BUKO_KyotoToCopenhagen

8/2/2019 BUKO_KyotoToCopenhagen

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Carbon trading

from Kyoto to Copenhagen

Oscar Reyes

Carbon Trade WatchTransnational Institute

22 May 2009


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What is climate change?

Climate change is a structural problem that cameabout, largely, through the continued exploitation offossil fuels as a cheap fuel source since the industrialrevolution

There is no sign that climate change can be tackledwhile states continue to pursue further capitalistaccumulation (or a bureaucratic disregard for the

climate). This is shown, for example, by thecontinued correlation between GDP growth andemissions growth


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What is climate justice?

Climate change is not simply a problem ofhumanity. Although it affects everyone, it was andis caused by the richest and most powerful peopleand nations and disproportionately effects thepoorest

Climate justice means that those who are mostresponsible for the problem should clean it up


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What is climate justice?

Responsibility for tackling climate change is not thesame as transfers of money for clean developmentprojects, which often exacerbate inequalities, fosterland conflicts and contribute to water stress andlocal environmental pollution ... as well as failing totackle climate change


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Current CO2 emissions

Source: UNEP/GRID-Arendal


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UNFCCC

The United Nations Framework Convention onClimate Change (UNFCCC) emphasises thecommon but differentiated responsibilities ofstates in tackling climate change

This means the richest should pay to clean up themess that they created.

The Kyoto Protocol sets this goal on its head


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Kyoto Protocol

The 1997 Kyoto Protocol establishes legally bindingcommitments for the reduction of six greenhousegases (carbon dioxide, methane, nitrous oxide,sulphur hexafluoride, hydrofluorocarbons andperfluorocarbons) produced by Annex 1(industrialised) countries

The Annex 1 countries are supposed to reduce their

emissions by 5.2 per cent compared to 1990 levelsby 2012

These targets need not be met domestically theycan be outsourced through the use of emissions

trading


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Kyoto Protocol: Annex I

Annex I countries: Australia, Austria, Belarus,Belgium, Bulgaria, Canada, Croatia, CzechRepublic, Denmark, Estonia, Finland, France,Germany, Greece, Hungary, Iceland, Ireland, Italy,Japan, Latvia, Liechtenstein, Lithuania,Luxembourg, Monaco, Netherlands, New Zealand,Norway, Poland, Portugal, Romania, RussianFederation, Slovakia, Slovenia, Spain, Sweden,

Switzerland, Turkey, Ukraine, United Kingdom,United States of America

(40 countries and separately the European Union)


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Outsourcing

When production is shifted to non-annex 1countries, it no longer counts towards Kyoto targets

China is now estimated to be world's largest CO2

emitter, but it is estimated that 23 % of its emissionsare exported carbon


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Aviation and shipping

The Kyoto Protocol target excludes emissions frominternational aviation and shipping. (These weresupposed to be tackled by the ICAO and IMO butwere not)

Shipping accounts for c.5% of the global total ofgreenhouse gas emission

International aviation accounts for c.3% and is rising

rapidly


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Kyoto Protocol

[I]t is not an exaggeration to brand themechanisms of the Kyoto Protocol asMade in the USA. . . . The sensitivity of

the Protocol to the market was largelyinstigated by the negotiating positions ofthe USA.

Michael Zammit Cutajar,former Executive Secretary, UNFCCC, 2004


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Kyoto Protocol

Emissions Trading: industrialised countriespurchase carbon credits from countries with sparecapacity to help meet their commitments

Joint Implementation: emissions credits forindustrialised countries that implement cooperativeemissions reductions projects

Clean Development Mechanism: Northern

countries receive credits for implementing projectsthat are supposed to reduce emissions in the South


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Kyoto failed

11 of the past 13 years rank amongst the warmestsince global records began in 1850

Between 2000 and 2005 CO2 emissions grew by3.2% per year.

This is four times faster than in the preceding 10year period

The growth of emissions from fossil fuels hastrebled since the 1990s


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Kyoto failed

Emissions are projected to rise further: IEA WorldEnergy Outlook predicts a 53 per cent increase inglobal primary energy demand by 2030

Most countries with greenhouse gas reductiontargets have increasedtheir emissions since 1990 a fact that is covered over by the inclusion ofeconomies in transition in Annex 1


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Source:UNFCCC,2007. Data as of2005


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Carbon trading

Two types:

Cap and trade eg. EU Emissions Trading Scheme

Offsetting eg. Clean Development Mechanism

(CDM)


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Cap and trade

AB B


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Cap and trade

Governments hand out permits to pollute (or carboncredits) to major industries. Instead of cleaningup its act, one polluter can trade these permits withanother who might make equivalent changes

more cheaply

The cap is a legal limit set on levels of permissiblepollution within a given time period. The caps aresupposed to reduce over time and thereby restrictpollution


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Cap and trade

The trade component does not reduce anyemissions. It simply allows companies to choosebetween cutting their own emissions or buyingcheaper carbon credits, which are supposed to

represent reductions elsewhere


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Cap and trade

Trading looks for holes in caps. The cap is only astight as the least stringent part of the wholesystem. This is because credits are sold by thosewith a surplus, and the cheapest way to produce a

surplus is to be given too many credits in the firstplace (hot air credits as a result of caps being settoo high). The aim of trading is to find thecheapest solution for polluting industry, and it is

consistently cheaper to buy hot air credits thanto actually reduce emissions


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Cap and trade

Over-allocation as a rule. Most cap and trade markets useprojections of historical emissions provied by industryitself to calculate the initial caps.

Industry has a clear incentive to overstate its past

emissions to gain more credits. As a result, cap andtrade markets start out with too many credits.

This was true of the United States Acid Rain Program, theLos Angeles Region Clean Air Markets (RECLAIM),

the Chicago Emissions Reduction Market System(ERMS),the Regional Greenhouse Gas Initiative andthe EU Emissions Trading Scheme (EU ETS).

C b ff


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Carbon offsets(CDM, JI and Voluntary)

+


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Carbon offsets

Instead of cutting emissions themselves, companies,and sometimes international financial institutions,governments and individuals, finance emissions-saving projects outside the capped area.

The UN-administered Clean DevelopmentMechanism (CDM) is the largest such scheme, withover 1,500 registered projects by May 2009, andover 3,000 projects awaiting approval.

Based on current prices, the credits generated byapproved schemes will cost around $35 billion by2012.


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Carbon offsets

Outsourcing not reducing. Although offsets are oftenpresented as emissions reductions, what theseprojects do at their hypothetical best is to stabiliseemission levels while moving them from one

location to another, normally from Northern toSouthern countries. In practice, this best casescenario is rarely seen


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Carbon offsets

Offsets increase emissions. Carbon offsets displacethe necessity to reduce emissions in one locationby a theoretical claim to reduce emissions inanother a net increase in emissions


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Carbon offsets

The development disguise. The use ofdevelopment rhetoric masks the fundamentalinjustice of offsetting, which hands a new revenuestream to some of the most highly polluting

industries in the South, while simultaneouslyoffering companies and governments in the Northa means to delay changing their own industrialpractices and energy usage

Spreading injustice. Carbon offset projects haveresulted in land grabs and the repression of localcommunities.

Cap and Trade + Offsets


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Cap and Trade Offsets(A Cap with a Hole)

A AB B

offsets


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Cap and trade + Offsets

While cap and trade in theory limits the availability ofpollution permits, offset projects are a licence to printnew ones.

When the two systems are brought together, they tend to

undermine each other since one applies a cap and theother lifts it. An offset is essentially a permit to pollutebeyond the cap.

Most current and proposed cap and trade schemes allow

offset credits to be traded within them including theEU Emissions Trading Scheme and the US cap andtrade scheme (proposed in the 2009 Waxman-MarkeyAct)


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Carbon trading

Abstraction. Carbon trading abstracts from theimportant question ofwhere and how climatechange is tackled. Traders choose for the cheapestcredits available at the time, but what is cheap in

the short-term is not the same as what isenvironmentally effective or socially just


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Carbon trading

Making things the same. Carbon trading constructs awhole series of dubious equivalences betweenvery different economic and industrial practices,with the uncertainties of comparison overlooked to

ensure that a single commodity can be constructedand exchanged. This doesnt alter the fact thatburning more coal and oil is in no way eliminatedby building more hydro-electric dams, planting

more trees or capturing the methane in coal mines.


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Carbon trading

Financialisation. As the carbon market matures itgrows more complex, with new financial productsdeveloped to hedge risk and increase speculativeprofit. This risks creating a carbon bubble.

The carbon market was created by many of the samepeople at the Chicago Climate Exchange whocreated the derivatives markets that led to therecent financial crash


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EU emissions trading

The EU Emissions Trading Scheme is the largestand longest running cap and trade system

It is the largest carbon market in the world, wortharound $50 billion in 2007, and continues to growrapidly

The EU ETS is the main driver of demand for CDMprojects


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ETS: over-allocation

The EU ETS has consistently awardedmajor polluters with more free pollution

permits (called EUAs, European Union

Allowances) than their actual level ofcarbon emissions

This means it gave them no incentive to

reduce emissions

ll i


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When traders realised the first phase ofthe scheme was over-allocated, the pricecollapsed ending 2007 at 0.01

In phase I (2005-2007) as a whole, majorpolluters had permits worth 3.4% morethan their actual level of emissions

ETS ll i


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The second phase of the EU ETS runsfrom 2008-2012

For the first time in 2008, polluters were

awarded fewer permits than their actuallevel of emissions

However, the vast majority of factories

and economic sectors are still over-allocated it is only the power sector thatthat needs to purchase credits

ETS ll ti


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The EU claims emissions reduction of3%, or 50 million tons, in ETS sectors in2008

However, at least 80 million tons of CDMcredits were bought as part of the ETS in2009 more than the level of the cap.

So, again, the ETS does not requireemissions reductions by companies in theEU

ETS ll ti


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The impact of the EU-wide recessionmeans that the ETS as a whole will again

be over-allocated in 2009

Corporations get the same number ofcredits even if they temporarily close orscale down operations for short-term

economic reasons

ETS f k t


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ETS: fake cuts

Trading looks for holes in caps. The cap is only astight as the least stringent part of the wholesystem. This is because credits are sold by thosewith a surplus, and the cheapest way to produce a

surplus is to be given too many credits in the firstplace (hot air credits as a result of caps being settoo high). The aim of trading is to find thecheapest solution for polluting industry, and it is

consistently cheaper to buy hot air credits thanto actually reduce emissions

ETS f k t


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ETS: fake cuts

In ETS phase 1, Lithuania exported 33% of its credits toother countries in the EU. The underlying reason for itssurplus was the closure of Ignalina, a nuclear powerplant with a similar design to Chernobyl, which is

happening in stages betweeen 2004 to 2009 Lithuania claims that the replacement power generation

capacity will come from dirty coal plants instead.

As a result it gained a large surplus of credits, which have

been sold on and treated as emissions reductionselsewhere

ETS: windfall profits


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Companies receive most carbon credits for free. Thisis equivalent to a subsidy and with allocationsmade on the basis of historical emissions, thelargest subsidy goes to the dirtiest industry

(especially coal-fired power plants) Windfall profits also arise from an accounting trick

around opportunity costs. Power companieschoose to do the cheapest thing to meet their ETS

target which is usually buying CDM credits butpassing on costs as if they were doing the mostexpensive actually reducing emissions



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Power companies receiving free creditsfrom the ETS have nevertheless passedthrough the cost of these credits to

consumers The German Environment Minister

estimated that Eon, RWE, Vattenfal and

EnBW gained 6 to 8 billion as a result



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Research by market-analysts Point Carbon andWWF calculated that the likely windfall profitsmade by power companies in phase II could bebetween 23 and 71 billion

They also found that these profits tend to beconcentrated in countries with emissionsintensive (coal) plant setting the price the majorityof the time



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ArcelorMittal is the worlds largest steel company

It routinely receives massively more credits than itwould have needed to even begin reducingemissions: a 36.9 per cent over-allocation in 2005,26.9 per cent in 2006, 25 per cent in 2007 and 31.7per cent in 2008

The company is likely to have made over 2 billion inprofits from the ETS between 2005 and 2008, withover 500 million of this achieved in 2008 alone yet has needed to make no proactive changes to itsemissions to do so

The US effect


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The US effect

The most active buyers of CDM and JI credits todate are European companies, which either seethem as a cheaper alternative to reducing their ownemissions (under ETS) or buy them in markets in

London for the purpose of speculation and re-sale This picture will change if a US carbon trading

scheme starts,as seems likely. The EU ETSabsorbed just over 80 million CDM/JI credits in

2008. The Waxman-Markey Act proposes to allowUS companies to purchase from 1 to 1.5 billioninternational offsets every year

The US effect


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The US effect

This would spur on a massive increase in damagingoffset projects, putting enormous pressure toreduce the already-inadequate checks on theirenvironmental integrity

US expansion is also a key economic driver behindthe demand to create forest carbon markets. It alsocreates an economic incentive for new sectoralcarbon markets and other crediting mechanisms

that look likely to have even fewer checks on theirworth than current offsets

Climate negotiations


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Trade talks. Within the UN, states negotiate basedon their own corporate and elite interests,emphasising competitiveness over environmentalconcerns

Key negotiations are taking place outside the UNsystem. These include China-US, US-EU, EU-Chinabilaterals; Greenland climate summit June 2009; G8LAquila July 2009; and possibly G20



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Trade fair. There are plenty of opportunities forbusiness lobbying. These include the CopenhagenBusiness summit, 24 to 26 May

At the UN climate conferences in both Bali andPoznan, the International Emissions TradingAssociation was the largest NGO

Lobbying


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Lobbying

GHGProtocol

AFR

MIC

SectoralApproach

Intl context

PBAWBCSD

CSI

CemexCimporUnilandCRHHeidelbergHolcimItalcementiLafargeTaiheiyoTitan

Climate &Energy FA

AP6Taiheiyo

Holcim

CementTask Force

EULafarge

Cembureau

HLG

WBCSD

G8+5Holcim

Dialogue

WBCSD/CSI

WBCSD

Drivers Objective Policyplatforms

WorldBank

IEAWBCSD

IETA

WBCSD

08/2006 PV/MIRSource: Holcim, (cement company) http://www.publicaffairs.ac/publicprogrammes/AC2008/RolandJanMeijer_Climate_Change.ppt

Bali Road Map


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Bali Road Map

Negotiations on a global & comprehensive climatechange agreement 5 building blocks:

shared vision for cooperative action

mitigation action (targets & actions)

adaptation action

enabling technology

enabling finance



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Climate negotiations2007 2008 2009 2010

COP 12

Nairobi

COP 13

Bali

COP 14

Pozna

COP 15

Copenhagen

COP16

Latin America

Science input IPCC AR4

FIN GER PORT ESPFRA SWECZSLO BEL

G20 Gleneagles Plan of Action

Convention Dialogue Follow-Up Convention

Dialogue?

International

Agreement?

G8 GER G8 JAP G8 ITA G8 CAN

Bali to Copenhagen


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Bali to Copenhagen

Ad Hoc Working Group on Further Commitmentsfor Annex 1 Parties under the Kyoto Protocol(AWG-KP)

Ad Hoc Working Group on Long-term Cooperative

Action under the Convention (AWG-LCA)

Subsidiary Body for Scientific & TechnologicalAdvice (SBSTA)

Subsidiary Body for Implementation (SBI)

Key issues for Copenhagen


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Shared vision for long-term cooperative action &mitigation debate on emissions targets: how high,for whom, and when by

Expanding carbon markets through sectoral

approaches - including aviation and shipping,power, heavy industry (steel, cement, etc) andpossibly agriculture

Expanding and reforming CDM including nuclearand carbon capture



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Reducing Emissions from Deforestation andDegradation (REDD)

Technology transfer

Financing Adaptation

Sectoral carbon markets


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Expanding CDM. Sectoral carbon crediting ispresented as a transition away from offsets, butare in fact proposed within the framework of theCDM and have the potential to massively increase

its scope Removing alread weak checks. Sectoral crediting

(and programmatic CDM) would reduce checkson environmental sustainability and social justice,

bypassing the current requirement to assess eachproject. This has been the dream of dodgy offsetdevelopers the world over



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Reductions that are not reductions. The EU isproposing that these sectoral carbon credits could begenerated by any practice that alters business-as-usual trends - but this is not the same as a reduction.

In most sectors, the trend since 1990 (the usualbaseline) has seen enormous emissions increases,with recent growth slowing a little. Depending on the

baseline that is chosen, a baseline target could allow

for continued increases over and above those that arecurrently being witnessed



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Talking down ambition. Sectoral carbon markets(especially those defined as no lose crediting)

promise to reward efficiency improvements orreductions beyond a business-as-usual scenario.

This creates a perverse incentive for governments andindustrial sectors covered by such schemes to talk downtheir ambition to maximise the number of credits theywill receive, and is easy to achieve because data on pastemissions is poor to non-existent.

Over-allocations in cap and trade markets provide a clearprecedent for this.



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More is less. Another possibility under discussioninvolves setting an energy intensity target. If theintensity reduces while overall productionincreases, emissions continue to increse but

generate carbon credits that masquerade asreductions.



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Who benefits? Serious questions also remainunanswered about where this money would go (tostates, corporations, communities?) and how thiswould be governed

Even looser caps. Credits from sectoral carbonmarkets will provide new cheap and bogus sourcesof credits that can be traded in cap and tradeschemes with rules already in place in the EU,

and provisions in the Waxman-Markey act, alreadyallowing for this possibility

REDD


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Forest ecosystems estimated to hold around 20% ofearths CO2

REDD stands for Reducing Emissions fromDeforestation and Degradation

REDD


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Pilot scheme implemented by World Bank ForestCarbon Partnership Facility (FCPF), which isseeking a forest carbon market

REDD launched September 2008 with $35million

contribution from Norway. 9 countries eligible forUN-REDD funds

Also bilateral agreements eg. Australia-Indonesia

REDD


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REDD presumes that deforestation happens becausestanding forests make less money than forests thatare cut down.

In fact, the commodification of forests is what drives

deforestation. This commodification includes the role of corporate

and development bank investment in newinfrastructure, mining and oil extraction projects;

industrial logging; and land clearance to make wayfor monoculture plantations for the pulp and paperand palm oil industries.


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Riau, Sumatra, IndonesiaPalm Oil for Export

REDD


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Tragedy of enclosures. REDD is likely to fuelproperty speculation and so exacerbate landconflicts

Who benefits? REDD schemes often governed by

states whose claim to land over-rides tenure rightsof Indigenous Peoples and forest communities

REDD will encourage further dispossession

REDD schemes will be managed by many of thesame logging and plantation corporationsresponsible for deforestation in the first place

REDD


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Danger that an endless stream of deforestationcredits will simply allow companies in thedeveloped world to pay a little extra and pass costs

on to consumers without otherwise changing theirpolicies (Nature, March 2008)

REDD


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Too much uncertainty. It is notoriously difficult to measuredeforestation and degradation rates, even with new spysatellites. The variation in measurements far exceeds thelevel of reductions that would be traded

Active and Inactive Carbon Cycles. Forest carbon is notequivalent to the carbon burnt in the use of fossil fuels.Forests work as sinks as part of an active carbon cycle,storing then releasing carbon as trees grow. Fossil fuels,once burnt, release carbon that cannot be put back (exceptover hundreds of thousands of years)


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Alternatives


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Carbon trading is worse than nothing. As carbontrading helps to avoid change and even increasesemissions, it is not a question of alternatives tocarbon trading but rather of taking measures that

actually tackle climate change The importance of saying no. A Copenhagen

climate treaty with carbon trading at its centre is abad deal for the climate, and is likely to be worse

than no deal at all

Alternatives


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New policies. There are numerous positive proposalsfor all sectors from efficiency standards forelectrical appliances and buildings to feed-in tariffsfor renewables

New revenues: tax and restrict currency and fuelspeculation. This is a better means than a regressivecarbon tax to generate revenue for clean investment

Fuel poverty: This should be accompanied by pro-

active policy measures to tackle fuel poverty, suchas a ban on pre-pay metering


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Sub station near Tata Motors Wind Generators

Alternatives


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Renewable energy - but not uncritically Renewables can be damaging when they greenwash

industrial expansion, dispossess local populations,or simply supplementexpansions in fossil fuel use

Alternatives


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New energy research. Private research on energyalternatives and use favours least cost falsesolutions (eg. agrofuels, hydroelectric dams,nuclear power) rather than environmentally

effective alternatives, so is less effective thanpublic research

Reclaiming the public. Public research agendas arecurrently driven by private companies,

undermining their effectiveness too this systemneeds reform to set environmental and socialpriorities over corporate ones

Alternatives


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Re-estimating energy demand . Current modelspresume limitless growth and overstate futureenergy demand, without disaggregatingfundamental needs from the desire of many

industries to capitalise upon a continued supply ofcheap power.

A comparative historical study led by Professor PaulCraig of the University of California found that

most forecasts had overestimated US energydemand by 100 per cent.

Alternatives


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In other words, energy demand estimates assume a need tobuild more power stations than are either needed orenvironmentally sustainable, and these over-projectionshelped to keep prices low which is, in turn a keystructural driver of over-consumption

The Transition Towns movement is going some way towardsre-estimating demand with its Energy Descent ActionPlans, but lacks a structural analysis of heavy industry use(or capitalist accumulation) and is often divorced fromorganising for more equitable distribution of energy

Alternatives


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Leaving fossil fuels in the ground Radically reducing wasteful consumption (in the

North and by Southern elites)

Repayment of climate debt

Resource conservation that promotes peoples'sovereignty over energy, forests, land and water

Sustainable farming and food sovereignty

Alternatives


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Economic growth = emissions growth. There is noevidence that advanced economies are de-carbonising making it extremely unlikely thatGDP growth can be delinked from a growth in

emissions, and even more unlikely that this couldhappen quickly enough to be of any use in urgentlytackling climate change

The good news is that more effective measures of

human well-being than GDP growth do notcorrelate closely with increased emissions ie. wecan live happy and fulfilled lives if we set asidethe capitalist growth fetish

Thanks You


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For more details see:

www.carbontradewatch.org

www.tni.org
http://www.carbontradewatch.org/http://www.tni.org/http://www.tni.org/http://www.carbontradewatch.org/

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