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Green Column: In Europe, Companies Work the Angles on the Carbon Trade
2010-10-11 06:31:31.383 GMT
Green Column: In Europe, Companies Work the Angles on the Carbon
Trade
By JAMES KANTER
(International Herald Tribune) -- BRUSSELS — Carbon trading,
also known as cap and trade, has suffered a lot of hiccups in
Europe over the past five years.
Conceived to make it more expensive to emit greenhouse
gases, the fledgling system in the European Union has been rocked
by extreme volatility, cyber- attacks, tax fraud, recycling of
used credits and suspicions of profiteering.
Despite those difficulties, carbon trading has developed
into a business worth about $140 billion annually. While most of
that business is concentrated in Europe, Asian nations are
rolling out systems and Australia and the United States are still
considering using trading as a tool for cutting carbon in the
future.
The principle reason carbon trading has survived and has the
potential to expand beyond Europe is that companies and
governments — when forced to choose between trading and a more
straightforward carbon tax to meet environmental goals — tend to
choose trading.
That preference for trading seems at odds with economic
theory. Economists have long maintained that taxes and trading
should cost companies, governments and consumers about the same.
But that analysis does not account for how vigorously
companies lobby for concessions that save them money — and even
earn them money — once the authorities make a decision to
introduce carbon trading.
In other words, companies already have valuable experience
in shaping the way trading systems operate.
Under a trading system, a government sets an overall cap on
the amount of pollution companies can emit. The government then
either gives away or sells permits, each representing a ton of
carbon dioxide. Companies can sell their surplus permits or buy
more if they overshoot. The permits used in the E.U. system sell
on specialized exchanges for about €16, or $22.
Five years ago, European governments gave away excessive
numbers of the permits under pressure from industry. The surplus
was so substantial that the permits became nearly valueless.
The system eventually recovered. But the price of permits
has never been high enough for long enough to force polluting
companies to make deep and lasting changes to the way the use or
generate energy.
A major issue is that giving away large numbers of permits
has been a hard habit for governments to break.
The Union already has decided to require most electricity
utilities to buy all of their permits, starting in 2013. But
powerful lobbies from energy-intensive sectors like steel and
chemicals have argued as forcefully as ever that they would have
trouble competing internationally and might need to cut jobs, if
made to pay for all of their permits.
At stake are as many as six billion free permits to be
distributed until the end of the decade. The permits would be
worth about €100 billion at current prices.
The European Commission already has determined that 164
sectors from cement production to garment making will be eligible
for free permits to cover a substantial share of their emissions
between 2013 and 2020. The industry groups want to make sure they
get as many free permits as possible within the criteria set by
the commission. Environmental groups and some academics are
seeking to make sure the criteria are implemented as rigorously
as possible to avoid giving away all six billion permits.
Governments will make the final decision next year.
The prospect of continued giveaways prompted the European
Climate Foundation, a nonprofit research organization supported
by philanthropic groups, to commission a study on whether
industries really would be unable to afford more permits.
That study, carried out by CE Delft, a consulting company,
found that sectors like iron, steel and refining and some
plastics makers had not had to relocate a significant amount of
production abroad, even though they had raised prices. The study
found that these companies in these sectors earned as much as €14
billion by passing to consumers the costs of the permits, many of
which they had received free.
"Politicians seem to have underestimated the potential of
windfall profits in exposed sectors and have believed over all
the claims of industry that additional costs cannot be passed
through," the study concluded.
The higher prices may have stimulated imports from outside
the Union and some polluting industries may have left the E.U.,
the study acknowledged. But that did not change the fact that
industries were more than able to survive, even when they raised
prices as a result of carbon trading, according to the study.
A trio of influential lobby groups from the oil,
petrochemicals and steel industries representing companies
including ArcelorMittal, ExxonMobil, and Dow Europe responded by
commissioning Nera, an economics consulting company, to examine
those findings.
In August, Nera found that the CE Delft study had gone "far
beyond objective fact-finding, ignoring fundamental economic and
econometric problems, to make unsupported claims on a contentious
topic."
Nera said CE Delft had left out important information and
had failed to back up evidence that industries had been able to
pass on costs to the extent it claimed.
How governments should manage permits without unduly hurting
domestic industries and employment has drawn the attention of
academic researchers.
One group from the London School of Economics, the Grantham
Institute for Climate Change at Imperial College London and
Universidad Carlos III de Madrid have argued that more is at
stake in the coming giveaway than simply the well-being of
certain companies and the integrity of carbon trading.
They have said that selling permits, rather than giving them
away, would force companies to be more innovative and provide
governments with revenue to pay for research and development and
to make the transition to a low-carbon economy.
They also said that the revenues could be used to help to
balance strained government budgets after the economic crisis.
Like the researchers at CE Delft, they concluded that many
of the companies and sectors expected to receive free permits
were unlikely to downsize or move abroad because of climate
policy.
"Governments are giving away money to industry without
getting anything in return," said Ralf Martin, a research fellow
at the Center for Economic Performance at the London School of
Economics.
Copyright 2010 The New York Times Company
-0- Oct/11/2010 06:31 GMT
