for investment in renewable technology.

In reality, the exact opposite is happening.

“Yet the hiss of escaping gas is almost inaudible”, Glover writes. “There’s no big news headline, nothing sensational for TV viewers to watch; no queues outside banks or missing Texan showmen. You can’t see or hear a market for a pollutant tumble.

"But at stake is what was supposed to be a central lever in the world’s effort to turn back climate change. Intended to price fossil fuels out of the market, the system is instead turning them into the rational economic choice.”

The EU carbon trading collapse is a fairly predictable outcome of the global economic crisis.

Faced with declining demand and profits, power companies and firms have been madly selling off the unused pollution permits allocated under the scheme to make up the shortfall.

The “carbon market” has been flooded with speculators rushing to unload the “right to pollute”, causing the price to go into free-fall.

Perversely, some of the same companies are laying off workers. Selling carbon permits is an easy way to pay for the redundancies.

Worst of all, this “market correction” removes any incentive for the same companies to invest in green technology. It is now far cheaper to keep using coal, oil and natural gas.

Carbon provider Utilyx admitted to the Guardian on February 7 that “there seems to be no bottom to carbon prices at the moment”.

This is not the first time the EU scheme has collapsed. Phase one of the scheme in 2007 gave the right to pollute for free to some of Europe’s biggest companies.

These same companies simply cashed in the permits, driving the carbon price down to almost zero.

The World Wildlife Fund’s Sanjeev Kumar told the February 7 Guardian that “the way [Europe’s] national allocations plans are set up is a disaster. Handing free permits to power companies is like handing them a cash bonus. Cheap profits for doing nothing is scandalous”.

In Australia, the ALP government intends to blithely take a very similar approach. Under the CPRS, the government will award $9 billion in free permits to the biggest polluters, and just hope for the best.

Why, given the calamitous results in Europe, would the Rudd government embark on such a foolhardy scheme? After all, don’t they understand that, on past performance, the measures are doomed to failure?

The US novelist Upton Sinclair once quipped, “It is difficult to get a [person] to understand something when [their] salary depends on [them] not understanding it.”

This is undoubtedly the case with the pro-corporate Rudd government.

There is one difference between the EU and Australian carbon trading schemes. The EU’s scheme might not work but at least it is slightly more ambitious.

Under the Australian model, emission reduction targets will be set at a 5% reduction by 2020, far lower than the EU’s (still inadequate) target of 25%.

From: Comment & Analysis, Green Left Weekly issue #786 11 March 2009.

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Issued by:  Greenleft

Author: Simon Butler

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Issue date: 7 March 2009

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