Ignoring The Truth About The Failure Of Carbon Credits

In their haste to beat of the anthropogenic global warming drum, the Fish Wrapper editorial board likes to claim that certain ideas will work without bothering to investigate whether or not what they claim is true.

Today's example of this tendency has to do with what is known as carbon credits. In their editorial on an agreement between Oregon, Washington, California, Arizona, and New Mexico to "work together to reduce the greenhouse gases linked to global warming," the Fish Wrapper makes the usual inaccurate and unsubstantiated claims that greenhouse gas emissions are the cause of global warming.

The states plan to set pollution reduction targets within six months and create a cap-and-trade system within 18 months to help reach emission-reductions goals.

Good for Oregon Gov. Ted Kulongoski and his fellow Western governors. They cannot waste any more time waiting on this White House to provide strong leadership on climate change. It's not coming. So far, Bush's biggest, boldest move on warming was a brief reference in his January State of the Union address.

That's not nearly enough. As Arizona Gov. Janet Napolitano said Monday, "In the absence of meaningful federal action, it is up to the states to take action to address climate change and reduce greenhouse gas emissions in this country."

They then start to get into the ways of killing the economy while pretending that these measures will actually have an effect on anything.

The governors have come together around a promising market-based approach to reduce greenhouse emissions from utilities, refineries, manufacturing plants and other sources. Cap-and-trade systems that allow emitters to buy and sell credits have worked effectively to reduce other pollutants.

The problem that is being ignored here is that there are some serious flaws in the carbon credits scheme, as detailed in an article in Green Business News.

A leading economist this week warned that the world's two leading carbon trading schemes are failing to deliver the expected benefits due to a collapse in the price of carbon credits - and the situation is likely to get far worse before it gets better.

Many politicians have identified carbon emissions trading schemes as the best means of tackling climate change, arguing that by putting a price on carbon emissions firms have a financial incentive to reduce their carbon footprint.

However, speaking to an audience of academics and business leaders at this week's Tyndall Centre conference on investments in low carbon technologies, Professor Catrinus Jepma of the University of Amsterdam warned that both the EU's Emissions Trading Scheme and the UN's Clean Development Mechanism were in danger of failing with prices for the carbon credits used under both schemes predicted to reach just a few cents.

"The Stern Report suggests we need a price for a tonne of carbon emissions of $20, rising to $30, $40 or even $50 to stabilise [the level of CO2 in the atmosphere] at manageable levels," he said. "But there is a good chance that the carbon credits that are meant to provide incentives for reducing emissions will be available for next to nothing."

The problems with the European Trading Scheme are well documented with the collapse in the price of a tonne of carbon dating back to May last year when it emerged that most countries in the scheme had set their carbon caps far too high, resulting in fewer firms than expected having to buy credits and causing the price of a tonne of carbon to plummet from over €30 to less than €10.

As one delegate observed "with some firms having carbon emissions capped at 110 percent of what they actually required it was always going to fail".

The EU is seeking to rectify the problem ahead of the second phase of the scheme, which starts next year, and recently rejected many member countries proposed emission allowances for the next phase as too high, ordering them to go away and come back with lower caps that will force more firms to cut emissions or buy credits.

However, Jepma argued that with no link existing between the first and second phase of the scheme the cost of carbon credits will drop to almost nothing by the end of the year. Currently the price is already below one euro meaning there is little incentive for firms to cut emissions as it is cheaper to just buy in credits to offset their pollution.

So in other words, there is no financial incentive, contrary to what the Fish Wrapper claims.

He also warned that something similar was in danger of happening with the Kyoto Protocol's Clean Development Mechanism (CDM), which is designed to allow signatories to the agreement to meet their carbon emission reduction targets by buying in Certified Emission Reductions (CERs) or carbon credits from CDM-approved carbon reduction projects in the developing world.

Jepma said the scheme was in danger of becoming a victim of its own success with over 500 projects already approved by CDM and a further 1,000 projects in the pipeline awaiting approval. He predicted that as a result over 2.4bn CERs will be available by 2012.

Meanwhile, Jepma warned that Russia and many of the Central European States are on track to be well below their Kyoto emission targets for 2012 meaning they will generate 2.8bn credits or Assigned Amount Units that they can sell to those countries unable to meet their Kyoto obligations.

This means that there will be a supply of 5.2bn tonnes worth of assorted carbon credits available under the various Kyoto carbon trading mechanisms by 2012, but the biggest polluters in the scheme – the EU, Canada and Japan – are expected to exceed their targets by just 3.6bn tonnes.

"Under the Kyoto targets the supply of credits will outstrip the demand," said Jepma. "We are going to see the same scenario as with the ETS whereby the price for a tonne of carbon starts high and then collapses to close to zero by the end of the scheme… which is precisely the wrong message."

And the result of all this is

He added that such a scenario would not only remove the financial incentive for countries to invest in clean technologies that help them stick to their emissions targets - as it would be cheaper to continue polluting and just buy credits - but it would also discourage investment in carbon reduction projects in developing countries as they would have to pay for CDM approval only to find they could not get a good price for the carbon credits they generate.

So as the Fish Wrapper and the rest of the MSM continue to complain the George Bush didn't sign on with the Kyoto protocols (even though it was voted down 95-0 by the Senate in 1997, when Slick Willy was still President), they are pretty quick to ignore the inherent flaws.

But don't count on the other side of the story to be reported by the Fish Wrapper. They don't like to let facts get in the way of their liberal opinions.