INTOUCH : Carbon Trading Quandaries

Article excerpt

If experience in Europe is anything to go by, then the arguments already erupting around the complexity and costs of the New Zealand Government's proposed emissions trading scheme (ETS) are not unusual.

The Europe Union ETS is the world's most ambitious cap-and-trade scheme so far - covering 25 countries and some 11,000 sites which represent close to half of the EU's carbon emissions. Kicked off in 2005, it completed phase one at the end of 2007, but is heading into its second phase with only a limited pass mark, according to visiting speaker Alex Kirby.

The former BBC journalist and environmental specialist told those attending a recent New Zealand Business Council for Sustainable Development breakfast that the main lesson learned was that while the market and verification aspects worked, the initial allocation (given freely and representing the permissible carbon "cap") didn't. In effect, it was set so high that it failed to provide the intended incentive to reduce emissions.

As a pricing mechanism it offered a "rollercoaster" ride with prices for carbon ranging from a peak of about [euro]30 a tonne to [euro]0.10 a tonne - again in part because of allocation issues, Kirby said.

"Probably the most charitable thing you could say about phase one is that it was a pretty qualified success. It did establish the mechanism [for trading carbon] and the institution. It had relatively little impact on industrial competitiveness because most sectors benefited. But in real terms it delivered very little."

While phase two of the EU ETS, which starts this year and runs through to 2012, is a more comprehensive scheme, it got off to a fairly inauspicious start when the European Commission rejected nine of the 10 allocation plans submitted to it, Kirby says. …