A lot of hot air?

Europe’s ground-breaking carbon trading scheme needs an overhaul to be effective, a panel of experts told an audience of economic attachés.

The introduction of the Emissions Trading Scheme had been a “steep learning curve” said Franzjosef Schafhausen, a senior official from the German Environment Ministry, speaking at a conference jointly hosted by the German Embassy, the AERL and think tank Business for a New Europe.

Market failures due to imperfect information and generous carbon allocations had resulted in a low price for carbon, which “rewarded the worst polluters,” said Mark Lewis, Managing Director for Global Carbon Markets at Deutsche Bank, who called for carbon allocations to be auctioned.

Experts also recommended a closer examination of the Clean Development Mechanism (CDM), where industries in developed countries offset their emissions at home by investing in projects that reduce emissions in developing countries.

A dissenter on the panel was Philippe Varin, CEO of steel giant Corus, who said the higher cost of carbon would be ruinous to Europe’s steel industry, leading to ‘carbon leakage’ as investment relocated from expensive, low-emission Europe to cheap but dirty Chinese, Indian or Russian industries. He urged governments to “recycle” revenues from the ETS into more research for cleaner technologies.

Isabella Moore, representing small business in the BNE noted that the ETS cost consumers £31 per person.

But the costs of not tackling climate change are far greater, said Reijo Kemppinen, Head of the European Commission’s Representation in the UK, referring to the Stern Review which put the cost of inaction at 20% of GDP.

The experts agreed the ETS could work if the EU learned the lessons of the shortcomings of the present system.