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The Danger of Carbon Credits

This week the UK government has led the world and
held the first auction of carbon
The British government has auctioned the right to produce 4,000,000
tonnes of carbon for ?54,400,000. Using the British government’s DEFRA
standard, that amounts to ?1,000,000 return flights London
to Sydney.


DEFRA currently uses a Shadow Price of Carbon which they
value at ?26 per tonne.

In this week’s auction each tonne realised about ?13.61 ? so
these permits to pollute went for a bargain
, although the auction price is very close to the current market price. ?16.15 or ?13.62. These permits to pollute have been sold to the intermediaries (Barclays
Capital, JP Morgan, BNP Paribas and Morgan Stanley) at nearly half price – if the price was determined by the pollution caused. The market price is not currenly high enouth to reflect the damage caused by the pollution. If
they had sold at DEFRA Shadow Price of Carbon, based on an estimate of the
pollution cost, they would have raised an additional ?50,000,000. Imagine if
that had been used to fund investment in new technology for carbon reduction or


As Mike O?Brien, the Energy and Climate Change Minister of
State, explained


?Today’s first Phase
II auction demonstrates continued UK leadership in reducing carbon
emissions as part of the fight against dangerous climate change. The EU ETS is central to keeping the price of tackling
climate change as low as possible to industry and the economy


We want more
auctioning in the future ? and are already planning to auction 100% of the
allowances needed by the power sector from 2013. This auction highlights the
importance of using the market to drive down emissions and create incentives
for the development of low carbon technology.?
Emphasis added.


At these prices it is not self-evident that there is any
incentive to reduce carbon emissions ? business as usual is not so expensive.


The cash raised from a limited number of intermediaries who
will sell the permits on is going to the Treasury and will not be ring fenced
for climate change adaptation or developing new technology. As with Air Passenger
Duty which doubled in February 2007 the Treasury is using ?green taxes? to
bolster government revenues.


The British Government is

  1. focussing
    on generating revenue for general government
    iture through green taxes.
  2. failing to implement the polluter pays
    ? climate change caused by UK emissions is causing
    climate change which is impacting on primarily poor communities around the
    world. The money raised is not being used to compensate those suffering for
    droughts and floods caused by the UK‘s green house gas emissions
    and contribution to adaptation and mitigation. The polluter should be
    paying for remediation ? we are not.
  3. providing a license to pollute: carbon
    credits are being used to license ? at a 50% discount ? business as usual.


In 2009 the UK
government plans to auction a further 25 million tonnes of pollution. This is
part of the UK
government’s plans for implementing the European Union Emissions Trading Scheme
Phase II (2008-2012).  The EU ETS works
on a ?cap and trade? basis, EU governments will set a cap and then allocate
allowances, the total allocations being limited by the cap. If installations
exceed their allowance and cannot cover the excess pollution with allowances or
permits to pollute, they will be face financial penalties currently set at ?100
(?84) per tonne, the permits are cheap at ?13.61.

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