Here's something good: somebody with a bank saying "governments are not doing enough." The EU carbon market is not working to cut emissions, and governments have to step in and force development of clean energy, says Seb Walhain, head of energy and carbon markets at Fortis Bank.
As the US builds a carbon market program of its own, with free emission allowances for a long time and measures to keep allowance prices down, these remarks and others give pause. Maybe the approach Congress is taking -- forcing both a carbon market and a renewable energy requirement -- would address Walhain's issue, even though critics say the renewables targets are far lower than they should be.
In Walhain's view, reported by our colleague Frank Watson at Carbon Expo in Barcelona, the EU carbon market, with prices between Eur8 and Eur30 per metric ton of CO2 equivalent, is not prompting clean-energy investment. The flawed assumption, he said, is that free markets can deliver the scale of greenhouse gas reductions that are needed to affect climate change. Another flawed element, he said, is the UN's Clean Development Mechanism, which delivers tradable emissions offset credits by promoting emissions reductions in developing countries.
"Running around the world trying to find the lowest-cost abatement options has not worked," Walhain said. "It has led to greater profits for financial intermediaries." The solution? Governments. "I think now it's time for governments to introduce clean energy programs" and "much larger public-private partnerships." Trillions of dollars is needed for clean energy, he said.
Fellow panelists disagreed. Emmanual Fages, senior analyst at Orbeo, said the European market approach just needs fine-tuning, not replacing. "Yes, we have not achieved what we wanted," he conceded. "But it's not because of the market mechanism. It's because the caps are not right." And there's also the recession, he said.
Dow Chemical's Russell Mills, global director of energy and climate policy for the company, said that for the US, cap-and-trade is "an ideal instrument to achieve what we're trying to do." The cost going in has to be low, he said. Environmental Protection Agency analysis has shown that heavy use of offsets would be crucial in keeping costs down, he added, and that is going to be very important to US businesses.
But it is interesting that at a briefing in Houston last week, Michael Hutchinson, a London-based partner at Mayer Brown law firm, said the EU system has failed on the four measures of success: It has not reduced emissions, or delivered a stable carbon price, or promoted low-carbon investment, and it has not been fair. Europeans want to link with other trading programs, he said. Asked why linking a failed scheme with other, less-developed schemes would result in success in the four areas, Hutchinson simply smiled, our colleague Jeff Ryser says.
Leave a comment