Carbon trading schemes are fast sprouting across the planet as a market-based way of addressing rising greenhouse gas emissions. But advocates should be prepared for powerful business backlashes, Chang-beom Kim, the South Korean ambassador to the EU, warned a Brussels round table of business leaders and envoys on 19 November.
“Local business communities who are coming back to their capitals will see a lot of backlash [ranging] from resistance and hesitation and even sometimes negative lobbying and blackmailing, whatever measures we could envision,” he said.
Kim was speaking at a Brussels roundtable convened by the Prince of Wales EU Corporate Leaders Group.
Earlier this year, Seoul approved a carbon trading scheme similar to the EU’s Emissions Trading System (ETS) which will begin operating in 2015 as part of a government plan to cut CO2 emissions 30% by 2020.
But reaching consensus with corporate opponents had been “a quite tough and stressful journey,” Kim said.
The Korean government had conceded a 100% free allocation of carbon credits to business when the scheme begins which would be gradually tightened, in a reflection of Europe’s implementation of the cap and trade mechanism.
“It was both a very bold move to induce the business community to get on board, as well as to make a bit of compromise to persuade business community not to resist in a very harsh manner,” he explained.
EU Climate Commissioner Connie Hedegaard welcomed his country’s efforts.
“I would encourage industry and others to be very outspoken because I can tell you that the lobbies for doing nothing here are incredibly strong and that is too short sighted when we need to think for the longer term,” she said.
Californian carbon market
As the roundtable participants were talking, the US state of California was inaugurating its much anticipated carbon market scheme, with businesses paying a lower-than-expected $10.09 for the right to emit one tonne of carbon, slightly below the EU’s price.
California is expected to link its system to Quebec’s carbon market next year, while cities such as Tokyo have comparable schemes. Nations have also signed up to the carbon cutting agenda, with Australia and New Zealand already operating CO2 markets, although the kiwi version is limited.
Craig Maclachlan, the deputy Head of Mission at the Australian embassy, told the Brussels roundtable that in his country, the adoption a carbon levy on the top 500 firms had had an inflationary effect.
“There is a political consequence for doing this that needs to be addressed,” he said, but the Australian experience since the scheme’s launch on 1 July this year had proved positive.
“In just a few short months we’ve had an impact and we’re starting to see effects from retail to aviation, in energy and agriculture” Maclachlan said. “The carbon price for us is doing exactly what we wanted it to do – stimulating investment, improving energy efficiency and reducing carbon emissions.”
Australia’s carbon price has been fixed at €18 a tonne until 2018, when it is due to float freely in a link-up with the EU ETS. More carbon trading partners could soon be forthcoming.
Thailand and Vietnam last month unveiled plans to launch ETS’s, China is due to launch pilot schemes across seven provinces next year, and India will ring the bell for trading on an energy efficiency market in 2014.
Mexico and Taiwan are also planning to introduce carbon markets.
“We don’t have an emissions trading system but we are working on it,” Alberto Glender, the Mexican ambassador to the EU told the table, noting the importance of devising a carbon commodity that could be tradable on different markets.
“This is right time to talk about market mechanisms and convergence,” he said. “We want to work it out on a practical level with our partners”.
Europe gave birth to the first large-scale carbon trading scheme when its ETS was launched in 2005 and quickly became a cornerstone of European climate policy
But a lack of flexibility in the ETS’s ability to respond to over-allocation of free allowances was starkly revealed when economic recession stunted carbon emissions and thus, the EU’s carbon price
Analysts say that at around €8 or €9 per tonne, the current price of EU allowances is too low to incentivise low carbon investments, or further emissions reductions, and European coal imports are booming as a result.
As a ‘quick fix’, Brussels last month proposed to ‘backload’ or postpone the auction of 900 million allowances in the next ETS trading period between 2013-2020, but longer-term structural reforms were also proposed.
Hedegaard told the roundtable that the Commission would come up with a broader post-2020 perspective next year.
“Climate and energy policies for 2030 should also be part of this discussion,” she said. “We must also have the tools in place to create possibilities for longer term adjustments that can turn our societies into low carbon economies.”
With a turnover of some €90 billion in 2010, the EU's Emissions Trading System is the world's largest carbon market. Around 80% of it is traded in futures markets and 20% in spot markets.
The ETS aims to encourage companies to invest in low-polluting technologies by allocating or selling them allowances to cover their annual emissions. The most efficient companies can then sell unused allowances or bank them.
After a series of VAT "carousel" and "phishing" frauds in 2009, the European Commission proposed tighter security measures. But a number of member states declined to implement them because they said they could not afford to.
One Commission official pointed out that tens of thousands of euros spent on security could prevent millions of euros in losses.
- 1 Jan. 2013: Third phase of EU ETS scheduled to begin, and continue until 2020
- 19 Feb. 2013: European Parliament environment committee scheduled to vote on a crucial one line amendment authorising carbon market action by the European Commission
- March 2013: Potential plenary vote in European Parliament on European Commission proposal for ETS reform
- 2014: India due to begin energy efficiency trading
- October 2014: Thailand due to launch a voluntary emissions market
- 2015: South Korea sue to begin emissions trading
- 2018: EU and Australia due to link emissions trading schemes
- DG Climate: Structural Reform of the ETS
- DG Climate: Carbon market reform press release
- DG Climate: Q&A - Emissions Trading
- DG Climate: EU ETS
- DG Climate Action: ETS Legislation
Business and Industry
- Prince of Wales Corporate Leaders Group: EUCLG