10 Mar 2009: ISS Today: Will Putting a Price On Carbon Solve the Climate Crisis?

Will Putting a Price On Carbon Solve the Climate Crisis?

 

There was something of a self-congratulatory air about the South African government’s National Climate Change Summit hosted last week. Some may argue that this apparent lack of dissenting opinions was because very few affected community members were registered to participate. What it did indicate was a government well prepared for the coming months of negotiations, which in December will culminate in a new international agreement for the post-2012 period. 

 

Armed with the cabinet-endorsed Long Term Mitigation Scenarios (LTMS) the government confidently reaffirmed its commitment to greenhouse gas emissions (GHG) peaking, then plateauing around 2020-2025, stabilising for ten years, then declining. This, the government states, will give the country a “redefined competitive advantage and structurally transform the economy by shifting from an energy-intensive to a climate-friendly path as part of a pro-growth, pro-development and pro-jobs strategy”.

 

A critical concern of civil society is that this strategy ignores the impact of Eskom’s proposed three new coal-fired power plants (with a lifespan of 40-60 years) and nuclear power plants (such as the Pebble Bed Modular Reactor). Eskom is South Africa’s state-owned power supply utility. Apart from this, an issue too easily overlooked is the controversial attempts to putting a price on carbon. This formed a key element of the final draft conference statement.

 

The conference has indicated as an “immediate priority” National Treasury’s completion of a report on options to implement a price on carbon this year. It states that the most appropriate mix of instruments (markets, taxes, incentives and GHG standards) to achieve this, requires further work. However, presentations by European Union (EU) representatives and local companies suggest that emissions trading - the system of buying and selling pollution in the form of carbon credits – or using the market, is a real possibility. What the proponents of the EU’s ambition to globalise the European Emissions Trading System (EUETS) failed to underscore is that both Phase I and II of the EUETS were a spectacular failure! Not only did they fail to reduce emissions but they also did not provide any incentive to boost investment in renewable (low-carbon) technologies. Julian Glover of the Guardian recently pointed out: “Set up to price pollution out of existence, carbon trading is pricing it back in. Europe’s carbon markets are in collapse.”

 

In the first phase of the EUETS there was over-allocation of ‘free’ credits to the region’s worst polluters who subsequently made windfall profits. In the second phase of the EUETS the price of carbon predictably plummeted with the economic recession triggered by the US banks’ collapse late last year. Where emissions reductions were recorded it was only because industrial production declined due to the recession and not because of any significant changes in practice to be more environmentally friendly. In a submission to the EU Environmental Audit Committee of Enquiry into the ‘role of carbon markets in preventing dangerous climate change’ this month, civil society watchdog Carbon Trade Watch state:

“These failings are not caused by teething problems, but are symptomatic of the extreme difficulties of assessing the value of carbon, which is a commodity that bears little relation to any single real world object. More generally, the scheme over-estimates the capacity of price to achieving structural change in energy production and industrial practice.”

Instead, what has happened in the EU is that it has turned continued exploitation of fossil fuels into a rational economic choice. This choice is reinforced by loopholes in the system like investing in environmentally-friendly projects in the developing South or Clean Development Mechanism (CDM), and new technologies to capture carbon and store it in the earth, both of which have issues related to environmental integrity and social justice. The conference called for the immediate development of the atlas of sites locally for this new technology called carbon capture and storage (CCS) and to establish a CCS centre. The downside of this is that it will help ensure the continued use of non-renewable, dirty coal for energy, disrupting the carbon cycle, when the most logical solution would be to leave it in the ground and invest in clean energy.

 

The second issue related to putting a price on carbon is about addressing another “immediate priority” of fast tracking the implementation of favourable tax treatment for carbon credits from CDM. In his recent budget speech Finance Minister Trevor Manuel announced a tax exemption for CDM projects. It is still uncertain whether this will be from the credits sold, called Certified Emission Reductions or CERs, or costs associated with implementing the projects, thus reflected as a rebate. Regardless, there are two concerns emerging from this approach: firstly, many of the projects seeking credits are already part of business plans and so not additional to what would have been done anyway, which is a key criteria of CDM. A case in point is Sasol’s latest attempt to gain credits from its natural gas pipeline from Mozambique to its coal-to-liquids plant in Secunda, SA, when the company had long since planned it. On the other hand, Sasol is planning to expand its operations of coal-to-liquids with three new plants, one of them being in South Africa. A recently published report by Earthlife Africa and Oxfam entitled Climate Change, development and energy problems in South Africa: Another world is possible states: “this is contrary to the spirit of global emissions reductions and could be seen by some as cynical gaming of the system”. Research has also shown that there are of course a host of negative social impacts also associated with CDM projects.

 

Another question relates to how the government envisages adopting emissions trading when it is setting up an institutional environment to accommodate CDM? Should one presume putting a price on carbon as the lowest common denominator and allow the market to sort out the rest?  Even if one looks at the justifications and underlying assumptions for carbon trading under the Kyoto Protocol, it would mean that SA would consider itself both a major polluter needing targets for emissions reductions and a developing country with a right to host CDM projects. This would mean it could potentially offset its own pollution, setting up a host of conflicts of interest scenarios.

 

Ultimately, it isn’t clear what the intention of putting a price on carbon and linking it to carbon trading is. Will it be to offset emissions from development efforts in order to meet the current (unrealistic) economic growth trajectory? Or is it to reduce emissions from a country that is recognised as one of the twenty worst polluters on the planet? Or is it to stabilise emissions albeit locally in a global context? There appears to be ambiguity in government’s approach. More positive aspects including adopting energy efficiency and conservation, setting more ambitious targets for renewable energy, phasing out fossil fuel use, and affecting behavioural change, do not require a market intervention of this nature.  If anything, it is likely to be disruptive and damaging to these efforts. For South Africa to play a prominent role in the forthcoming climate change negotiations it will need to address these inconsistencies in its policies.

 

Trusha Reddy, Researcher, Corruption & Governance Programme, ISS Cape Town