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Part II of Quadrant's intelligent voter's guide


The Intelligent Voter’s Guide to Global Warming (Part II)

Geoffrey Lehmann, Peter Farrell & Dick Warburton

The economics and politics 

What the Americans call “cap and trade”, Europe and Australia call an emissions trading scheme (ETS). It works in the following way. Governments place a cap on an emitter’s level of emissions. As an alternative to reducing emissions to the capped limit, the emitter can buy credits either from other emitters who have reduced emissions below their cap, or from developers of emission-reducing projects, typically in poorer countries. In the latter case, credits are awarded only if a certifier hypothesises before an emissions-reducing activity is undertaken, that it would not occur unless the credits are awarded: the creditable activity must be “uneconomic” without the credits. It is perverse to create a reward for otherwise uneconomic activities. Certification involves making a prediction, and is inherently subjective and impossible to audit effectively. After the credits are certified, there should be an audit to verify the creditable activity has taken place, which may be years later. The US Government Accountability Office reported on the UN’s Clean Development Mechanism: 

some offset credits were awarded for projects that would have occurred even in the absence of the CDM, despite a rigorous screening process. Such projects do not represent net emission reductions and can compromise the integrity of programs ... that allow the use of CDM credits for compliance. 

Christopher Booker has pointed out that 50 per cent of all “certified emission reduction credits” under the UN’s Clean Development Mechanism were being bought from China, the world’s biggest carbon dioxide emitter, which has been building an average of two coal-fired power stations a week. China has generated these credits from its massive “uneconomic” program of hydroelectric projects, of which the Three Gorges scheme on the Yangtse is an example. (Hydroelectricity is the cheapest form of power. So how were these credits certified?) The Asian Development Bank in 2006 estimated China would obtain an annual income of up to US$2.25 billion from selling credits.
Typically under an ETS, an emitter in a rich country may face the prospect of expensive changes to come within its cap—for example by changing from coal to gas to generate electricity. As an alternative to reducing its emissions, the emitter is allowed to purchase carbon offsets arising from a certified project in a developing country. It will do this if the offsets are cheaper, which is often the case. In this way emitters in rich countries do not have to change their ways. Nor, because of the hazards of certification, can there be any confidence about a meaningful reduction of emissions in the poor country.
One of the problems with a cap on existing emitters is how to set the level of the cap. The US Government Accountability Office reported on Phase 1 of Europe’s ETS that “in 2006, a release of emissions data revealed that the supply of allowances—the cap—exceeded the demand, and the allowance price collapsed. Overall, the cumulative effect ... on emissions is uncertain because of a lack of baseline emissions data.” As Russia’s industrial output declined after the base date for emissions under the Kyoto Protocol, the Russians had excess allowances they could trade—what has come to be called “the Russian problem”. A common criticism is that an ETS has the perverse effect of rewarding the biggest emitters.
In December 2009 Europol, the European criminal intelligence agency, warned that ETS fraud had resulted in around €5 billion in lost revenues and as much as 90 per cent of the entire market volume on emissions exchanges was caused by fraudulent activity. In late April 2010 there were twenty-five arrests in the UK and Germany for ETS fraud, involving more than a hundred suspects employed by banks and energy traders. A Europol official, Rafael Rondelez, has described the ETS as “an incredibly lucrative target for criminals”. This is because a carbon credit is “an intangible good ... With this, it’s just the click of a mouse.”
Suggesting that the market is the best mechanism for setting the carbon price is to ignore the events that led to the GFC, for which one of the triggers was speculation in derivative instruments. Enron and Lehman Brothers were vociferous advocates of carbon pricing. An ETS adds volatility to the financial system.
The claim that business needs an ETS to “obtain certainty” is spurious. Europe has an ETS, but the price of carbon has been volatile and the market has crashed three times since it began in 2005. A carbon tax can provide certainty during periods when governments do not adjust the rules. But an ETS is inherently volatile and adds extra uncertainty into business decisions.
An ETS was successfully adopted for eliminating sulphur dioxide emissions (which were causing acid rain) and chlorofluorocarbons (CFCs) that were depleting atmospheric ozone (which filters out dangerous ultraviolet radiation). In both cases the emission sources could be more easily identified and were less pervasive than carbon dioxide emissions (less than 4 per cent of carbon dioxide emissions are caused by human activity), and there were emission-reduction strategies that could be readily adopted. 
Except for nuclear power, there are no straightforward strategies for reducing dependence on fossil fuels without large economic costs.

Full article here -
Part I here -

Also in Quadrant, "Climate facts Labor overlooked" where Bob Carter, Alan Moran & David Evans explore the fantasies and falsities that fraudulent regulations are based on.
The simple fact is total CO2 emissions (natural,|97% plus human) have so little influence that it is impossible to find a signature in the climate record or the atmosphere, it is impossible to predict climate variations using CO2 as CRU et al have proved because natural emissions occur after temperature variations.
Read the experts' take:
Tags: carbon credits, cers, co2 fraud, intelligent voter's guide
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