ECO is amused by the blind belief in carbon markets the European Union maintains, while its own emission trading scheme has become a zombie. In the ADP, EU has argued that “new market mechanisms will deliver ambition”. Really? At home, Europe’s own emission trading is currently blocking ambition, and in fact encouraging a shift from gas to coal, as the emission allowance prices have crashed.
The reality is that demand for carbon market units is at an all-time low. Current prices are looming at around 0.4 Euro for Clean Development Mechanism (CDM) offset credits and at around 4 Euros for European allowances. The EU flagship policy is close to dead due to the reluctance of German Chancellor Merkel to fight for her legacy as a “climate chancellor”. This has allowed the conservatives in the European Parliament to block even the back loading of EU ETS (EU jargon for a temporary, short-term fix to the ETS).
Sandbag, famous for its brilliant carbon market analysis, estimated in its blog yesterday that in 2012 Europe's emissions fell 27% below 1990 levels, once offsets surrendered into the EU ETS are factored in. This renders EU’s 20% by 2020 target irrelevant, and means that the EU’s ETS will remain useless in the foreseeable future. This is very unfortunate, not only for EU’s own climate investments (which now lack an incentive) but also for climate finance, because low price and low demand means low revenues.
The EU always wanted to link up with emission trading schemes in China, California and the like. But now the question is, why would they link up with the EU, when all EU has to offer is a zombie market with no demand? Without a much more rigid climate target, or CO2 taxes that guarantee a minimum price for the pollution allowances, the market approach plays into the hands of those who want to invest in fossil fuels.
ECO wonders how Merkel, Tusk, Hollande and Cameron can explain their inaction to the citizens of Europe, who have been seriously affected by the unprecedented heavy rainfalls and consecutive flooding. Due to the lobby pressure of a few industries, the lives, homes and livelihoods of Europeans will be further put at risk.
But European leaders have a chance to fix it. This autumn, the European Commission will present a proposal for new 2030 climate and energy targets, and the time for the European leaders to make decisions is in March 2014. The COP in Warsaw will be the first litmus test for Tusk, Merkel (yes, there is an election before...), Hollande and Cameron on whether Europe will be able to phase out any investment into new, coal fired power plants, put renewable energies at the forefront of energy supply (and not catastrophic, highly risky nukes) and take energy efficiency seriously. The impact on the UN talks could be significant.
Europe will host two COPs within the next two and a half years. They have a particular responsibility to lead us to a good treaty in 2015. Continuing “business as usual” would mean putting the livelihood of millions of European (and other) citizens at risk.