Obama's political troubles in the United States and Australia's total incompetence at getting a carbon trading scheme up and running can only mean one thing: the European Union's Emission Trading System looks increasingly like it will be the only big game in town for years to come. So much for the vision of a global network of markets, encompassing the United States, Australia, Japan and other countries, to reduce the world's greenhouse gas emissions. The problem is Europe's polluters are making big profits out of the scheme by doing nothing.
But while Europe is set to reduce emissions and actually exceed the target it set of 8% reductions below 1990 levels by 2012, questions are being raised about the way the scheme makes big profits for polluters. A report by non profit group Sandbag shows that industrial carbon quotas have enriched Europe's biggest polluters, with ten firms together reaping permits for 2008 alone worth €500 ($US680 million). They are getting that money for doing zip.
What makes it even more perverse is that between them, they will have an estimated 230 million surplus permits worth €3.2 billion. which is more than what will be invested in renewable and clean technology.
Here's how the system works: companies emitting less than their allowance can sell the difference on the market to companies that exceed their limits. In theory, that provides an incentive to everyone to become greener. The problem is that the energy, steel and cement sectors that dominate the system were hit by the global crunch. As a result, they are emitting less CO2 than forecast, which means surplus carbon permits are flooding the market, and companies are cashing in by selling their excess permits. Among the top ten beneficiaries, steelmaker ArcelorMittal collected more than 40 percent of the 2008 excess permits, according to Sandbag.
This problem will not be fixed until the European Union brings in a system that ensures a fixed percentage of these profits are invested in renewable energy. More ambitious targets would help too.