The Cost of Carbon

13 October 2008
This week Video Journalist Nick Lazaredes travels to Europe, to examine the highly contentious issue of carbon trading. Kevin Rudd wants a similar system here - so how are the Europeans faring in this attempt to reduce carbon emissions? In Belgium, politicians are debating changes to their Carbon Emissions Scheme, but environmentalists warn that Europe's solution to global warming is turning into a farce. Carbon trading is a process where companies can trade their unused carbon credits for a tidy profit. However this process allows heavy polluters to continue to damage the environment, as they buy up carbon credits from other companies. Climate change activists say EU's climate scheme isn't credible and are worried it could have disastrous impacts around the world if other countries choose to implement it. >See the video at TRANSCRIPT Opinion polls show overwhelming public support for the idea of reducing greenhouse gases and using a system of trading carbon credits to achieve that goal. So how does it work? The Rudd Labor Government is committed to setting up an Australian version but, but in Europe, they've been trading carbon for four years now. But Nick Lazaredes reports that controversy is rife over whether the system is actually protecting the environment or has simply become another cash cow for big business. Reporter: Nick Lazaredes: WOMAN: ‘Thank you for calling the European Union. I'm afraid no European leaders are available to combat climate change at the moment. If you are calling about keeping global warming below 2 degrees, please leave a message after the tone.’ Nick Lazaredes: This quirky protest outside the European Parliament in Brussels might seem a little strange... but the environmentalists who staged it say it's an essential reminder to Europe's politicians not to weaken in their struggle against global warming. Europe has led the world in putting into place a strict system to reduce its carbon emissions but now, as its leaders discuss possible changes to the scheme, there's a real concern that big business interests are undermining what critics believe is a deeply flawed system. Kevin Smith, Carbon Trade Watch: The main problem, I would say, with the system is essentially we've allowed the fox to design the henhouse. And that what you're essentially doing is giving corporations the power to perform a very elaborate shell game to mask the fact that nothing's taking place. Nick Lazaredes:As Europe considers critical changes to its system in an effort to appease big business, environmentalists are worried that the world's largest carbon trading scheme is turning into a farce. Tomas Wyns, Climate Action Network Europe: The majority of those amendments go into the direction of watering down the emission level of the European emission reductions by 2020 and also going to the direction of handing out more allowances under the EU emissions trading scheme, for free, to companies, deviating from the polluter-pays principle, in fact moving into a principle where the polluter gets paid. Nick Lazaredes: Europe's climate change activists aren't just concerned about their own backyard. With Australia on the verge of establishing its own carbon emissions trading system, they're worried that bad climate change policy from Europe might be adopted here with disastrous impact. Tomas Wyns: We think Australia should look at the lessons learned in Europe and the mistakes that have been made over here. In the Asia-Pacific region, there are key players with relation to climate change – such as Japan, India, China – they will closely look at what the EU is doing and has done in the past, but they will also look at what Australia is doing because they just come in to the Kyoto Protocol. Will they deliver on the promises made? Nick Lazaredes: While the details of Australia's emissions reductions scheme are yet to be announced, it's likely to based on the European model - a UN–Kyoto-approved market-based solution which in just four years has seen the birth of thriving new market built around the world's latest currency - carbon. Patrick Birley, European Climate Exchange: This is a currency we want to be around for 50–100 years. It's important that in the first few years we don't debase it and I think the United Nations are aware of that and have done a good job so far Nick Lazaredes: The carbon trading solution is a simple enough concept - companies releasing greenhouse gases receive an issue of carbon credits based on the size of their emissions, which are measured. A cap level is then set, marking their maximum allowance. Those releasing less gases than their allowed cap levels are able to cash in their carbon credits by trading them, like any other commodity, in order to obtain as high a price as possible and pocket a tidy profit. At the same time, heavy polluters exceeding their cap allowance are forced to buy more credits to cover the difference at usually premium market prices. It's an equation that economists call "cap and trade". Patrick Birley: There is no magic wand that can resolve this problem. Cap and trade as a solution is supported by most people globally. It's been very well thought through. It is very simple but it can deliver genuine benefits to the environment. Nick Lazaredes: Patrick Birley firmly believes that Europe's emissions trading scheme is a remarkably effective way to counteract climate change and he's well placed as it continues its global expansion. As head of the London-based European Climate Exchange, Birley has witnessed one of the biggest trading booms seen in decades, with almost 2 billion tonnes of carbon credits being traded through his exchange so far this year. Patrick Birley: I think people recognise broadly that, if you pollute, and if you continue to pollute at very high levels, you should pay. Nick Lazaredes: Environmental purists describe the trading in carbon credits as morally offensive profiteering but Birley says it's a perfectly acceptable and clever approach to reducing greenhouse gases. Patrick Birley: This scheme is allowing those who change early to make money. So if you change early, you change your behaviour, you put technology on top of your smokestacks that will stop the carbon going into the atmosphere, you can profit from it. I don't think there's anything wrong with that Kevin Smith: As soon as you take the time to explain to the average person on the street what's involved with carbon trading, they very quickly see through the fact that it's a scam. Nick Lazaredes: Detractors of Europe's carbon trading system, like Kevin Smith, insist that it's a giant con that simply rewards companies for doing virtually nothing in return. As the trade in carbon credits booms, everyone is seeking a slice of the action and Kevin Smith believes that the original objective - to reduce greenhouse emissions - has been lost in an obscene rush for carbon-based wealth. Kevin Smith: There's more money to be made out of the carbon market and all people seem to be able to focus on now is the financial opportunities – how to make money out of the carbon market - and people seem to be forgetting that the real business should be about reducing emissions, not making money. Nick Lazaredes: With rapidly growing numbers of companies being seduced by the lure of the carbon bonanza, Kevin Smith and other concerned academics argue that corporate interests have essentially hijacked the carbon emissions debate by promoting money-making solutions like carbon trading while the problem simply gets worse. Kevin Smith: What we've essentially done with emissions trading is to enshrine the right of corporations to delay making those difficult decisions that need to be happening here and now. Unless we're going to start reining in the powers of these corporations in lobbying these processes and influencing these processes, then we're never going deal with the threat of climate change. Nick Lazaredes: The concerns about the influence big corporations continue to have on climate change policy cast initiatives like carbon trading in a different light – a system that Kevin Smith says was adopted in Europe partly due to the intense lobbying efforts of the oil giant BP. Kevin Smith: At every step in the design and implementation of the EU emissions trading scheme, it's been so vulnerable to corporate lobbying that a number of groups - oil companies like BP - have played a key role in designing the system and influencing how it was designed. Nick Lazaredes: In a report about to be released by the respected Corporate Observatory Europe Group the links to BP and some of the world's largest carbon trading schemes are firmly established. For most of the '90s BP spent a fortune rebutting the science of global warming, arguing against the need to reduce greenhouse gases. But as fears of permanent climate change grew, public opinion turned markedly against the world's big oil polluters, and BP decided to act, completely reversing its strategy by creating an in-house emissions trading scheme. BP was a leading corporate participant in the process that led to the Kyoto agreement and later helped design Britain's emissions trading scheme. With Europe looking for a solution, BP lobbied hard to promote carbon trading as the answer, and the EU agreed. Barbara Helfferich, EU Environment Office: Yes, businesses lobby, indeed individual governments lobby, but this is the European Union - 27 member states - we found a compromise and the commission feels, and particularly my commissioner feels that it is a balanced proposal. Nick Lazaredes: Four years after it was introduced, Europe's system is bearing mixed results. This was a learning period, 2005-2007, and we learned a lot and that is now evident in the way we have done phase two. While cuts in emissions are being achieved, the EU's environment spokeswoman, Barbara Helfferich, concedes that some of Europe's largest companies have abused the scheme. Barbara Helfferich: This was a learning period, 2005-2007 and we learnt a lot and that is now evident in the way we have done phase two. Nick Lazaredes: The worst offenders were power companies, some of which levied steep charges on their customers while simultaneously pocketing a massive fortune through selling off their carbon allowances on the booming carbon market. Barbara Helfferich: Windfall profits from power companies - they were calculated in the price anyway for the allowances - and at the same time the price was so cheap they were selling the allowances, and that led to a situation where there were enormous windfall profits. Patrick Birley: Remember that this is a market that has just started. It's in its infancy. Yes, there are problems with it, yes, it's easy to criticise. Nick Lazaredes: Patrick Birley admits that, while a number of serious problems have been identified with the European emissions scheme, the environmental pay-off delivered by cap and trade far outweighs the impact of any crooked traders or profiteers. Patrick Birley: It's cap that delivers the benefit - that's what's delivering the benefit. Trade - it will change, some people will make money who shouldn't make money and there will undoubtedly be scams around that need to be tightened up and closed down over time, but it delivers. It's a very important part of delivering a cap in the easiest way at the lowest possible cost. Nick Lazaredes: While most Europeans have been quick to trade their carbon credits for a tidy profit, some organisations are attempting to manipulate the system in a responsible way. Glynnan Barham, UK Natural History Museum: Most businesses, if they have an excess of allowances, they are allowed to then sell those to make extra money because they've made savings on their emission levels. We won't be doing that, and one of the initiatives we have investigated is to actually try and buy up others, which would take them off the market and therefore artificially inflating the price. Nick Lazaredes: With its captivating display of fossils and dinosaurs, few visitors to London's Natural History Museum realise that it's also at the cutting edge of efforts to combat global warming. Down in the basement, Glynnan Barham is working hard to shrink the museum's carbon footprint. Glynnan Barham: As with most generators, you've got a lot of wasted heat and a lot of wasted energy, exhaust fumes. We don't put that out to the environment. We actually capture that through the exchanger we have over there. Nick Lazaredes: The carbon-friendly conversion of this antique boiler room now captures its greenhouse gases turning them into heat and air-conditioning, slashing emissions and costs. Glynnan Barham: It allows us to carry out more research and allows us to invest in newer technologies for the future. Nick Lazaredes: But the museum's success is due more to sacrifice and hard work than the trading of carbon credits – a system that Glynnan remains wary of. He's convinced that unless carbon credits are given a hefty price tag, and their numbers restricted, any system that trades them, including that planned for Australia, is doomed to fail. Glynnan Barham: I think carbon trading is a good idea, if it works. As to what Australia can learn from what we've done, it's simply a case of getting the allowances right, get the price right, and hit them where it hurts, basically, because if you don't do that, no-one is going to pull their weight sufficiently to make any difference. Wim van de Wiel, Shell Europe: This is the largest refinery in Europe with a capacity of some 400,000 barrels per day, that's 20 million barrels per year. I know we are quite fuel efficient, but I know there's room for improvement. In that process of producing hydrogen we also produce a lot of pure CO2. Nick Lazaredes: Across the Channel a company which releases more carbon worldwide than the whole of Great Britain is making some headway in the struggle to curb greenhouse gases. At Shell's massive Dutch refinery operation near Rotterdam, its PR spokesman is anxious to show off the oil company's green credentials. Like BP, Shell directed a massive lobbying effort towards EU policy-makers in an effort to bring in the carbon trading system. While there's a long way to go, Shell's proud of its efforts. Its latest initiative – the capture and conversion of its greenhouse gases to pure carbon dioxide, which is then piped to real greenhouses throughout Holland to increase plant production. Wim van de Wiel: Until three years ago all that CO2 was sent straight into the atmosphere but, since three years, we sent a lot of the CO2 to the greenhouses nearby. It's really a niche market for the Netherlands. Nick Lazaredes: For Shell and other companies trying hard to reduce their emissions, it's mainly the prospect of earning rich rewards through Europe's new carbon market that's motivating their efforts. A market that its critics want to see scrapped and replaced urgently by a new global deal with genuine and binding cuts to greenhouse emissions and no cut corners. Kevin Smith: What we need is a global agreement whereby when countries take on an agreement to make emissions reductions. They make those domestically, and they make real cuts, rather than relying on this huge esoteric market that's very easy to fiddle and very easy for companies and countries to appear to be making reductions, when in reality they're just shifting bits of paper around the world. Nick Lazaredes: But for those at the rock face of this lucrative solution to global warming - like Patrick Birley - the time for debate is over. Patrick Birley: Leadership requires people to stand up and to do something which is unfair, it's going to penalise them for the greater good, and that's what's required here, and I think a lot of people get the message, and they must prevail and they must move forward and allow the others to catch up later. Published by the Special Broadcasting Service on 8 October 2008