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EU Emissions Trading System: failing at the third attempt
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Emissions trading is the European Union's flagship measure for tackling
climate change, and it is failing badly. In theory it provides a cheap
and efficient means to limit greenhouse gas reductions within an
ever-tightening cap, but in practice it has rewarded major polluters
with windfall profits, while undermining efforts to reduce pollution and
achieve a more equitable and sustainable economy. The third phase of the
scheme, beginning in 2013, is supposed to rectify the "teething
problems" that have led to the failures to date.
A new joint briefing
<http://www.corporateeurope.org/climate-and-energy/content/2011/04/eu-ets-failing-third-attempt>
from Carbon Trade Watch and Corporate Europe Observatory shows that:
- The EU Emissions Trading System (ETS) has failed to reduce emissions.
Companies have consistently received generous allocations of permits to
pollute, meaning they have no obligation to cut their carbon dioxide
emissions. A surplus of around 970 million of these allowances from the
second phase of the scheme (2008-2012), which can be used in the third
phase, means that polluters need take no action domestically until 2017.
Proposals to curtail this surplus were discussed in the context of the
EU's 2050 Roadmap, but have been watered down in response to lobbying
from energy-intensive industries.
- Companies can use 1.6 billion offset credits in phases ll and lll,
mostly derived from the UN's Clean Development Mechanism (CDM). Over 80
per coent of the offsets used to date come from industrial gas projects,
which EU Climate Action Commissioner Connie Hedegaard admits have a
"total lack of environmental integrity". The Commission delayed a ban in
the use of these industrial gas offsets to April 2013 in response to
lobbying from the International Emissions Trading Association (IETA) and
others.
- The ETS is a subsidy scheme for polluters, with the allocation of
permits to pollute more closely reflecting competition policy than
environmental concerns. Power companies gained windfallprofits estimated
at EUR19 billion in phase l, and look set to rake in up to EUR71 billion
in phase ll. Subsidies to energy-intensive industry through the two
phases could amount to a further EUR20 billion. This has mostly resulted
in higher shareholder dividends, with very little of the windfall
invested in transformational energy infrastructure.
- The third phase of the ETS will still see significant subsidies paid
to industry, despite the auctioning of permits in the power sector.
Industry lobbying has resulted in over three quarters of manufacturing
receiving free permits, which could yield at least EUR7 billion in
windfall revenues annually. Energy companies successfully lobbied for an
estimated EUR4.8 billion in subsidies for carbon capture and storage
(CCS), with a smaller amount for "clean" energy that includes agrofuels.
In addition, the Commission is undertaking a review of its "state aid"
rules which could see the granting of direct financial subsidies to
companies claiming that the ETS damages their competitiveness.
- The allocation of permits according to performance "benchmarks" was
supposed to encourage a fairer and more efficient division of
responsibility for emissions reductions in energy-intensive sectors such
as cement, steel, paper and glass. But industry has been allowed to
influence the benchmarking. For example, CEMBUREAU (the cement industry
lobby) was instrumental in choosing what to measure ("clinker" not
cement) and how to measure it. The final agreement saw the adoption of a
lax standard that was initially proposed by CEMBUREAU. This will result
in a surplus of pollution permits for the cement sector, allocated in a
way that rewards the continued use of dirty and outdated production methods.
- Aviation will be included in the scheme from 2012. The sector will
receive 85 per cent of permits for free, and the projected carbon cost
is far lower than the equivalent tax breaks for aviation fuel. Inclusion
in the ETS applies only to CO2 emissions, which obscures the greater
impact of contrails and other gases.
Put simply, the third phase of the ETS will continue the same basic
pattern of subsidising polluters and helping them to avoid meaningful
action to reduce greenhouse gas emissions.
Read the full briefing here:
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EU-ETS_briefing_april2011.pdf
<http://www.corporateeurope.org/system/files/files/article/EU-ETS_briefing_april2011_0.pdf>
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http://www.corporateeurope.org/climate-and-energy/content/2011/04/eu-ets-failing-third-attempt
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