What’s wrong with emissions trading

Albany WA wind farm.

Australia’s climate policies are a mess, and we cannot just blame Tony Abbott. We are facing a climate emergency and Australia is a significant culprit. The country has very high per capita emissions and is a major coal exporter.

We know how Australia can drastically slash emissions: Beyond Zero Emissions has produced detailed analyses. In energy and transport, we must rapidly phase out fossil fuels (coal, oil and gas), increase renewable energy, and slash waste through greater energy efficiency and conservation. We need green jobs and targeted funding so affected communities and poorer people do not bear the brunt. To help governments plan the transition, we must stop privatising power stations. And let’s start talking about re-nationalising them.

Despite decades of climate change policies, little has changed. Fossil fuels still dominate, providing 86% of Australia’s electricity, and 97% of transport fuels. Wind and solar provide just 6.3% of our electricity. Australia’s energy efficiency record is appalling compared with other developed countries. The main success story is that fridges have become much more efficient, because of mandatory standards. Indeed, electricity savings from more efficient fridges exceed the total electricity generated by Australia’s 1.5 million household solar PV systems. And fridges are just one appliance.

Carbon pricing isn’t working

We need climate change policies that rapidly phase out fossil fuel usage (starting with the dirtiest – brown coal), massively improve energy efficiency and rapidly increase renewable energy usage. Policies must also produce permanent structural changes in our energy systems.

Effective climate change policies require strong regulations, including laws, performance standards and targets. Until recently it was generally accepted that governments should use regulations to tackle the big problems. But neoliberal ideology has become so pervasive that governments favour “market mechanisms”.

Today’s dominant mantra is to put a price on carbon. One method is carbon taxes, where the price is fixed. Certainly polluters should pay for damage they cause – this implies a high carbon tax. Governments can use the revenue to assist poorer residents and foster green jobs.

But a carbon price won’t be the main driver of change, because there are many barriers to low-carbon technologies are not financial.

Even without a carbon price, Australia could slash nearly 15% of emissions using energy efficiency measures that don’t cost money. They save money. Only strong regulations will bring about these emission cuts.

Australia had two years of a carbon tax, with the price much higher than it would be under an emissions trading scheme (ETS). Had Abbott not scrapped it, the scheme would have become an ETS in 2015.

Did this carbon tax achieve permanent changes to our energy systems? No. It temporarily changed the generation mix. Brown coal usage dropped a little and hydro rose a little.

Because hydro power stations store water, during the carbon tax period they raised generation by drawing down water storage, thereby profiting. Once the carbon tax was scrapped, hydro generators reduced power generation. The net effect on emissions could be negligible.

Indeed, if a climate policy can’t close the brown-coal Hazelwood power station – Australia’s dirtiest – you have to question its effectiveness.

Generation from black coal generators has declined. This is not due to the carbon price, but to falling electricity demand, thanks mainly to greater renewable energy, energy efficiency and industry closures.

Emissions trading delays effective climate action

Emissions trading schemes are another method of pricing carbon. These promise lower costs for business. Emissions are capped, with the price set by the market.

The longest running ETS is in the European Union. It has failed badly and 134 environment groups have demanded it be scrapped and replaced with policies that work.

It has resulted in windfall profits for polluters, while not reducing emissions. The British Energy Efficiency Federation said of ETS schemes: “Their greatest effect has been to deter policy-makers ... from implementing stronger energy saving programmes”.

Carbon pricing can crowd out more effective climate policies. Once the Gillard Labor government began talking about carbon pricing, it became the main focus. Consequently, major energy efficiency proposals were shelved.

Despite the dismal record of emissions trading schemes, many supporters claim that with the correct design, it will eventually work. Given the urgency of strong climate action, why persist with a mechanism that sounds good theoretically but so far has just delayed effective action?

But Australia may soon have emissions trading, with the Labor Party taking an ETS to the next election. The Labor Environment Action Network is pushing the ALP to take stronger action. It is calling for 50% renewable energy and 50% emissions reduction by 2030, but it also wants an ETS. The Construction, Forestry, Mining and Energy Union wants an ETS but not a high renewable energy target.

The Greens support a renewable energy target now, but believe an ETS will eventually displace this once the price of carbon rises.

Would emissions trading reduce Australia’s emissions?

Proponents claim an ETS will reduce emissions because emissions are capped, and this cap is reduced over time. However, ETSs typically allow emissions to be traded across countries.

Hence part of the cap can be met using international carbon credits. Credits from developing countries are currently very cheap so international trading means less local action to cut emissions. Some schemes, such as California’s, restrict international trade.

The Gillard government’s planned ETS allowed 50% international credits. Business, the Australian Conservation Foundation and WWF–Australia support Australia buying international carbon credits.

But Tony Abbott doesn’t. While Abbott’s reasons may be political, his arguments contain some truth. Abbott argues that the money spent on carbon credits “should be invested in Australia … and shouldn’t be going offshore into dodgy carbon farms”. He has a point. Australia must slash emissions locally, and not outsource its responsibilities.

Unfortunately, many who condemn Abbott’s attacks on climate policies just condemn all Abbott’s pronouncements. We should not support emissions trading just because Abbott opposes it.

What is wrong with international carbon trading

Carbon trading allows one country to partly meet its emission cuts by buying carbon credits from other countries. This was introduced into the 1997 Kyoto Protocol at the USA’s insistence. Kyoto flexibility mechanisms include emissions trading and the Clean Development Mechanism (CDM).

The CDM allows developing countries to produce carbon credits from projects such as renewable energy and reforestation. Most projects are from India and China. To sell carbon credits (Certified Emission Reduction units — CERs), projects must be verified as “additional”. That is, projects must demonstrate that they were not financially viable without revenue from carbon credits.

Since 2012, CERs have been very cheap — under $1 a tonne of carbon dioxide — because of significant oversupply, likely to last many years. This makes buying international carbon credits much more attractive than cutting emissions in Australia, where costs are around $30 per tonne.

Australia could meet a 20% reduction target for about $80 million a year using international credits. It is an attractive proposition. But the Kyoto Protocol prevents countries depending solely on international credits: a “significant element” of a country’s emission cuts should be met through domestic action. This vague language gives countries a lot of leeway.

International carbon credits can also be used for voluntary emissions cuts (carbon offsets) used, for example, by organisations certified as “carbon neutral”.

International carbon credits have been criticised because of concerns that they do not represent genuine emissions cuts. A 2008 Wikileaks cable confirmed that most projects from India did not represent genuine cuts. Recently, a former project manager for Chinese CDM projects acknowledged that his projects did not represent genuine cuts.

Even if these cuts were genuine, buying international permits is counterproductive. It delays Australia’s transformation to a low-carbon society. This delay will eventually cost us dearly. Moreover, it sets a terrible example to developing countries by suggesting that rich countries are unable to achieve a low-carbon prosperous society. This may deter developing countries from signing up for global action.

Some claim that buying international carbon credits helps developing countries by creating jobs and alleviating poverty. But these projects just help the elites in developing countries.

We would be better off helping the poor directly. Even the Pope criticises international carbon trading, claiming “it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors”.

Australia should help developing countries become sustainable, but as well as reducing our own emissions, not as a substitute.

Screw emissions trading, let’s just ban stuff

Paddy Manning’s 2014 Crikey article “Screw Consultation, Let’s Just Ban Stuff: How to Really Fight Climate Change” was spot-on in calling for real “direct action” (not the Coalition’s misnamed version). This means strong regulations.

We have more renewables in Australia because of the Mandatory Renewable Energy Target, and because mandatory star ratings on houses are driving solar PV installations.

Other countries ban stuff to stop wasting energy. The EU has even banned the sale of energy inefficient vacuum cleaners.

Manning suggests that governments could phase out coal by banning new coal mines and mandating emission intensity standards for existing power stations, forcing coal fired power stations to close.

Like the article? Subscribe to Green Left now! You can also like us on Facebook and follow us on Twitter.