A Critical Conversation on Climate Change ... - Green Choices

88 development dialogue september 2006 – carbon tradingEven so, ‘intense lobbying by industry followed, apparently supportedby industry minister Patricia Hewitt, and in October 2004, the expectedbusiness-as-usual emissions were substantially increased, andthe permitted emissions raised to 756 million tonnes’. 73 This led to aprolonged legal row with the European Union which ended only inMay 2006 with a British defeat.In 2004, only a minority of companies believed that the EU ETSwould result in any reduction in emissions at all. 74 By 2005, climateeconomist Michael Grubb was warning that the huge numberof allowances being donated to industry would render them almostworthless, destroying any incentive for cleaning up. 75 By April 2006,Grubb’s prediction looked to have some chance of coming true. Assurplus emissions rights flooded the market, prices crashed 60 percent within a week, from a high of around €30 per tonne of carbondioxide to €11. Traders began to express the fear that the emissionsprice would drop to zero and that the first phase of the market ‘woulddie.’ 76 A European Commission representative refused to commenton whether member governments had ‘allowed companies to wilfullyoverstate historical emissions when they were compiling their… nationalallocation plans, in order to receive more free allowances.’ 77‘The obvious thing to say now’, observed one market analyst in May2006, ‘is that the caps must be corrected in the second phase, but whathas happened recently makes us realise that if regulators are off withtheir estimates, prices will be either very high or very low. I am notsure that something with such an inherently unstable price is an incentivefor people to invest. It is a fundamental fl aw in the scheme.’ 78With so many allowances being given out, even factors such as thefluctuations in fossil fuel use associated with yearly variations inweather are now playing havoc with demand, putting future prices indoubt. And prices may well stay volatile, especially since no Europeangovernment wants to be the first to reduce radically the number of allowancesgranted to industry. All the signs are that EU governmentsare going to be pressured into handing out too many allow ances inthe second phase of the scheme, just as they did in the first. 79