With its first phase coming to an end, Europe’s emissions trading scheme, touted as the best course of action on the road to Kyoto, has proven to put only minimal pressure on Europe’s biggest polluters.
Edit Kiss, an emissions trading analyst with carbon brokerage firm Vertis Finance in Budapest said, “There was so much over-allocation of permits in this phase that in April 2006, the value of carbon dropped by 60 per cent, and there was no drop in pollution. But the scheme needs time.”
This profit-driven scheme speaks in a language that economists and business leaders understand: money.
In theory, industry is supposed to make money while decreasing carbon emissions. In the first phase however, industry has only been making money, and there has been little or no change in the amount of pollution.
It seems simple enough: national governments allocate permits to their dirtiest industries to pollute. One allowance gives the holder the right to emit one ton of carbon dioxide. By setting the number of permits below the current levels of emissions, companies are forced to go green.
The more firms that need to buy carbon credits will drive up the price, forcing companies to use cheaper and cleaner sources of energy. The financial incentive is supposed to be enough to encourage Europe’s biggest industrial polluters to cut their emissions, however, most national governments have been setting their limits just too low.
The European Commission must approve the targets, but there is no verification at the local, national or regional levels. Member states subsequently act only on their own good will.
As expected, the dirt cheap carbon credits were quickly bought up and industry polluters had enough credits to keep spewing carbon dioxide.
Control of credit allocation is in the hands of national governments and corporations, and because there is no accountability, polluting firms will defend their interests.
“The energy sector is so powerful, the government is affected by lobbying,” said Kiss. In countries like Poland, for example, where energy is state-owned, the validity of the program is even more strained.
The scheme effectively covers some of Europe’s largest industries, including pulp and paper, coke ovens, power generators and iron and steel plants. The scheme doesn’t cover the rising stars of polluting industries. The aviation industry produces only about three per cent of Europe’s greenhouse gases, but it is the fastest growing polluting sector. With the introduction of cheap air travel, companies such as Easyjet and Ryanair have contributed an 87 per cent increase in emissions by this industry.
William Sims, an environmental economist with Concordia University, said if firms change their polluting behavior, they can effectively earn more money. “Ultimately, the corporate community will get behind the most cost-effective scheme,” says Sims. He says the scheme is the most economical road to Kyoto.
Despite the problems in the first phase, the European Union (EU) is still looking towards the future. The scheme will expand to include other gases, such as nitrous oxide, sulfur oxides and methane. New sectors such as the aviation industry will also be covered by the scheme. Support for the program has been shown by non-EU states in Europe as well.
Economic interests have preceded the need to protect the environment. With emissions trading, Europeans are taking some bold steps to try to change that imbalance, but the scheme needs to overcome some growing pains in order to be a success. Until that time, individual governments and companies will continue to economically benefit, while still having the freedom to pollute our commons.
