European Carbon ETS 'seriously flawed'

• Report by campaign group Sandbag critical of scheme

• Hot air carbon credits preventing actual emissions cuts

• Datablog: every European carbon permit

• Damian Carrington
• The Guardian, Monday 20 July 2009
• http://www.guardian.co.uk/business/2009/jul/20/carbon-emissions-trading-system-sandbag
• Download the Sandbag report here - http://sandbag.org.uk/files/sandbag.org.uk/Sandbag_ETS_SOS_Report_0.pdf

The system of trading carbon emissions at the heart of the ambitious low-carbon plan announced by the government last week is seriously flawed and close to becoming irrelevant, according to researchers behind a new analysis.

So-called "hot air" carbon credits – those which do not result in any actual emissions cuts – could be so numerous that companies covered by the EU Emissions Trading Scheme would not have to make any cuts to their own emissions until 2015, says the report from climate campaign group, Sandbag. The hot air permits result from the over-allocation of emissions allowances and from those going unused as the recession cuts economic activity.

The ETS covers 50% of the UK and EU's carbon emissions, mainly in the energy, cement, steel, glass and manufacturing sectors. Companies in these sectors are allocated allowances for the carbon they emit, with the total number shrinking over time, theoretically forcing companies to buy additional permits to pollute if they do not cut their emissions.

A large proportion of the UK's promised cut of 34% by 2020 will come via British companies in the ETS. Globally, the carbon trading market was worth €92bn (£79bn) in 2008, trading 5bn tonnes.

However, the large number of carbon permits that have been allocated and a fall in emissions due to the recession, have made the trading system less effective.

"With too many rights to pollute in circulation, the scheme is in danger of being rendered irrelevant," said Sandbag founder, Bryony Worthington. "At a time when other countries are looking to set up their own trading schemes and the world is set to debate a global deal on how to tackle climate change, [this] flagship policy urgently needs rescuing – starting with much tougher caps."

She called for an immediate tightening of the cap on permits to 30% of industry's emissions by 2020, compared to the existing 21%, and a commitment to 40% if a strong global deal results from a UN climate change summit in Copenhagen in December. Making the 30% cut would cost virtually the same as was originally envisaged for the 21% cut, she said, and be much closer to the cuts scientists say must be made to avoid dangerous climate change.