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European Parliament Revives Hopes for Cap-and-Trade

After a failed attempt in April, the European Parliament succeeded in passing a measure early in July to address the low price of the EU’s emissions trading system. Emissions prices in the $72 billion cap-and-trade program had lost more than 70 percent in the past four years. The low price of Europe’s carbon market is attributable to the prolonged recession of 2008 and the glut of permits that cut the price to as low as about 2.75 euros a ton.

Europe's carbon markets are essential to the continent's strategy to reduce GHGs and combat climate change. Cap-and-trade systems gradually make polluting more expensive thereby using market forces to drive the adoption of greener technologies and the reduction in carbon emissions.

Some of those who voted no in April changed their minds due to an amendment ensuring that the intervention was a one time deal and by a planned study of the dangers of businesses leaving the EU to avoid the higher permit price.

The final vote was close at 344 to 311 (with 46 abstentions). The news had a positive impact on the value of carbon credits, rising 9 percent (4.70 euros, or $6.13, per ton).

Prices are being buoyed by delaying the auctioning of some carbon allowances. The measure passed despite the concerns of Poland, the Czech Republic and others. These nations are worried about the schemes impact on coal fired energy and other industries. Others did not want to see interference in the market system. At the end most realized that something had to be done to "stop the bleeding" as Connie Hedegaard, the European Union’s commissioner for climate action put it.

Hurdles remain if the cap-and-trade scheme is to move forward, this includes the positions of national governments like Germany which will be voting in elections on September 22. Peter Liese, a German Christian Democrat member of the Parliament, said,“It’ll go very fast after the German elections.”

In the longer term we will also need to see higher carbon credit prices if the program is to be effective. However, the EU's action in July is a good start towards renewing the continent's emissions trading scheme.

As a model emulated around the world, the success of the EU's carbon trading system is crucial.

© 2013, Richard Matthews. All rights reserved.

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Green Capitalism

South Korea Passes Cap-and-Trade Legislation

South Korea has passed legislation that will see the introduction of a greenhouse gas emissions trading program in which companies will buy or sell rights to emit carbon dioxide. Although the legislation had bipartisan support working out the details may be difficult.

As reported in The Korea Herald, on May 2, the National Assembly passed the legislation on cap-and-trade with near unanimity. Of the 151 lawmakers who participated in the ballot, 148 voted for the bill. The legislation envisions a national carbon exchange to launch in January 2015.

It is projected to cover around 60 percent of the country’s carbon pollution by imposing limits on facilities that produce more than 25,000 tons of CO2 a year. About 450 facilities are likely to become subject to it. Penalties on non-compliers are set at three times the prevailing market price of carbon or a maximum of 100,000 won ($87) per ton.

Ninety-five percent of the permits will be given away for free in the first few years, with some export-oriented industries receiving a full 100 percent. Each permit represents a ton of carbon emissions.

“Korea has rolled out many projects on green growth so far, but the carbon emissions trading scheme is the most important of all and the one that will propel the ongoing efforts to a new level,” said Yang Soo-gil, chairman of the Presidential Committee on Green Growth.

South Korea, Asia's fourth largest economy, aims to reduce carbon emissions by 30 percent from projected levels by 2020. Korea is the world’s eighth-largest emitter of carbon pollution based on 2009 figures from the International Energy Agency. The country’s greenhouse-gas emissions jumped to about 640 million metric tons in 2011 from 350 million metric tons in 1990, making it the fastest-growing emissions source among 34 nations in the Organization for Economic Cooperation and Development.

“We anticipate a major shift in the country’s overall energy policies to follow in a near future to steer the domestic economy toward a low-carbon green economy,” Kim Sang-goo, an analyst at Kiwoom Securities, said.

Impacted industries are expected to resist the legislation once the details are ironed out.
The local business community had opposed the plan from its inception, saying that it would put Korean firms at a disadvantage in the global market because their competitors in bigger economies and bigger polluters ― namely the US, Japan and China ― are not subject to such a cap.

Although the law stipulates that 95 percent or more of the permits may be given for free, there will likely be resistance from industries that would like to see an even higher ratio.

Already there is disagreement within various branches of the government. The Ministry of Knowledge Economy (formerly the commerce ministry) is at odds with the Environmental Ministry. The Ministry of Knowledge plans to run a pilot carbon trading program in June, despite strong opposition from the Environmental Ministry, which has been running a similar program since 2010.