Tom Burke article exposes the fallacy of hoping carbon pricing will lower CO2 emissions
The aviation industry is reluctantly realising it needs to cut its carbon emissions, and work is under way, through ICAO, on a “market based measure” by which the industry could pay for carbon emissions. This, like the EU ETS, would be by being able to buy carbon permits from other sectors which had managed to make actual carbon cuts. A hard-hitting article from Tom Burke casts serious doubt on whether this sort of carbon pricing and trading could ever work effectively. He fears many high carbon industries pay lip-service to the concept, in the full knowledge that it will never work sufficiently well to curtail their activities, and it delays the need for any real action. He says: “The intent is to create the impression of an industry in favour of urgent action whilst actually slowing that action down”…. [with the carbon price remaining too low] … “If only governments were brave enough to put the carbon price up higher and faster, they will lament, we would get there sooner. This is hocus-pocus. They know full well governments will be deeply reluctant to put up consumers’ bills.” … “There is no chance that the world will agree on a global price for carbon in the forty years we have to keep the climate safe…. Their purpose is clear, to set a trap for unwary policy makers and environmentalists. Shame on those who fall into it.”
SOMETHING IS HAPPENING HERE
August 17, 2015
by Tom Burke
Environmentalists have long been vulnerable to their own passions. At times this can make us sound shrill and self-righteous. On other occasions it can blind us to political traps. The oil industry is now busy setting a big one for us. It is camouflaged under a call by the industry’s leaders for ‘clear, stable, long-term, ambitious policy frameworks’ to tackle climate change.
Who could quarrel?
This call was set out in a letter to Christiana Figueres, head of the UNFCCC, at the end of May. In case you missed it, it was repeated in a letter to the Financial Times on June 1st. They were specific about what they wanted. Governments should, ‘introduce carbon pricing systems……[and] ….create an international framework that could eventually connect national systems.’
Let me summarise. They want a global carbon price.
Environmentalists have long been beguiled by the pollution syllogism. It runs like this: pollution is sinful; sin must be punished; taxes are punishment, ergo, tax pollution. There is no joy in heaven like that at a sinner repenting.
It would be easy to confuse oil companies calling for a carbon price with sinners repenting. They are not. They are up to something altogether more subtle. The European companies who signed the letter, their American peers declined, have woken up to the existential threat to them posed by climate change.
A brutal combination of rapid technology development and unusual global weather events is reshaping the politics of climate change. The weather events ramp up the pressure on governments to act. Rapidly falling costs for low carbon technologies lower the political risk of doing so.
To have a good chance of avoiding dangerous climate change the world must get to net zero carbon emissions by 2100. That is for emissions from all sources including agriculture and deforestation. For the global energy system it means getting to carbon neutrality much earlier – at or soon after 2050. This goal collides directly with the oil companies’ business model.
Three beliefs define the oil companies current comfort zone. 1. The world needs their product. 2. Governments are on their side. 3. Energy technology change takes decades.
The accelerating surge of investment in renewables and storage as prices collapse undermines two of them. Obama and Clinton choosing to pick a fight over climate change, with the Pope’s blessing, in an election year is sawing away at the third.
Changing your business model is no simple task even for a small company. For behemoths like the oil companies writing to the UNFCCC it may be impossible. I cannot think of an example in corporate history of companies this large doing so voluntarily. In recent months a more alarmed conversation has begun within the oil companies’ leadership.
Its first product is a decision to buy time to think about how to deal with the collision between their business model and a safe climate. Hence the call for a carbon price. The intent is to create the impression of an industry in favour of urgent action whilst actually slowing that action down.
It is a tenet of economic dogma that putting a price on carbon is the most efficient way of dealing with climate change. The oil companies are counting on the weight of orthodox economic opinion supporting them.
The call for a carbon price is a shield with which to defend themselves from calls for faster change. If we are not decarbonising fast enough, they will argue, it is not their fault. If only governments were brave enough to put the carbon price up higher and faster, they will lament, we would get there sooner.
This is hocus-pocus. They know full well governments will be deeply reluctant to put up consumers’ bills. Ask Amber Rudd. This is simply a stratagem to re-balance the political equation. Politicians are to be caught between the pressure to protect the climate and the pain of doing it with a carbon price. You do not have to be a cynic to believe that faced with this kind of dilemma most politicians will do very little.
There is a further subtlety to this plan. Calling for a global carbon price will mobilise hostile, if covert, opposition from every finance ministry on the planet. Few national prerogatives are as fiercely protected as the right to raise (or lower) taxes. Sixty years of building a Single Market have not persuaded the nations of the EU to surrender any taxation prerogatives to Brussels.
Keeping the climate safe means persuading 190 nations to coordinate their energy policies. After thirty years of trying we are still some way from succeeding. Yet, by comparison with coordinating their tax policies this is straightforward. There is no chance that the world will agree on a global price for carbon in the forty years we have to keep the climate safe.
Oil company CEOs lack neither intelligence nor experience. They have not overlooked the political problems of calling for a global price on carbon. They are counting on them. Their purpose is clear, to set a trap for unwary policy makers and environmentalists. Shame on those who fall into it.
Tom Burke, London -August 10th 2015
[ ‘Something is happening here/But you don’t know what it is/ Do you, Mr Jones?’ is a line from ‘Ballad of a Thin Man’ by Bob Dylan ]
Tom Burke is the Chairman of E3G, Third Generation Environmentalism, and an Environmental Policy Adviser (part time) to Rio Tinto plc. He is a Visiting Professor at both Imperial and University Colleges, London.
More details and fuller biography at http://www.e3g.org/people/tom-burke
Comment from an AirportWatch member:
“For more than 12 years I have felt as if I was almost a lone voice amongst environmentalists in describing carbon pricing and emissions trading schemes as a complete sham and an excuse for doing nothing. God bless Tom Burke. He has hit the nail on the head with this article.”
Energy round-up: carbon markets have failed
By Stephen Devlin
In theory, the world has the solution to soaring emissions – it’s called carbon pricing.
Carbon pricing is an attempt to reduce carbon dioxide emissions by charging polluters to cover their external costs. Most economists and policy-makers argue the only efficient way to do this is through establishing a market for carbon. This is done through an emissions trading scheme (ETS): a fixed number of emissions permits are issued and a cap is set on the total emissions allowed.
Those who then pollute more – oil and gas firms and others [airlines, as another example] who find it harder to make cuts, for example – can cover their higher emissions by buying more permits from those who make reductions easier. But it’s also possible to cover emissions by purchasing offsets from foreign ETS.
In fact, a new report released by the New Zealand government reveals that almost all of their emission reduction obligations for 2014 were met by paying for offsets in transition countries such as Russia and Ukraine, cheaper options because emissions cuts are easier to make there.
The problem is that many analysts believe these foreign emissions reductions would have happened anyway. Cutting waste from coal or pipeline leakages, for example, is win-win for industry as it also keeps their costs down. As a result, the impact of New Zealand’s ETS is close to zero. This also applies to the EU ETS, in which about a third of total emissions reductions come from international offsets.
Not only has this overestimated emissions reductions, it may have also contributed to the collapse of carbon prices. In both New Zealand and EU, markets remain far below the estimated cost of carbon. The actual social cost of carbon emissions is far higher than emissions permit prices imply. This also undermines long-term incentives to innovate as it’s much cheaper to just pay for your pollution.
But reforming emissions trading schemes has been a headache so far. Companies benefit from low prices as offsets depress the market and windfall profits – as permits are issued for free – and those unused can be sold on. Chances are they are not looking to give up paying far below the actual cost of pollution and making a profit from selling excess permits, too. At least in other carbon markets this problem is tackled by auctioning permits.
Financial incentives are a powerful force, but for carbon pricing the market design is flawed.