Australia will join its carbon price scheme with Europe’s emissions trading scheme (ETS) by 2015. The decision means Australia’s future carbon price will be set by a European market notorious for fraud scandals, consumer rip-offs and a seven-year-long record of failure.
Labor and the Greens say their decision to link the carbon price to Europe’s ETS delivers long-term certainty for business. But the only certainties about Europe’s ETS are that it hasn’t cut emissions in the past and it won’t in the future.
Don’t trust anyone who tells you that Europe’s carbon price will be much higher in five or 10 years' time. Such predictions are no more believable than the pundits who pretend to know what stock market trends will be like five or 10 years from now.
Since it began in 2005, Europe’s carbon permit price has been very volatile. It crashed from a high of €30 in April 2006 to just three cents by the end of 2007. It rose again in the ETS’s second phase (2008-2012) to more than €35 but fell again to a low of €6.04 in April this year. It now sits at €9.80.
The price of Europe’s offset credits has fared no better. It fell from a starting price of €20 in 2008 to €3.48 in April. Analysts dubbed these UN-backed international offsets the world’s “worst performing commodity”.
But that’s not the worst of it. EU Climate Action Commissioner Connie Hedegaard admitted in 2010 that 80% of the international offsets credited under the ETS had “a total lack of environmental integrity”.
The ETS’s weak price signal won’t close down polluting industries or drive big investments in clean technologies. As part of the deal to link with the ETS, Labor and the Greens agreed to do away with the Australian scheme’s $15 floor price.
Part of the reason why Europe’s ETS has had so little impact is because business received a massive over-allocation of free permits. As a result, the price stayed low in the ETS’s first phase (2005-2007) and Europe’s emissions rose by 7.5%.
Europe’s emissions dipped 12.5% from 2008 to 2011 due to the economic crisis, not the ETS. But the fall in emissions added even more excess permits to those already sloshing around the system.
Companies will be allowed to “bank” these extra permits to use in the third phase of the ETS (2013-2020). Carbon Trade Watch’s Ricardo Coelho says the World Bank predicts such a huge surplus that about half of Europe’s emissions cut target of 20% by 2020 could be met by “banked” permits that do not represent actual emissions cuts.
Coelho said if you add in international offsets and the dodgy permits available from eastern Europe and Russia, Europe could meet its 2020 target on paper without cutting a single tonne of carbon inside its borders.
Europe’s consumers have paid a heavy price for this carbon sleight-of-hand. Big polluting firms have passed on the “cost” of their free permits to customers, reaping extraordinary windfall profits. In a 2008 report, WWF and Point Carbon said power companies in just five European countries would gouge between €23 to €71 billion from customers by the end of this year.
Swiss bank UBS said last year that the ETS had cost European consumers about $287 billion without cutting Europe’s emissions. It said action to directly phase out the biggest emitters would be a better option than “the almost zero impact on the back of emissions trading”.
EU officials promise they have closed the loopholes that have allowed rogue traders, polluting firms and even the government of Hungary to defraud the ETS of billions of euros.
However, adding Australia to the scheme increases the potential for fraud. Carbon Trade Watch founder Tamra Gilbertson has pointed out that: “Global linking would increase, rather than reduce, the complexity and potential for fraudulent trading, because it would involve exchanges of permits that are subjected to different financial and environmental rules.”
Supporters of carbon trading insist these problems are just design faults that can be put right over time. But the biggest problem with carbon trading is structural. Whatever the design, no carbon trading scheme can cut emissions fast because they favour "end-of-pipe" solutions and short-term cuts but penalise the rapid structural changes we need.
Carbon trading assumes we have to put a price tag on nature to save nature. It assumes that to stop climate change, we have to hand control of the response to the same market forces that created it. It assumes pro-market platitudes about efficiency and business confidence count for more than the lived experience of recurring failure.
There is a better climate alternative, which would focus not on market transactions but on keeping fossil fuels in the ground. Friends of the Earth’s Gareth Bryant summed up this alternative on August 29: “Instead, the government should immediately halt any new coal or coal seam gas expansion, phase out coal exports and a create a just transition away from coal-fired power production by investing in publicly and community owned renewable energy.”