TRNN Debate: Can Carbon Pricing Bring Down Global Carbon Emissions? (1/2)
After the World Bank and more than a thousand global companies sign on to carbon pricing, Dr. Steffen Boehm of University of Essex and CDP Executive Director Nigel Topping debate its effectiveness in reducing greenhouse gas emissions
JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.
Hundreds of thousands of people marched in New York City this past weekend wanting action on climate change. But what that actually looks like has yet to be determined. Major global institutions like the Royal Bank are turning to carbon pricing as the main tool to fight climate change, with more than 70 governments and some 1,000 companies joining forces to push for policies that set a price on carbon emissions. They’re advocating for a cap-and-trade system and carbon taxes.
You’ve probably heard of cap and trade, but essentially it would establish an overall pollution cap. Then polluters would have to obtain allowances from the government in order to emit pollutants. But it’s also a market-based solution that would allow polluters to buy and sell those allowances from each other.
A carbon tax is like a sales tax: depending on how much you pollute, you pay a tax on it.
Now joining us to debate how effective carbon pricing is in reducing carbon emissions are our two guests.
Steffen Boehm is the director of the Essex Sustainability Institute and professor in management and sustainability at the University of Essex in the United Kingdom, which is where he joins us via web camera.
Also joining us is Nigel Topping. He serves as the executive director of the CDP, which was formally known as the Carbon Disclosure Project, that says it is working to transform the global economy so that it operates within environmental limits. He joins us from Geneva, Switzerland.
Thank you both for joining us, gentlemen.
NIGEL TOPPING, EXEC. DIRECTOR, CDP: Yeah, thank you.
STEFFEN BOEHM, DIRECTOR, ESSEX SUSTAINABILITY INSTITUTE: Thank you for having me.
BOEHM: Thanks for having us.
JESSICA: So, this despite this being a debate, let’s make it clear that we’re sort of all in agreement here that climate change is happening and deserves some serious action. Nigel, your organization advocates for cap and trade and carbon taxes. But I want to specifically look at cap and trade. Why do you support it?
TOPPING: Thank you, Jessica.
Well, we encourage big businesses to publish information about how they’re affected by and going to deal with climate change and to make that available to investors. As you say, it’s a really important issue for us as a society. It’s also affecting us economically.
And what we find is that business wants a price on carbon. One of the possible mechanisms is a cap and trade, as you say. Putting a tax on it is another one, or introducing product performance standards, such as good efficiency standards, is another one. The thing which is, I think, really important to get across is that business wants a price. Many businesses are already using a price in their investment decisions, so they’re assuming that regulators are going to introduce a price. And it’s important that regulators understand that, ’cause regulators often think that businesses don’t want to be regulated. There’s a loud clarion call from business saying we need a strong, robust policy showing us the direction of putting a price on carbon long into the future.
JESSICA: So, Steffen, you just heard Nigel’s argument that business is really advocating for this. And should we be listening to them? Why do you not support cap and trade?
TOPPING: Well, thanks, Jessica.
First of all I’d like to say there are a lot of things that Nigel and I agree on. First of all, I think we agree that leadership has to come from politics, and not just one or two countries, but from global politics, a significant bloc of countries needing to take climate change much, much more seriously than they have been over the last decade or so.
Secondly, I think we agree that climate change is an urgent problem. It’s not just an environmental problem, but it’s increasingly a social problem and a security problem. It needs addressing, and it needs addressing now. And we have climate scientists knocking on the doors of policymakers and companies all the time, and ever more urgently, saying, listen, guys, you really need to act and you need to act now. We might only have a window of 20 or 30 years before it gets out of hand. So I think we probably agree on that.
Personally speaking–and I think I’m joined by a number of climate scientists and social scientists and activists around the world who think that cap and trade is basically not going to deliver the goods that we need. And because of the urgency, we need more urgent, more effective policy instruments. Cap and trade has existed in Europe since 2005, and it has arguably not brought about a significant change in Europe’s fossil fuel dependency. And Nigel probably would agree with that as well.
JESSICA: Alright. Let’s talk about these real-life examples. You brought up Europe. Steffen, can you kind of lay it out for us? What exactly is implemented in Europe? And why do you see it as being ineffective?
BOEHM: Well, the EU ETS, the EU Emissions Trading System, is the largest cap and trade program in the world. It’s been affecting all E.U. countries, and it’s been affecting thousands of installations, organizations, medium-size and big companies. So it’s a large operation. And as I said, it’s been happening and it’s been running since 2005.
Now, there’ve been many, many problems with it, [such] that the carbon price as of today is very, very low. It hasn’t sent any signals to companies to actually invest in green technologies of all sorts, primarily renewable energy. It hasn’t delivered the price signal that the market was designed to deliver.
Now, why has it not achieved that? Now, first of all because of lack of political leadership. The first two phases, and particularly the first phase of the EU ETS, were dominated by large lobbying attacks, I should say, by big companies, some of the big companies that Nigel is working with.
JESSICA: Which companies are those, Steffen? Will you name some of them?
BOEHM: Well, basically the fossil-fuel dependent companies, which to date are jeopardizing more stringent targets in cuts of emissions trading, so the fossil-fuel, the carbon-intensive companies from the cement industry to the oil and gas industry etc. So on one hand, you might have them disclosing their carbon emissions and being very proactive in having an internal carbon price and working with organizations like your CDP. But on the other hand, they’ve been very, very active lobbying policymakers in Europe and around the world to actually prevent more stringent targets to be implemented.
JESSICA: Nigel, what do you make of Steffen’s comments about that? You work with some of these organizations. What do you make of his critique?
TOPPING: Well, we manage a transparency platform to get information out of those organizations into the hands of investors so that they know what those companies are doing and what their plans are.
You know, emissions have come down a lot in Europe. Everybody’s an agreement that there was an overallocation of allowances. And a couple of things have happened. There’s been a switch from coal to gas ’cause tthere’s been cheaper gas. And there’s been, in case you haven’t noticed, a rather large economic recession, which has reduced economic output. But those two things have meant that the emissions have gone down quite a lot. And that’s meant that as the cap hasn’t come down that fast–Steffen’s absolutely right–there’s a low price. Nevertheless, we shouldn’t begrudge the fact that omissions have come down for other reasons.
I think the important institutional learning that’s come out of the EU ETS is now informing other schemes. So, for example, in California, which is the second-biggest trading scheme now, which is about a year old, they have a hybrid system, really, between cap and trade and a tax. They’ve instituted what they call a price floor. So that means that even if no one wants to buy an allowance, ’cause of an economic crash, for example, anybody emitting CO2 has to pay the minimum amount. It’s about $11 at the moment. And also that floor price goes up in a predictable way every year between now and 2030. So that means that if you’re wanting to invest in clean technology and look at California, were there’s a massive boom in investment in solar technology in particular, where Tesla is building electric cars and investing in the biggest battery factory the world, the clarity of the price signal which those companies have in California makes it much easier for them to invest.
The biggest killer of investment is policy uncertainty in this area. And the dithering of governments is a thing which we’re really trying to avoid. So across the board, large companies, especially the heavy emitters, are saying, we know we need a price on carbon. We need governments to set a policy which gives us a clear price signal going forward. Then we can make the investments which transition us to the low-carbon economy that we need. And we know we need about $1 trillion a year, so we’ve got a long way to go.
JESSICA: Yeah. I want to get Steffen’s opinion on this, because essentially this hybrid model that Nigel is touting as a success that’s happening in California–what do you make of it? Do you think of it as a success?
BOEHM: Well, it’s too early to tell, to be quite honest. It hasn’t been running long enough to really see whether emissions will come down significantly.
But let me say again, the–.
TOPPING: Well, they’ll have to, because it’s a statutory statutory instrument. It’s on the books at the state of California. It’s a legal requirement. So they will come down, because it’s law. It’s very difficult to see how you say that it won’t happen, Steffen.
BOEHM: Well, let’s see. Let’s see. I mean, I think the design of the California system sounds better than the EU ETS has ever been. And so what seems to be happening is that in effect what the California system is doing is almost kind of implementing a tax without calling it a tax, because if you have a minimum carbon price that is going up the ladder year-by-year, then essentially you’re implementing a kind of carbon tax. And I think a carbon tax–if we had–you know, if the Kyoto protocol would have laid out the principle for a tax in ’97, we wouldn’t be sitting here lamenting the fact that–.
TOPPING: Well, that’s a nice hypothetical. But the point about the California scheme is it’s a hybrid. So you’re right. If the market mechanism fails, then it’s got a hybrid floor and ceiling, so you’re guaranteed the bounds.
But research published by DECC shows that the problem with a pure tax system is (A) you can’t write into law the scientific cap that you need, so you’ll have to keep tweaking the tax anyway. So you’re providing a lot of uncertainties to the market. The second problem with a tax is it’s not a market mechanism, so it doesn’t allow businesses to make efficient decisions about what’s the best way to invest in emissions reductions. Research published by DECC shows that–I think it’s between 40 and 70 percent additional cost to mitigate if you rely on taxes alone and not a trading system, which allows the market to do what it does best and allocate resources efficiently.
BOEHM: Except that the market hasn’t done that, it hasn’t made these allocations, because of design problems of the existing carbon markets. And I should say the way the carbon markets are designed are really to never really send the price signal.
So let me just bring in one additional element here, carbon offsetting, right? The reason the EU ETS has not worked, to some extent–there are many reasons, but one big reason is we’ve had the ETS in Europe being flooded with very cheap carbon credits through the CDM mechanism, which is carbon offsetting system controlled and governed by the UNFCCC. Now, the carbon offsetting is really a big problem because it allows companies that you’re working with, Nigel, to basically offset into sometimes very obscure projects, and many critics say, and even the mainstream climate policymakers are saying, that the additionality that these carbon offset projects are promising can often not be verified. So is much as as much as 50, 75 percent of these CDM projects, as well as other carbon offsetting projects, are in effect–that’s what they say–probably not really producing additional emissions cuts.3
JESSICA: That’s a good point. But I want to stop you there, Steffen, because I want to him to address that.
What do you make of that argument, that you can’t actually prove that these carbon offsets are actually happening, they’re not verifiable?
TOPPING: Well, I think we need to distinguish between flaws in the design of a system and the assertion that such a system cannot work. So I think it’s very well understood that not having a means to reduce the cap, for example, in a time of economic downturn, in effect to accelerate the reductions, is a design flaw. Not having a floor price is a design flaw addressed in the California scheme.
The challenge of offsets is a very real one, and I would agree with much of what Steffen has said. But the real complicating factor here that we have to remember is that we’re trying to address a global problem in a very asymmetric world. So one of the things enshrined in the convention which governs the international treaty, the United Nations Framework Convention on Climate Change, is something called the Principle of Common but Differentiated Responsibilities. So you have a lot of countries that are still developing or recently developed who assert–and this is a logical fact–that the most developed countries are the ones who have emitted most of the carbon which has caused the global warming to date, and the least developed countries in general are the ones who will suffer the most in terms of the worst effects on agriculture and of [increased-severity (?)] weather events. So you’ve got one group of countries who in a sense have most of the responsibility for causing the issue, and in another sense mostly–[creating much of the effects (?)]. So that principle’s enshrined in this very complicated treaty, which requires 194 countries to agree.
So one of the things which many of the least-developed countries want is a mechanism for transfer of technology and finance so that they can develop faster. So the CDM process, the Clean Development Mechanism Process, was an attempt to address that problem whilst creating some more liquidity in the overall carbon markets. I agree that that has not worked well, and there are all sorts of problems with the way that’s been implemented, as there would be with any such international treaty.
DESVARIEUX: Steffen, I want to–.
TOPPING: But I think the important thing to remember is that doesn’t [inaud.] not an argument for cap and trade not working.
JESSICA: Well, maybe it is. Let’s ask Steffen. I mean, some people will see this as a flaw. Do you think it’s a flaw, or there’s something inherent in the system that will be corruptible?
BOEHM: Yeah, I think the key here is that, yes, one can say these are design flaws and there’s a lack of political will to address these design flaws, but I would say I’m a realist, in a sense, of–you know, I look into the world and see what’s happening. What I see is companies, big fossil-fuel-based companies, who basically are making a lot of money with the existing brown economy, have been influencing policymakers over decades basically to defend the status quo.
Now, the CDM was not in the original design of the EU ETS. Under lobbying by companies, that was included, because the company said, look, it will give us flexibility. We need this kind of flexibility, because it will cost us a lot of money to adjust and implement and invest in green technologies. We are losing jobs. You know, the companies are knocking on the Brussels’ doors and say, look, we are losing jobs, give us cheaper green policies. That’s what they’re saying day in and day out. So it’s not just the bad policymakers who can’t get [incompr.] things, but there’s active lobbying going on all the time to maintain the status quo.
Now, the CDP project has been very good in working with these companies and holds them to accountant and say, look, you need to play an active role in this. But what I’m saying is there is a Janus face here. On one hand, they might be talking green, but on the other hand, they are supporting the status quo, which is not very helpful.
JESSICA: Okay. We’re going to have to hit the pause button here. That concludes the first part of the debate. Thank you both for joining us.
And thank you for joining us on The Real News Network.
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