The price on carbon credits is too low, but the EU ETS has not collapsed, says EU Commissioner for the Climate, Mrs. Connie Hedegaard. She points out that in addition to reducing CO2-emissions, the system should also encourage green transition. When the price on carbon credits is low, that incentive is not strong.
By Peter Skeel Hjorth, journalist
A number of the world’s largest emerging economies are starting carbon trading schemes. The Chinese Prime Minister believes that the market system is the most effective, said EU-Commissioner for the Climate, Mrs. Connie Hedegaard in the filmed interview for the documentary “The Carbon Crooks” aired for the first time on national Danish television (DR1), on Monday 9th of September.
(The interview was conducted September 17th, 2012 , ed.)
Connie Hedegaard says:
“When the carbon credit system was introduced, the politicians talked much about the fact that it should be a tax-based system, but it was not. Why? Because there was no agreement on a global scale, including the Americans who wanted a different system. The word tax may sound bad in Europe, but it is even worse in the U.S., and they didn’t dare come home with this. A tax you can just pay, but you have no certainty as to what is happening to the environment afterwards. Now we have a system with the advantage that there is both a price to pollute, but also certainty that the CO2 emissions are reduced. Therefore we got this system.”
“The EU should on average reduce emissions by 8 percent compared to 1990. Will EU reach the goal?”
“Not only will the EU reach the target for 2012, but we will in fact exceed it. And now we have set new goals for 2020 and we are definitely on track to reach those as well. A reduction of 17.5 percent has already been achieved by using the mechanisms in place and the purchase of credits abroad. Europe has reduced its emissions. The U.S. has increased theirs as well as all other economies” said Connie Hedegaard during the 40-minute long interview.
“I actually think that Europe went home and implemented what was agreed upon at Kyoto, and it has been shown to have had an effect. We are more advanced than we otherwise would have been – even if there are many problems with the system. Others said in Kyoto that they would join in, but they never ratified the protocol and therefore never felt bound by it.”
THE BIG BATTLE
“It’s all about the international climate battle. It has taken many years to negotiate getting all the pieces of the jigsaw in place. So it would be stupid if all these years of work were suddenly wasted – without having something else to put in its place. But we set up a condition that the system had to carry on for a number of years. It has taken so many years to build it up – with its weaknesses and its strengths. Our condition was that everyone else accepts that from 2020 we have a new system in which not only the EU, Norway and a few other States will be under an obligation – but where we are all equally legally committed. And this is the big game right now. It is obviously not something you just do, but it actually ended in Durban with the U.S., China and also India finally saying: OK, so we will have to do that. But they also need to deliver. So it is not simple. If it was, the world would have solved the problem a long time ago.”
“Why not fight to get a tax on the emissions instead of using the market based system?”
“We have a tax on CO2 in the individual member states. The Commission has also proposed a tax on CO2 emissions for the parts not covered by the carbon credit system. It’s only the big companies and energy companies who have to buy allowances. So we actually have both instruments.”
THE SECOND PROBLEM
“However, one has to remember that when we talk about tax, Europe has 27 different countries with 27 different opinions and 27 different agendas Should we then do something that effectively combats climate change, we prefer to do it in a fairly similar way. And when it comes to tax, it’s very difficult in the EU. It requires unanimity – and it will be very difficult to pass that.”
“Now the first part of Kyoto has been completed. Has it been a success? “
“Yes, because the alternative would have been worse. And it has produced some reductions in the EU that you would not otherwise have achieved. But globally in relation to the challenges we are facing, it has not been successful or sufficiently extensive. Things are going too slow and there are too many who did not commit. The hardest part was when the Americans jumped off. The second problem was perhaps not as clear in 1997 as it is today. It is the issue of the emerging developing economies like China, India, Brazil and South Africa. In 1997, they were not required to do anything. So when you need to solve global problems of the 21st Century, you need to have the major economies on board. China is actually the world’s largest emitter of CO2 . ”
“Will you then also have to look at where the growth is going in the world when you are making new agreements? “
“But you didn’t take that into account back then?”
“I was not taking part at the time, but you can’t blame people in 1997 for not having taken everything between heaven and earth into account. There were good people who tried to start a new regime here. And this is true – as in so many other cases – that one must try to “cash in ” as much as possible. And this is what the talks are about right now. How do we ensure that other than just the old industrial countries – the traditional “North” – will be part of the solution here? How do we get those who were developing countries in 1997 and those developed countries today on board with this agenda?” asks Connie Hedegaard.
TOO MANY CREDITS
“The price of emission credits has dropped immensely. We are now in a situation where a polluting company can continue to pollute at a very low price. Has the system in reality collapsed? “
“No it has not. In Europe, we still have a carbon credit price of around €8 per tonnes of carbon. So you don’t get money to pollute. There is still a price on polluting.”
“But what should the price have been?”
“I will not put a specific price in a market-based system, but anyone can see that it should preferably be somewhat higher. Some would argue that we don’t need higher prices, because now they have reduced and that was the main objective. But there was also another purpose: It should also be an incentive to switch to a more energy efficient system with less CO2 pollution. But that incentive is not very strong when the price is low.
Therefore, I have suggested various things that can increase the price. But I would not say that it must be up to a certain level.
“Probably everyone can see that there are too many credits in the market – so it’s not very wise to continue to send even more into the market, but we must of course agree with the Member States on this.”
MAJOR ECONOMIES ON THE WAY
“What were the CO2-emissions in 2011?
“They were the largest we have seen so far. But you can’t use this as I think you would like to. Everyone has known that due to the growth in China, India, Brazil and Korea etc. we will see growing CO2-emissions for a number of years. What was more worrying was that it grew much more than in previous years. The focus is on energy efficiency in buildings and cars etc. This is all fine and good, but it’s just not enough compared to the size of the challenge we are facing. And that’s why I have become increasingly impatient with the slow pace of international negotiations, but of course also in terms of what countries do nationally and regionally.
“Last year the carbon trading exceeded some €140 billion. It’s an incredible amount of money. One should think that it had an effect on the CO2 emissions?”
“It did in Europe. It concerns mostly Europe because we are relatively alone in this, or have been, I should say. From January 2013, a carbon credit system starts in California – one of the world’s ten largest economies. Korea has also decided to start a credit system. We also sit on the EU Commission and help China’s forthcoming credit system. Australia has – with a lot of battling – got theirs through the parliament. New Zealand has a system. Had you had asked me a couple of years ago, Europe would have been rather lonely. But now the “club” is growing. Some of the world’s largest economies will start a carbon credit system. The Chinese Prime Minister believes it is the market-based carbon trading that is the most effective. The day that China has a system, we are approaching the vision of a global price, because CO2 emissions are a global problem that must be solved globally.”
“Denmark has purchased nearly 60% of its carbon reductions abroad. Isn’t that a very easy way to get the numbers right?”
“When we talk to the Danish authorities, they insist that they have not bought more than a maximum of 50 percent. According to the EU legislation – a country can only buy half the amount abroad. The rest must be purchased at home. Otherwise, the green transition will not be effective.”