Europe’s aviation industry has just been given a collossal late Christmas present – 213 million permits to emit tonnes of carbon dioxide, all handed over entirely free and gratis. If anything demonstrates the ongoing political failure of the EU’s flagship Emissions Trading Scheme (ETS), this is it.
Why is this a failure? First, because earlier experience from the first and second rounds of the ETS showed that giving emissions permits away for free represents a large-scale implicit subsidy for carbon-heavy industries. Instead of the ‘polluter pays’ principle, here the polluter gets paid: because emissions are tradeable they represent real value on the carbon market, and industries made billions in windfall profits (pdf) as a result.
Secondly, giving permits away for free represents a big opportunity cost – a real opportunity foregone to raise money which could have been used to fund carbon mitigation and adaptation needs both in Europe and elsewhere in the world. Instead, this cash went into the pockets of shareholders, who are arguably less deserving. Admittedly, the EU plans to auction a growing number of permits in years ahead, but these are only still a small percentage, even up to 2020. The free giveaway will continue for many years yet.
I write this from Malawi, at a meeting of the Cartagena Dialogue, where financing for climate change is a central issue. Many proposals are being considered, such as a very small tax on international capital movements, but perhaps a more realistic option is to charge shipping and aircraft – currently completely unregulated at the international level – for some of their cost to the global climate. This would hardly be prohibitive: according to the EU, even if airlines had to pay the full cost of their carbon emissions, at current prices this would add a mere 12 euro to the cost of a trans-Atlantic ticket.
Some European governments did argue for this. According to the Swedish representative here, his government was one of them. But these voices were drowned out once again by the powerful lobbying of industry, which – like us all – is extremely enthusiastic about the prospect of getting something for nothing.
At the climate negotiations in Cancun, the establishment of a ‘Green Climate Fund’ – with a promised pool of $100 billion a year to be funded by rich countries by 2020 – was one of the more successful outcomes. But where will this money come from? No-one knows. Certainly hard-pressed public budgets are unlikely to be the majority source. So private-sector sources have to be found, and carbon markets are an obvious place to look. There is a precedent for this: a proportion of trade under the Clean Development Mechanism is earmarked already for the Kyoto Protocol’s Adaptation Fund.
The European Union’s Emissions Trading Scheme is the largest carbon market in the world, and is especially important at this time when the future of the Kyoto Protocol itself is in doubt. The EU’s leadership has been important in keeping the flame for international climate action alive – but on aviation it needs to present a better model for others to follow.
(Note: there were four power cuts whilst I wrote this post, a sad fact of life in Lilongwe, Malawi as in many poorer countries. This speaks to my ealier post on energy access – improving the reliability of electricity supplies is still an important challenge.)