Carbon trading conundrum

carbon trading 1 Carbon trading conundrum“Our goal remains exactly what it was before: to price carbon and to create a target for reduction of emissions that is real.”

- John Kerry (D)

The pricing and allocation of Carbon credits is the next logical step in lowering our Co2 emissions. Since the establishment of a global price for Carbon was effectively zapped at the Copenhagen climate conference last December, nations and regions have been left to their own devices, trying to pass and legislate a fair and effective way to price carbon. Canadian environment minister Jim Prentice has maintained the party line and declined to implement any comprehensive carbon pricing plan until the United States does

We are talking about a cap-and-trade system, a continental cap-and-trade system that involves absolute emission reductions, not intensity targets

One of the most established carbon pricing schemes and one is the European Union Emission Trading System (EU ETS)carbon trading Carbon trading conundrum is the largest multi-national, emissions trading scheme in the world, and is a major pillar of EU climate policy. The ETS currently covers more than 10,000 installations with a net heat excess of 20 MW in the energy and industrial sectors which are collectively responsible for close to half of the EU’s emissions of C02 and 40% of its total greenhouse gas emissions. But as it turns out the EU carbon pricing plan hasn’t actually decreased Co2 levels at all.

In the worst case scenario, sustainable energy plants might even have a detrimental effect on the climate. As more wind turbines go online, coal plants will be able to reduce their output. This in itself is desirable — but the problem is that the total number of available CO2 emission certificates remains the same. In other words, there will suddenly be more certificates per kilowatt of coal energy. That means the price per ton of CO2 emitted will fall.

That is exactly what happened in recent trading. A certificate to emit a ton of CO2 cost almost nothing. As a result, there was very little incentive for big energy companies to invest in climate friendly technologies.

On the contrary. Germany was able to sell unused certificates across Europe — to coal companies in countries like Poland or Slovakia, for example. Thanks to Germany’s wind turbines, these companies were then able to emit more greenhouse gases than originally planned. Given the often lower efficiency of Eastern European power plants, this is anything but environmentally beneficial.

This phenomenon is especially apparent whenever the sustainable energy industry grows more quickly than anticipated — as in recent years when growth in the renewable energy branch quickly rendered the EU Commission’s CO2 plans obsolete.

courtesy of Spiegel-online

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The price of EU carbon allowances have fallen drastically from a peak of 30 Euros ($44) in 2006 to roughly 10 Euros ($15) in 2009. The EU’s emissions trading scheme, which covers more than 10,000 major carbon emitting power plants and factories, is designed to cut CO2 emissions by 21 percent below 2005 levels by 2020. We need to be clear that a continental carbon pricing system will not turn out like the EU experience whereas Ontario wind generation companies (Samsung) sell their surplus carbon credits to coal generators in Alabama.

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7 Responses to “Carbon trading conundrum”

  1. “the total number of available CO2 emission certificates remains the same”

    Isn’t the idea is that the number of certificates is supposed to drop over time. How could they miss that?

  2. [...] week I wrote about the inherent failures of the Carbon credit/trading system specifically the problem of big polluters benefiting from a [...]

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