Carbon politics: EU policy steriods and unsportsmanlike conduct

Gerald Kutney picks out some of the highlights from his upcoming book,Carbon Politics and the Failure of the Kyoto Protocol, to be published by Routledge in January 2014. In this fourth of the series of five instalments, he provides an overview of the fourth chapter.

The most valuable player in the carbon game has been the European Union, which has led the world in stats on reducing greenhouse gas emissions. However, its exceptional performance is tainted as its reductions had little to do with climate change. In this section, we will uncover how the EU countries, playing in a league of their own, won the carbon game by subsidising their industries, thereby enhancing their own competitive position. Among these policy “steroids” are the feed-in tariff (FiT) and Emissions Trading System (ETS). 

A FiT encourages renewable power projects by providing long-term contracts at a premium over standard rates over a fixed period of time, usually in the range of 10 to 20 years. There are two basic FiT instruments which we will refer to as technology neutral and technology specific; the intent of the latter is to balance the economic disparity between the various renewable options.

Among the major renewable energy sources, solar energy is the least economic, so it gets the largest subsidies under a technology-specific FiT. At first glance, the technology-specific FiT appears to be an effective policy in fighting climate change, but there is a serious flaw. This apparent ‘success’ has come at a high cost as every taxpayer has been forced to support the solar industry.

The fiscal result is the most expensive emissions-reduction programs in the world. To ensure that everyone understands, the problem with this FiT program is not the subsidy over fossil fuels, but the subsidy for solar over other renewable energy sources. The end result is that taxpayers pay several times the carbon price for solar power but gain no further carbon reductions compared to other renewable energy sources.

A pioneering aspect of the EU climate change policy was the creation of the carbon market through the Emissions Trading System (ETS). The results show that the trading system of the ETS had been converted into a trading subsidy. This is accomplished by issuing more credits than there were emissions. In late 2011, the Swiss bank UBS issued a status report of the ETS by its investment research unit. Its analysis found that the €210 billion investment had “almost zero impact” on reducing carbon emissions; the ETS results were described as “embarrassing”.

The high-profile aspects of European climate change policy have been the FiT programs and the ETS. While officially being applied to reduce carbon emissions, the practical result is that they are economic subsidies to improve the competitive positions of domestic industries.  The “embarrassing” ETS results appear to be out of character for the EU which is popularly regarded as the champion of the global effort to reduce greenhouse gas emissions.

While there are problems with the FiT and ETS, the reduction in emissions of the EU, especially Germany, has led the latter to be viewed as the world leader in dealing with climate change. However, Germany had access to the “wall-fall” reductions.

On October 3 1990, Germany had been reunited. Many of the polluting and non-competitive heavy industries in the east were simply closed over the next few years, accounting for Germany’s major reduction in greenhouse gas emissions during the first half of the 1990s.

Between 1990 and 1994, emissions from the former East Germany had fallen by 43%; the reductions more than compensated for rises in emissions in West Germany, where few initiatives had been launched to control them. Germany ratified Kyoto in 2002 and had not issued any major policies to reduce greenhouse gas emissions; yet, emissions in 2002 were already below 1990 (the Kyoto base year) by 18%.

Germany and the EU cannot be faulted for having easy emissions reductions. However, they can be criticised for deliberately attempting to force similar emissions reductions upon other developed nations that were not in such fortunate positions. Before and after Kyoto, the EU policy stated that other developed nations had to accept similar carbon reductions, which could only enhance their competitive positive; such actions at the expense of international co-operation, in the face of a global crisis, is unsportsmanlike and contrary to the spirit of the UNFCCC mandate.

In the last segment of this series on Chapter 5 of Carbon Politics and the Failure of the Kyoto Protocol, we discuss the way forward to effectively combat climate change.

Gerald Kutney is managing director of Sixth Element Sustainable Management. His book, Carbon Politics and the Failure of the Kyoto Protocol, is being published by Routledge in January 2014. Pre-order your copy here.

Further reading:

Carbon politics: ‘common but differentiated responsibilities’ in the US and China

Carbon politics: foul ball in the 2010 season

Carbon politics: the gamesmanship of the Kyoto negotiations

Strong national action on climate change spurs on international agreements, says study

Climate change is ‘not a high priority for most politicians’