The Invisible Hand of Climate Change – Part One: The Mystical Carbon Market
By James Barber
In a previous blog post about the Green Party’s proposed Carbon Tax and market approaches to addressing climate change I applauded the Green’s rejection of Emissions Trading Schemes (ETS) as a solution to climate change. I said that, “The current ETS has subsidised polluters, increased the cost of living, and has done nothing to address greenhouse gas emissions.” Despite constantly lauding the NZETS as an “all sectors” and “all gases” scheme the Government has delayed the entry of agriculture indefinitely and the scheme currently acts as a subsidy for polluters as the government continues to gift carbon credits to polluting companies. The Labour Party’s ETS, introduced with Green Party support in 2008, was similarly pointless. Despite heavily criticisng the current Government’s changes the Labour Party is committed to maintaining subsidies for “carbon intensive industries… such as steel and aluminium” (Labour Party Climate Change Policy 2014). The ETS in Aotearoa has received heavy criticism and similar schemes around the world act as a money-go-round for businesses rather than as real solutions to climate change.
In this blog post I will be describing how ETS are not genuine attempts to mitigate climate change but instead merely act as a way to protect the status quo. They are a smokescreen, hiding the contradictions of acknowledging the threat of climate change while continuing to explore for fossil fuels.
What is an Emissions Trading Scheme (ETS)?
Emissions Trading works by the Government establishing a cap on the number of emissions companies and businesses are able to produce. When companies produce emissions in excess of this cap they have to buy or trade Carbon Credits (often called Units) to cover the excess emissions. Initially Government’s distribute Carbon Credits to businesses for free, to help them “transition.” Other than buying Credits companies can start projects which earn them (such as building renewable energy projects or carbon sinks). This creates a “Carbon Market” in which Credits are produced, bought, and sold. This and the gradually reducing cap is supposed to give businesses an incentive to reduce their emissions. This is made even more complex by the creation of an International Market of Credits where businesses purchase Credits at the cheapest possible price.
Market solutions to a market made problem?
Emissions Trading does not require businesses and governments to make the changes necessary to mitigate climate change in a safe way. Instead they maintain the status quo and profit motives of the market and simply add a new commodity, Carbon Credits. Since climate change is largely driven by excess production and consumption in pursuit of profit it would seem naïve to believe we can use the same system to solve the problem it created.
There are some other obvious problems with the Market basis of Emissions Trading. For example, supply and demand. If the price of the Credits is floating (not fixed like taxes) then it is subject to these pressures. This means that the more Credits are earned through actions we presumably want to encourage like planting trees and building wind farms the value drops because of the increased supply. This provides a perverse incentive to continue fossil fuel production and limit renewables as a way of maximising one’s profit within the Carbon Market.
Credits are often given out for free at the start of a scheme, this acts as a subsidy for polluters and can help businesses exploit the scheme. For example, the Spanish oil giant Repsol deliberately over estimated their emissions projections under the EUETS and so acquired a surplus of approximately 7 million Credits between 2008-2011. (Carbon Trade Watch, 2013)
Emissions Trading: a Smokescreen?
Carbon Trade Watch, in their article Extractive Energy, says that Emissions Trading hides the internal contradictions of acknowledging the threat of climate change while at the same time expanding fossil fuel extraction and exploration. This can be seen in Aotearoa New Zealand where both National and Labour support the continued exploration of oil and gas, and yet they have both committed to small emissions reduction targets (eg. National’s goal of 5% below 1990 levels by 2020). Both of these Parties have given the job of reducing emissions to the Market through their support of Emissions Trading. Ironically it is the profit motive of the Market which is driving the continued exploration of fossil fuels.
This can also be seen in the European Union. Despite the EUETS and emissions reduction targets of 80-95% by 2050, the extraction of coal, oil, and gas, is expanding. The World Coal Association says that, “day by day decisions within the energy sector in Europe prove that unavoidable decline or phase out of coal remains in the sphere of rhetoric not reality” (Carbon Trade Watch, 2013). Germany has also seen a boom in the burning of lignite coal for power generation (Currently over 25% of their national supply comes from lignite) and Poland’s economy is almost entirely based on the production of coal (and 92% of their electricity comes from coal). This production is also set to increase 40% by 2020.
The Spanish company Repsol has been exploring for oil near the Canary Islands and has had approval for experimental drilling. Also, the UK has seen a large increase in oil and gas exploration.
This ongoing exploration for fossil fuels is a problem as there is very little left that we can safely burn. The International Energy Agency says that if we are to remain within “safe” levels of climate change (the 2 degree, 450ppm, target), then four fifths of our allowable emissions will be already locked in by existing infrastructure, such as power plants. They also say, that “if stringent new action is not forthcoming by 2017, the energy-related infrastructure then in place will generate all the CO2 emissions allowed up to 2035, leaving no room for additional power plants… and other infrastructure.” (Reuters, 2011) This demonstrates the significance of continued exploration for fossil fuels. More infrastructure will be built to use them and thus emissions will be “locked in” as the IEA suggests.
The role of the ETS in Aotearoa is quite clear. It gives the Government a way of saying they are addressing climate change when they’re really pushing for the expansion of fracking and deep sea oil drilling. The Government’s lack of action is explained away as they have already given climate change to the invisible hand of the market to decide our fate. This allows the Government to say something is happening for climate change mitigation while they continue pushing for the extraction of fossil fuels.
Finally there has been an added bonus for big emitters with Emissions Trading, and its prevalence as a believed solution to climate change. Since the Labour Government abandoned plans for a Carbon Tax in 2005 many mainstream organisations have been distracted and used up time and resources campaigning for Emissions Trading, and then trying to improve the scheme when it was first introduced and then progressively undermined by the National Government. For example, Greenpeace, Generation Zero, and the Green Party (until 2014) have all focused on improving the NZETS. This distracted from direct action and campaigns to stop the production of fossil fuels (which stop climate change at its source). Only recently have the Greens abandoned its plans to try to reform Emissions Trading, and other organisations are moving from pushing for legislative change to other approaches. One notable example is the growing divestment campaign. Despite this however, Emissions Trading has done a fine job of keeping climate change mitigation in the sphere of rhetoric rather than reality.
For details on the negative impacts on the use of the profit motive in Clean Energy keep your eyes open for the next part of The Invisible Hand of Climate Change. This will discuss the consequences of the UNFCC established CDM, JI, and REDD.