An article in the Financial Times (by Joshua Chaffin, subscription required) argues that Europe’s emissions trading scheme is
in danger of disintegrating.
On the proposed plan to charge airlines for each landing in Europe, Chaffin notes
The policy has indeed succeeded in uniting much of the world – against the EU. In an unlikely diplomatic chorus, the US, China, India and Russia have all lambasted Europe’s plan to extend the reach of its emissions trading scheme …
Chaffin argues that there is ‘an inconvenient truth’:
… the carbon market, the world’s largest, and the linchpin of Europe’s efforts to lead the world in the fight against global warming, is in turmoil at home. Johannes Teyssen, chief executive of Eon, the German energy group that is one of Europe’s largest, stunned an audience in Brussels last week when he pronounced the market broken. “Let’s talk real,”, he said. “The ETS is bust, it’s dead.”
The article articulates a debate in Brussels between those who want to artificially prop up ETS permit prices (including Teyssen and also Shell which want a price north of 30 euros a tonne for carbon capture and storage) and those (such as steelmakers and heavy industries) which are opposed to carbon price meddling.
Of course the argument that a low price is necessarily indicative of a failure in a market is wrong. But the EU ETS is so corrupted (as the example in the article of cement versus clinker demonstrates: the power of corporate lobbying in defining what should be counted as emissions). This is the crux of the issue: the Europeans have created an artificial market. The price of emissions permits is affected, among other things, by the credibility of the EU governments to maintain a system and the likelihood of new technologies to reduce emissions. Contrary to the arguments of proponents, I have never accepted that an artificial market such as an ETS would lead to least cost reduction in emissions.
Into this mix comes the credibility of climate science itself.
History will show that the EU ETS was the wrong scheme, by the wrong governments at the wrong time.
A low price is indeed not a failed market. It’s just a market returning to it’s real value. The price for a credit to emit 1 ton of Co2 is not worthless – clearly there are gullible fools around who will buy them, in the same way there is inexplicably a large demand for psychic readings with an active market trading in same. We can ascertain a rough idea of the value of a ton of co2 from the clearing price of airline credits, which I think trade about a a buck or two a tonne.
But it’s always heartening to find yet another example where price fixing fails to stop the natural progress of price discovery which underpins all markets.
The worst part of it all, is that, after the market fails from constant interference, opaque supply and demand characteristics, the bizarre imposition of price floors – after all the prodding and poking and trying to get it to do as it’s told – when the market fails, the idiots will turn around and say ‘see, markets are not the answer to anything, capitalism is flawed, has no soul, blah blah blah’.
It is part of the unthinking persons nature to act on their emotions rather than rational thought, and part of that process is to ascribe emotions to ‘the market’.
In reality, it’s just a raft of people saying ‘nah’ to the idea of trading promises to not emit a bit of co2, when they otherwise would have, or something like that.
RIP carbon trading, you won’t be missed.
brc
15 Feb 12 at 9:26 pm
A high carbon price means weaker GDP, closure of some industries, and plenty of hip pocket pain for voters. As a result, governments will allways issue more carbon credits to any industry lobby or presssure group that sticks its hand out. Inevitable result is an oversupplied market and a low price.
The European market has now collapsed twice in recent years. All the other CO2 markets rarely trade at all.
Bill
16 Feb 12 at 7:46 am
Interesting that the chief executive of Eon the biggest German power company has slammed their ETS. And at the second biggest one the recent chief of the RWE renewables division has a book out saying IPCC are incompetent and the Sun and ocean cycles are mainly responsible for recent warming.
I wonder if Mr Combet should have a talk with these guys.
Bruce of Newcastle
16 Feb 12 at 8:13 am
This would be major news if our media hacks were interested in real issues apart from the political leadership. As if that makes a difference to anything.
Rafe
16 Feb 12 at 9:47 am
FT: EU carbon prices plummet as emissions continue to fall
By Fiona Harvey, Environment Correspondent
“Yesterday’s blow to the carbon market came in the form of an analysis by New Energy Finance, the research house, suggesting CO 2 emissions under the EU Emission Trading Scheme fell by about 3 per cent last year from 2007 levels.
Traders were also braced for a spate of selling after the German government began to release a new tranche of emissions permits.
Falling emissions spell a lower carbon price because fewer permits will be needed by the heavy industries, such as power generation and steelmaking, covered by the scheme.”
JamesK
16 Feb 12 at 9:56 am
As record numbers of people have frozen to death recently in Europe, some partly due to energy supply it seems likely that a few more people would become sceptical of the science.
kelly liddle
16 Feb 12 at 10:34 am
There is no science.
cohenite
16 Feb 12 at 11:41 am
One aspect of the EU ETS (amongst other potential agendas) is to drive growth in renewable energy. Spain has excelled in this push with its green economy resulting in 48% youth unemployment for under 25 year olds. Even Greece which is on the verge of economic bankruptcy, was paying generous solar feed in tariffs up until a couple of weeks ago. Greg Combet cites Spain’s green economy as something we should aspire to. The UN IPCC’s climate science along with the undue influence of green lobby groups in formulating that science have been thoroughly exposed, it’s just that this news hasn’t thoroughly flowed through to the Australian mainstream media as yet.
Bill Koutalianos
16 Feb 12 at 2:01 pm
Both the legitimate EU carbon trading market (the one based on flawed science) and the illegitimate EU carbon market (the one that’s up to 90% corrupt in some EU countries) have both contributed to the EU’s economic woes. It is beyond belief that Australia is borrowing money to assist with the EU financial bailout, as well as earmarking future billions in carbon tax monies to go into the EU carbon market.
Bill Koutalianos
16 Feb 12 at 3:59 pm
Both the legitimate and the illegitimate markets are shonky, however you look at them.
They are rigged like Ponzi schemes. The sellers are always happy chappies. In most cases they collect the funds from the suckers (buyers) mainly forced into them by cynical Governments and starry eyed kids.
Then the sellers just sit back on the pile of money and ‘lo and behold’, have trouble finding suitable green schemes for investment. The problem here is they don’t know of any viable green investments – they’re illusory!
Meanwhile, they of course have to draw huge salaries, pay consultants and all the usual paraphernalia of expenses, until the money has gone.
The punters end up with a heap of worthless bits of paper.
Hubert East
16 Feb 12 at 6:20 pm