Tag Archives: alternative
Crikey Clarifier: Why Is The EU Carbon Scheme Hitting Our Budget?
Monday, 20 May 2013 Erwin Jackson Crikey Clarifier Last week’s federal budget showed the impact that Europe’s emissions trading scheme is having on Australia’s carbon scheme. The EU carbon price is currently a low 3.55 euros (A$4.67) per tonne of CO2. From 2015, when Australia’s carbon scheme is due to morph into an ETS and will be linked with the EU carbon market, our carbon price is now forecast to be much lower than expected. In the short term, this means less revenue from Australia’s carbon price — hence some budget cuts to climate programs last week. So why is the European carbon price so low — and what’s going to happen next? Firstly, don’t let this issue distract the debate from the fundamentals. The threat of repeal of the carbon price under a Coalition government creates far greater short-term uncertainty around Australia’s carbon price than the low EU carbon price does. For an investor, decisions around the future of EU carbon markets pale against the prospect of doing business in a country that would be the first to dismantle a carbon market. Secondly, the basic rationale for building the link between the two schemes (Australia’s and the EU’s) remains strong. In the longer term, linked markets will be central to boosting the more ambitious global action needed to cut emissions. Remember all the calls for Australia to wait till there is a global market for carbon? It’s not going to pop into place like Dr Who from the Tardis. It is going to come from markets growing and linking. Like Australia’s and EUs, like California’s and Quebec’s, and like China’s seven pilot schemes (China’s national scheme is due to start after 2015). Thirdly, recent budget changes in clean energy and other programs show that an over-reliance on the purse strings of governments does not provide policy stability. The government is better placed to define clear rules for the private sector to follow to reduce emissions. These are the principal policies that can help the government (of whichever party) meet the full range of their bipartisan target to cut emissions by 5 to 25% by 2020 (on 2000 levels). Why is the European carbon price low, and is it a problem? The main reason for the low EU price is that the limit Europe has placed on emissions is not ambitious enough. Like Australia, the EU plans to use the cap it places on emissions from its domestic industries as the principal mechanism to achieve its pollution targets. The economic downturn and the emission reductions from its ambitious renewable energy and energy efficiency policies mean the EU is likely to over-achieve its current 2020 target (i.e. it will pollute less than the cap). The EU system is acting like the market should — emissions are down, demand for emission credits is soft, so the price is low. This problem has been exacerbated by the EU being too generous in giving away free emission credits to some industries, and the lack of flexibility to adjust to changed circumstances. This is not a problem for the EU in meeting its emission targets at lowest cost. But it is a problem if you are an investor seeking to bankroll a major investment in clean energy (this is why the UK has implemented a minimum carbon price in its domestic electricity industry of around A$25/tonne). We are already seeing the EU starting to be challenged by Asia, particularly China, as the world’s clean energy superpower. Without stronger long, loud and legal price signals this is likely to continue. Why has the situation not been fixed so far? Recent attempts to bolster confidence in the EU carbon market have narrowly been put off by countries such as Poland, which want to protect their coal interests, or those that say “let the market sort itself out”. Upcoming German elections have not helped either. Chancellor Angela Merkel has been more timid than normal in sending a strong signal that the EU needs to be a leader in climate change. Does it seem that the EU will solve the problem? Even without short-term interventions, eventually, yes. The fundamentals of the European carbon market indicate prices will rise later this decade as market participants start to factor in the EU’s post-2020 emission caps (the EU has agreed to reduce its domestic emissions by 80-95% below 1990 levels by 2050). Current forecasts by market analysts suggest that EU carbon prices will average around A$10/tonne (a range of $3-$17) over the period to 2020, and up to $39/tonne in 2020. The European Commission is also re-engaging parliamentarians. In June it will revisit proposals to bolster short-term prices. The commission has also begun the process that seeks to strengthen the EU’s 2030 emission targets, which would result in even higher prices emerging later this decade. How would a low European carbon price affect Australia (especially from 2015)? A lower EU carbon a price means that meeting Australia’s emission targets can occur more cheaply. Australia should commit to a fairer contribution to global climate action and toughen its current minimum target to cut emissions by 5% by 2020 — the minimum should be around a 15% cut. Low short-term prices strengthen the case for policies such as the Renewable Energy Target to help grow a lower carbon Australian economy, until global prices better reflect the benefits of reducing emissions in the medium to long term. Continue reading
Taking Stock of Climate Change Efforts: As European Carbon Market Falters, CA Expands Cap and Trade to Canada
May 20, 2013 Unlike many environmental problems, which can be addressed at a local or regional scale, climate change is inherently global in nature: greenhouse gas (“GHG”) emissions from any source join with historic and contemporary GHG emissions from other sources globally to contribute to the total store of GHGs in the atmosphere. The global nature of the issue is a key reason why, from the onset of climate change efforts, policymakers and environmentalists have attempted to address GHG emissions at an international scale. Failure of Kyoto Protocol Leaves Void in International Climate Change Efforts The primary effort to address climate change at an international scale is the Kyoto Protocol, adopted in 1997 in connection with the United Nations Framework Convention on Climate Change. Unfortunately, through the first “commitment period” (which ended in 2012), the Kyoto Protocol has not achieved expectations, as the two largest GHG emitting countries—China and the United States—never signed the Protocol. The sense that the Kyoto Protocol will ultimately fail as a climate program was compounded by the inability of negotiators at the 2009 Copenhagen Summit to agree on a framework for climate change mitigation for the period following the end of the first commitment period in 2012. Since Copenhagen, climate policymakers have looked for a regional model to lead the way to a new international climate framework. European Trading System in Disarray With the Kyoto Protocol faltering, hopes have been pinned on the European Union’s climate change program—the Emissions Trading Scheme (“ETS”). These hopes are rapidly fading. In the past few months, the ETS has experience significant growing pains, with the price of carbon allowances having dropped from about € 25 per ton in 2008 to below € 3 per ton in April. Although reductions in GHG emissions in the EU are still on pace to meet the target of the Europe 2020 Strategy (20% lower than 1990 emissions), most analysts believe that carbon prices at this level are too low to spur investment. The severe drop in carbon allowance prices has led many, including The Economist , to question whether the ETS has any future. California Expanding its Cap and Trade Program to Canadian Province of Quebec In the midst of Europe’s difficulties, California has moved forward to link its cap and trade system with that of the Canadian Province of Quebec. On April 19, 2013, the California Air Resources Board (“CARB”) approved a plan to formally link with Quebec beginning on January 1, 2014. Linkage will create a relatively seamless cap and trade market, with compliance instruments—carbon allowances and offset credits—being interchangeable in the two systems. California and Quebec will also hold joint auctions of carbon allowances. The linkage of the California and Quebec cap and trade systems is a modest first step towards a robust North American cap and trade system. Although Quebec is Canada’s largest province by size and has a population of about eight million people (second only to Ontario among provinces), its economy is not nearly as large as that of California: Quebec has a GDP of about $300 billion compared to California’s GDP of about $1.9 trillion. About 80 entities (referred to as “establishments” in Quebec’s program) are subject to Quebec’s cap and trade regulations. In comparison, California’s cap and trade program covers about 350 entities representing 600 facilities. Also, Quebec’s allowable GHG emissions are substantially lower than those of California: Quebec’s cap starts at about 23.2 million tons of GHG emissions (CO 2 e) in 2013 and ends at about 54.7 million tons in 2020, while California’s cap starts at about 162 million tons of GHG emissions (CO 2 e) in 2013 and ends at about 334 million tons in 2020. (Note that the increase reflects the addition of transportation fuels and natural gas in 2015; over time, the cap will go down — become more stringent —for all covered sectors.) Testing the New Model CARB recognizes that a key aspect of linkage with Quebec is that it may establish a new template for climate change efforts globally. As stated by CARB in its response to comments: “[T]he experience gained now in demonstrating that two separate governments, in two separate countries, with two separate economies, can effectively partner to put a price on carbon and reduce greenhouse gas emissions is invaluable to accelerating national and international efforts to address climate change.” However, California’s cap and trade program is less than a year old and already several lawsuits have been filed challenging various aspects of the program. So the jury is still out as to whether California’s program will succeed. Moreover, the addition of Quebec will make the cap and trade program more complicated (and mistake prone) without offering a meaningful test run that could be expected of a larger, more complex regional program. Nonetheless, given the problems with the Kyoto Protocol and the ETS, the need for a successful model is certainly there, and California and Quebec may be the start of such a model. In the interim, California and Quebec will undoubtedly have to iron out a number of issues (ranging from the integrity of offsets to the logistics of operating a linked market in two languages). In the event that the California-Quebec market sets the tone for a revamped European system or a new Kyoto, monitoring the developments of the North American effort will be a key task for businesses and governments (not only within California and Quebec, but in other states and provinces as well), as they may be incorporated into the system at some point in the future. Marc Luesebrink is of counsel in the Los Angeles office of Manatt, Phelps & Phillips. He has extensive experience advising both private industry and public sector clients on environmental and land use matters. Earlier in his career, he served as a Senior Attorney at Southern California Edison and Deputy Attorney General in the Office of the California Attorney General. Mr. Luesebrink can be reached at (310) 312-4261 or mluesebrink@manatt.com . This column is part of a series of articles by law firm Manatt, Phelps & Phillips, LLP’s Energy, Environment & Natural Resources practice. The first column in the third edition of this series discussed What the Sequester Means for Environmental Regulation . Continue reading
The Private Sector Could Help Tackle Climate Change. What A Pity It’s Left Out In The Cold
ASSAAD W RAZZOUK Tuesday 14 May 2013 The private sector could help tackle climate change. What a pity it’s left out in the cold A functioning carbon market is vital to reducing emissions. But ours is broken In a stark reminder of our failure to bring man-made greenhouse gases under control, scientists reported last week that the amount of carbon dioxide in the atmosphere surpassed a level we think we haven’t seen for 3 million years. A week earlier, I attended the latest round of climate talks in Bonn, Germany. Some 200 nations were represented and continued to negotiate some form of a binding climate change agreement due in 2015, to cover the post-2020 period. The Bonn talks concluded on 3rd May and were true to style: nothing happened. I wouldn’t put my money on anything substantive happening, on current trends, by 2015 either. In a race to the bottom, nations seemed to compete on who could commit to less in terms of mitigation and adaptation, while the blame game continued unabated (“You caused the emissions”, “but yours are growing faster”, “ah yes but I am a developing nation”, etc.). Everyone in Bonn knew that any forceful road map to limit, then reduce emissions will require a comprehensive application of taxes and subsidies; performance standards; bi-lateral investments; legislation; emissions trading; and international treaties. Two of these instruments place a price on carbon, an essential component of any decisive action. According to the Brookings Institution, a Washington D.C. think tank, “there is nearly universal agreement among economists that a price on carbon is a highly desirable step for reducing the risk of climatic disruption.” Yet negotiators preferred to bicker about the possible implementation of initiatives on a voluntary “bottom-up” basis versus agreeing binding “top-down” carbon caps for countries, while ignoring both the private sector and carbon pricing. This is irresponsible, for three reasons. First, public purses are stretched; no one (other than Norway) talked as if they had any money for tackling climate change. The private sector on the other hand is flush with cash, with several stock markets at all-time highs and permissive liquidity policies worldwide. Yet there were no private sector representatives to speak of in these meetings. Instead, “pretend” stakeholder consultations took place at side meetings hijacked by two or three NGOs, some of which are anti-private sector in their DNA. Second, there was no focus on improving what we have. Indeed, left completely unspoken was the impact of the failure of the Clean Development Mechanism (CDM) on private sector appetite for cross-border climate finance. For the past 10 years global carbon markets have been synonymous with the CDM, which enables emission reduction projects in developing nations to sell carbon securities to developed country polluters. Buyers use the carbon credits to offset their emissions while sellers receive new investments, technologies and jobs. According to a recent report co-authored by the Center for American Progress and Climate Advisers, the CDM succeeded beyond expectations , unleashing more than $356 billion in green investments. The CDM was on track to deliver $1 trillion in financing but is currently delivering none at all because the carbon price signal it is sending is zero: negotiators in Bonn are negotiating agreements and frameworks, while sending – via their own CDM system – a signal that pollution has no cost. The private sector relied on developed world governments to create sustained demand for the carbon offsets generated from clean energy projects. Governments did not deliver what they committed to and the CDM collapsed. While efforts to create a post-2015 mechanism are to be lauded, these will not bring about the needed private sector investment unless credibility is restored to the CDM and investors see a return on their already invested capital. Third, as the report argues, a carbon price catalyses climate action in developing countries with most of the world’s population: China, South Korea, Mexico and Brazil are establishing domestic carbon markets in substantial part as a result of their positive experiences with the CDM. In addition, South Africa, India, Vietnam, Malaysia, Indonesia, Thailand and Chile have implemented renewable energy and energy-efficiency incentives, are designing emissions trading systems or are implementing carbon taxes. In addition to helping change how these nations think about climate policy, the CDM has helped these countries build the governance and private sector capacities needed to go after green initiatives. As Professor Wei Zhihong, a climate policy expert at Tsinghua University told me: “China’s good practice and positive experience with global carbon markets have helped create the confidence to try carbon markets at home. CDM has given us confidence that well-crafted climate policies can be good for China.” But a carbon price of close to zero (the price today) may fatally undermine this progress. If negotiators at UN climate change talks must insist on continuing to use such a flawed forum, they should at the very least significantly enhance dialogue with the private sector – as well as stand behind the international carbon markets they created. Continue reading
