Anna Pearson's blog

The new report today from the UK’s Environmental Audit Select Committee couldn’t have been clearer in its recommendations on the future of the EU Emissions Trading stating that it was ‘imperative’ to reduce the ETS cap with a ‘much tougher’ one needed. With reports from Parliament’s independent committees always carefully worded this is pretty strong stuff and their call also comes at a timely moment with CO2 reduction targets on the agenda for a meeting of EU leaders this Thursday. And having given evidence to the Committee last year, we're also delighted that they took on this recommendation along with many other Sandbag ideas.

In fact the title of the report - ‘The role of carbon markets in preventing dangerous climate change’- is also striking. If you’re wondering what’s so special about this title, well it’s the explicit recognition that emissions trading is here to serve a purpose. In much of our work at Sandbag, the policymakers and experts we speak to seem to forget this – like Margaret Thatcher in the 1980s there is a belief in laissez faire economics – leave it to the free market and all will be fine! But standing where we are today, with too many emissions permits issued to industry, the recession cutting swathes off our CO2 emissions and the continued availability of millions of cheap offset credits from overseas; the market is powerless. The carbon market cannot adjust to these developments unless we act to reform it, and fast.

Critics, who are hovering like vultures around the scheme at the moment will of course, try and take this report as evidence of the need to scrap emissions trading. This is to misread the report’s clear support for a reformed Emissions Trading Scheme, and its intelligent reading of the uphill political struggle of establishing any alternative. Indeed, even if the vultures hoping to feast on Emissions Trading had their way, their appetites would only briefly be satisfied – if EU leaders are struggling to get through a 30% emissions reduction target that amounts to little more than business as usual it’s hard to see how they could implement tough carbon taxes or regulation to replace the ETS.

So at Sandbag HQ we’ll be doing our utmost to make sure that the voices of all those who have signed our petition for stronger reductions in C02 levels are heard loud and clear in the corridors of Brussels. And we’re not going to give up until the EU does put in place the new caps on emissions that the world’s climate needs, and that the Emissions Trading Scheme simply can’t do without.

Last week the EU submitted its woefully inadequate 20% CO2 reduction target to the UN’s Yvo de Boer. It comes at a time when there is an increasingly unpleasant confidence in the proclamations of the world’s climate sceptics. In advance of the Copenhagen talks they must have been very pleased with themselves after securing vast coverage for the so-called climate gate scandal which revealed that, shock horror, some evidence might not 100% back all of the IPCC findings. Of course this has never happened before in science, a field where evidence and data is constantly reassessed, retested and revised. And where the theories of Copernicus, Newton and Einstein’s were always met with complete unanimity in the scientific work of their peers!

More recently it’s been the fact that a exaggerated claim that Himalayan Glaciers might melt entirely that the sceptics have been all over like a rash. Forget the fact that what is at question is the rate of melting, not the fact that they are melting! But if anything is clear from all collective ‘gnashing of teeth’, it is that there is a real appetite for stories that allow people to believe that climate change isn’t a threat. And that is in no small part due to the fear that dealing with climate change is going to cost us all an inordinate amount of money and will be very painful the way we live.

We suggest the opposite – it will actually be pretty expensive and painful to do nothing on climate change, whether or not you believe in it. So climate sceptics, read on (if you’ve read this far), for three reasons you might want to join our campaign for the EU to move to reduce its emissions by at least 30%.

1. Fossil fuels are running out.

This means that as time goes on that prices will rise and will be increasingly volatile. Countries with large oil and gas supplies will be able - if they choose - to hold the EU to ransom. So the lovely things that the Green movement wants to stop you doing, like driving a big car, having an outdoor patio heater or just leaving your TV on standby; will at some point in the future, become too expensive for you to do anyway! But of course if we wait till this scenario occurs – not only will we have missed the opportunity to stop runaway climate change, we’ll also face much higher costs in generating the clean power that everyone will be demanding.

The Swedish Prime Minister Fredrik Reinfeldt put it well when he observed the following. ‘The Ukraine uses energy about three times less efficiently than EU countries on average. Studies demonstrate that if Ukraine's energy efficiency could reach the level of countries like Slovenia and the Czech Republic, Ukraine would come close to being independent of gas imports from Russia.’ For the EU, energy security has long been a critical priority – but at the moment, the policies to stop it becoming the geopolitical issue of the future are not in place.

2. We could make a lot of money from our plentiful natural sources of energy in the EU

Where oil is in the ground there are wells, where gas is present there are pipelines but where natural sources of energy are plentiful, there is often nothing. The fact is that when we consider that wind can make electricity, it starts to have an asset value. Just like oil, gas and coal you need investment to extract its value – but there is money to be made. This seems to escape many climate sceptics – that by failing to invest in renewable power generation, we are effectively ignoring huge sources of revenue and growth. Oil companies invest inordinate sums in finding new sources of the black stuff so what’s stopping them from looking for areas with high winds or strong sunshine? Simply put, it probably doesn’t fit the business plan. Companies like doing what they know best, what they have already done before and what they have the infrastructure to do. New ideas and technologies cost money in initial outlay before they start to pay off – and shareholders may prefer short term gains to such long term investments.

3. We need jobs in the EU

New technologies mean new jobs – the question is, where will these jobs be located? At the moment China is one of the countries taking the lead in developing large scale production of wind turbines and solar panels . In 2009 global investment in renewable energy overtook investment in fossil fuel base infrastructure for the first time this was largely due to a 27% increase in investment in China with European investment static. Germany has been successfully in creating thousands of jobs in clean energy, but with the current EU policy climate not providing a strong carbon price, or tough targets which would incentivise further growth of this sector whether Germany or the EU can keep up with the pace of green industries is in question.

One of the problems is that traditional industries have always been quick to raise the spectre of job cuts if climate legislation is too strong. For instance, last week Gordan Moffat of Eurofer, the steel industry’s professional body claimed the following; “Steel already has to reduce its emissions in 2020 compared to 1990 by over 40% due to the EU Emissions Trading Scheme (ETS). Another 10% would be fatal”. A citation alludes to the 430,000 jobs at stake. But in reality our analysis of emissions trading shows that the steel industry has been given more free permits to pollute than it has required for every year the scheme has been running. Many companies have been making windfall profits – in particular, ArcelorMittal, the biggest steelmaker of all who reportedly threatened to cut thousands of jobs if they did not receive generous allocations of free permits and who now stand to make up to £1 billion from the scheme. Heavy industry has wisely realised the importance of getting a good deal on climate policies and EU officials and politicians have taken many steps to help them avoid feeling any impact. The problem is that doing this is both costly to EU taxpayers, detrimental to the environment and puts our chances of winning new jobs to the EU at risk. And the generous treatment has not stopped industry cutting jobs in EU as many workers will testify to.

So even if you’re not convinced by the climate science – sign our petition for the EU to do more on climate change. Avaaz reported popping of champagne corks amongst industry at the end of the Copenhagen talks – at Sandbag we imagine the Moet was out again last week. But with EU leaders are due to meet again on the 11th February the issue will be discussed again. Some leaders back stronger targets, but for a collective EU decision to be reached we need more pressure. So lets make sure toether that there's no more champagne corks popping this month.

When we got back to our desks in the New Year we decided that we had to do something to try and get things moving again after the demise of international negotiations. And there was one obvious target for us, the EU, and one obvious deadline – January 31st the date when countries have to enter their targets into the Copenhagen Accord.

Previously top of the league in tackling climate change, the EU’s performance at Copenhagen risked putting us into the relegation zone. But with the political accord agreed at Copenhagen yet to be finalised, there is still a chance for the EU to regain its reputation as a leader on a climate change by increasing its emission reduction target to at least a 30% cut on 1990 levels.

As you reach for your mouse to click and sign our letter to EU Leaders

you might also be interested to know what happened to EU leadership on climate change and why it is now so easy for them to be far bolder. So a brief history...

The EU got ahead of the game in 2008 by announcing that it would cut its CO2 emissions by 20% on 1990 levels, moving to 30% if other developed countries offered similar commitments. The stated aim was to use this ‘conditional’ target as a carrot to get other countries, not least the United States, to do more on climate change. A worthy aim perhaps, but the EU’s carrot doesn’t seem to have been very enticing to anyone at the Copenhagen talks. The US arrived with its offer of cutting emissions by 17% on 2005 levels, and left with the same target – unprepared to go further until domestic legislation had been passed. Other emerging economies such as Brazil and Mexico came straight out and offered challenging targets to cut their emissions, and in this case, no carrot from the EU was needed.

But the EU’s target is not only out of date as a negotiation strategy, it’s also out of date on ambition. Since 2008 the world’s economy has entered a prolonged and painful recession. Perhaps the only good thing that has come out of the recession has been a cut to carbon emissions. This means that, from where we stand today, moving to a 30% target is at least €100 billion cheaper than it originally was to cut by 20%. Our new analysis shows that using surplus permits from emissions trading combined with access to overseas offsets could mean that staying on 20% would require barely any extra domestic effort between now and 2020.

There are strong positive reasons for moving towards tougher targets on CO2. One of the strongest areas for growth over the next ten years is likely to be in clean and green technologies and the EU risks getting left behind economically if it does not increase its target. And in any case recent policy decisions will cushion most old industries from the effect of tighter targets so there really is very little downside to taking on more ambition.

Like someone in a bad relationship it is time for the EU to move on. Kicking off the new decade with a move to at least 30% reductions in emissions the EU could help repair relations with developing countries and inject some much needed momentum into the international negotiations. And if all countries were to offer their best targets to the Copenhagen Accord later this month we’d also know for the first time, exactly how far we have to go in order to keep world temperatures from rising more than 2 degrees. There’s already a new EU president, shortly there will be a new European Commission, so lets also have a new EU climate change target - EU, you’re not done yet.

Today the 'Sunday Times' has reported Sandbag's analysis that the world's largest steel company ArcellorMittal, led by Britain's richest man, Lakshmi Mittal, could make over £1 billion by 2012 from the EU Emissions Trading Scheme. The potential profits would result from the company selling an estimated 80 million surplus permits that it will have accumulated by 2012, permits which would allow into the atmosphere, pollution equivalent to the annual emissions of Denmark. Visit our ArcelorMittal page for more information or read our briefing .

The case of ArcelorMittal and the windfall profits they stand to make from the EU Emissions Trading Scheme shines a light on one of the problems that currently exists with ‘carbon trading’. The danger is, that in recognising such flaws, we are put off the concept of ‘carbon trading’ entirely. Indeed, there are many voices in the NGO community calling for the idea of emissions trading to be permanently shelved, but failing to propose credible and politically realistic alternatives. Our view is that whilst emissions trading in the EU may well be flawed as it stands, it can most definitely be fixed.

The EU Emissions Trading Scheme, and others like it currently being developed in the US and Australia, work on the basis of a cap on carbon emissions which politicians set. The cap acts as a maximum ceiling for emissions that companies covered under the schemes can emit. The main reason the EU Scheme has not delivered a great deal is not because it is fatally flawed as some claim, but because EU politicians have set a high ceiling for emissions and thus a weak cap. There are of course, other more technical niceties of the carbon market that are important to get right. For instance, companies should buy their pollution permits at auction rather than receiving them for free from government. But the cap is by far the most important piece of the jigsaw.

Blaming carbon trading and the market for the world’s collective failure to effectively tackle climate change is like throwing the baby out with the bathwater. The thing about markets is that they are not moral actors; they will deliver only what they are required to deliver and no more. So if politicians, who ultimately control the carbon market, require it to deliver very little, then that is exactly what we will get. If instead, they require it to deliver the carbon cuts we need to prevent dangerous climate change, then we will get impressive results. It is really political will that is lacking, and the reason for that is twofold. First there is the huge power of the industrial lobby, with the Sunday Times able to find that ArcelorMittal directly threatened the loss of to 90,000 jobs if there was tough environmental legislation. And second, well how many people do you know whose top priority when they vote next year will be based on what that political party promises on climate change? Critics of the carbon market forget that whatever the policies put forward to tackle climate change, they will all be subject to these twin pressures.

The good news is that next year we may have the opportunity to make the changes we need to the carbon market, but only, if NGOs and the public get together and campaign very hard. If the EU raises its target at Copenhagen above a 20% CO2 reduction from 1990 levels, then a review of the Emissions Trading Scheme will be triggered but there are many opponents to tougher environmental targets; the fossil fuel and heavy industry lobbies will be out in force to scupper progress, and they will be joined by member states where citizens have not bought into the need to save the climate yet. Lets hope even the market sceptics can get behind efforts to improve the system.

And in the meantime we will raising our efforts to get companies like ArcelorMittal to cancel their surplus permits to generate real environmental benefit. After all, the permits were received for free, so why shouldn't they be given away for free!

Thousands of ‘climate campers’ will today descend on the City of London against a backdrop of media interest and speculation. Yet frustratingly it is likely that yet again the event will again slam emissions trading as a climate villain, rather than recognising it as a potentially powerful climate change solution. In attacking one of the only existing policies which has a measure of political consensus worldwide, we believe the organisers could be firing at the wrong target.

At Sandbag we’re well aware of the problems emissions trading faces both within the EU’s existing scheme, and proposed ones in the US and Australia. Our recent report EU ETS: S.O.S highlighted the evident flaws in the EU scheme and called for action to address them. But the main reason the policies are failing is because there has been insufficient engagement from civil society in calling for tighter caps. These and other improvements could very efficiently deliver the carbon cuts the world needs. The alternative of developing and implementing different policies would likely take many more years, years when we cannot wait. Global emissions need to peak before 2020 to stand a chance of keeping global temperatures from rising 2 degrees.

There’s no doubt that the mass mobilisation that climate camp achieves is hugely impressive, and it acts as a powerful reminder that more people now care about this topic. The protesters are a visible sign of the passion this topic now evokes and the coverage generated will help to raise public interest in the issue. But there is a danger that without positive and clear messages about how to actually tackle climate change, rather than negative messages focused on dismantling existing efforts, climate camp could become more about the spectacle it creates than the solutions it inspires. The question is, once the tents are dismantled, what will be the lasting legacy.

We will be doing our best to convert the pressure they generate into positive policy change and we hope some of the people present will join forces with us too. Certainly if everyone at climate camp called on the EU to toughen up carbon trading rather than scrapping it, the message might get through.

Today Sandbag launches its first major report on how the EU emissions trading scheme is working. Given that the scheme covers 50% of all EU carbon emissions, whether it’s working or not goes a long way towards determining whether EU efforts to tackle climate change are up to scratch. And at the moment the good ship ‘ETS’ is in need of rescuing.

The ETS is sinking under the weight of a potential 1.6 billion surplus emissions permits and equivalent offset credits available between now and 2012. As with any market huge surplus supply means that the price, in this case of carbon, will stay low. This means that it is cheaper for companies to buy surplus permits and credits to meet their ETS caps, than make the investments they need to actually cut their own carbon. In fact, the EU could hit its targets for the next seven years just through using up the 1.6 billion surplus, but standing on making genuine cuts to emissions.

So how has this happened? Well first of all, the caps on emissions under the scheme were set politically rather than in line with the science of climate change, so they were set too high. In addition, heavy industry succeeded in getting massive allocations of permits after another round of special pleading and lobbying within the EU. A mixture of overallocation and the recession now means that rather than the ETS costing industry money, they could make €5.4 billion from selling their spare permits. Even with high caps the EU was still worried it would be too difficult for countries and companies to meet so allowed for millions of offset credits from overseas to be treated as equivalent to emissions cuts at home.

Sandbag is pushing for action to tighten the caps under the ETS and remove some of the hot air in the system. And with Copenhagen talks now close we think it’s vital that EU leaders do this, after all if we don’t step up with ambitious targets, are others going to? The good news is that we think it’s easy for the EU to up their game, and get the ETS back onto safe waters. With so many surplus permits in the system, we can now cut our emissions by 30% against 2005 levels with ease, and cheaply too. An extra 0.1% yearly reduction per year from 2013 is all that’s required – now surely with what’s at stake, that’s not too much to ask?

Bold language you might think but what is happening now in America with the Waxman Markey Bill (also known as the American Clean Air and Security Act) is exciting and potentially game changing. The Bill has just passed its first test by getting through its committee stage by 33 votes to 25. It now goes to the Congress and then the Senate where if it passes (big ifs!) then for the first time in history there will be caps on US emissions of greenhouse gases. The caps may not be tough enough yet but with the Bill process set to be complete in time for Copenhagen, the timing could help spur on international negotiators to reach a global deal on climate change. How refreshing it would be for the US to be a potential driver of this instead of an immovable roadblock.

But the US press isn’t exactly full of praise for the Waxman Markey Bill and the principle of ‘cap and trade’. There’s the usual scaremongering going on that industry will be forced to cut more jobs in order to comply with the caps. And many commentators are trying to argue that taxation without a cap would be a more effective solution. Neither of course is true, but the challenge for the climate change lobby in America in addressing these and other arguments is that they are fighting with opponents who mostly seek to simply hold back progress. And it’s much easier to advocate against something than for something – just sow some doubt in people’s minds. This is exactly what the fossil fuel industry has done on the actual existence of climate change and what the tobacco industry used to do about the link between smoking and cancer!

So there are battles ahead but the prize is worth fighting for. An ambitious US ‘cap and trade’ could in and of itself substantially cut global emissions but will also make it much harder for other major polluters to justify inaction. At sandbag we’re gearing up for our Copenhagen campaign on ‘powering down global emissions’. Around a quarter of global CO2 emissions come from just 3,300 power stations (a quarter of the number of installations already capped under the European emissions trading scheme). The right cap in this sector alone could see global emissions falling within a decade. So with the US at least moving towards a cap on its power sector, we’re on our way to the ‘giant leap’ that we so badly need.

Sandbag blog readers may also be intrigued to note that Republican Mary Bono Mack of California crossed the floor to vote for the Bill in committee. Perhaps seeking fame for good deeds like her Irish namesake?

Sandbags are not just a useful defence against flooding: I’ve found out in my first few days here as the newest member of the sandbag team, that they are also used in hot air ballooning to control ‘hot air’ – the term that is also used to describe spare emissions permits that have been granted without being needed. I’ve come across a lot of this kind of hot air in my short time here already.

One source is the industrial sector in the UK. The data sandbag is analysing at the moment shows that they have thousands of spare permits to pollute. For heavy industry, back in 2005, the government decided to let them carry on as normal giving them enough permits to cover business as usual, with no need for them to take action to cut carbon. Since then the economy has taken a nose dive and now simply doing nothing may deliver many of them a profit as they can sell the permits they no longer need to other companies looking to pollute. Now that they have been given a legal right to receive these permits the only way round this is to get them to voluntarily cancel their permits. So in the coming month I’m going to be investigating how we can empower civil society and ordinary citizens to put pressure on these companies to do just that. It’s not going to be easy but there’s the potential to get rid of some hot air and see real cuts in carbon dioxide and as a result!

The other source of hot air I’ve encountered comes from the carbon market experts in the financial services industry giving evidence yesterday at the Environmental Audit Select Committee in parliament. . The good news is that these experts gave strong backing to the emissions trading scheme, provided evidence of how it was working and called for a big increase in scale of effort to create real investment in carbon reductions. The hot air crept in when it came to discussing the current price and whether more needed to be done to reduce ‘volatility’ – there was, they said, no need to worry, since lots of measures existed to avoid price spikes and low prices were good because they meant more could be done next time around. The assumption was that the caps had been set according to science and therefore low prices just meant we were getting to our goal more easily. This is of course not true, the caps were set politically and there is no evidence at all that we are making the scale of reductions necessary to put us on a safe path.

The discussion also raised a question in my mind – wouldn’t a guaranteed rising price of carbon be a much better marker of success than low or stable prices? Of course stability is better than a price crash, but only a steadily rising value for emissions permits can push companies to take radical action to cut their carbon dioxide. Voluntary cancellation of permits could help to push the price of carbon up, a double win for the environment. But by far the strongest way of driving the value of carbon and thus driving action to reduce climate change, will be a stronger overall cap which is what we hope Copenhagen, and the subsequent policy debate in Europe, will deliver.

I’m hoping that in the coming months at Sandbag we can create some strong cold fronts, (aka great campaigns), that will really cut through the hot air.