Monday, September 15, 2008

Climate change: the problem with grandparenting

Throughout the debate over the ETS, the constant call from industry was that we should allocate permits by "grandparenting", giving them permits for free based on historical emissions. As a result, the scheme includes some grandparenting for "trade exposed" industries, with large industrial polluters who don't want to clean up their act or improve their performance claim that they can't pass on the cost of carbon and higher electricity prices due to international competition having access to a pool of carbon credits equal to 90% of the sector's 2005 emissions, plus extras for electricity. Exactly who gets what is yet to be resolved (and no doubt there'll be plenty of money spent on lobbyists and bribes election donations by those wanting a bigger slice of the pie), but in the meantime, the UK is providing a perfect example of why we shouldn't be doing this: because it rewards polluters with a massive carbon windfall:

A flagship European scheme designed to fight global warming is set to hand hundreds of millions of pounds to some of Britain's most polluting companies, with little or no benefit to the environment, an investigation by the Guardian has revealed.

Dozens of multinational firms stand to benefit from the windfall, which comes from the over-allocation of carbon permits under the European emissions trading scheme.

The permits are given to companies by the government, and are supposed to account for their carbon pollution over the next five years. But figures published by the European Commission show that many companies have been allocated far too many permits, which they can sell for cash.

The scheme is supposed to only distribute as many permits as companies require, with one permit allocated for each tonne of CO2 produced.

The figures, compiled by the Guardian and the campaign group Sandbag, suggest that up to 9m extra annual permits have been allocated to 200 companies across almost all sectors of the British economy, from steel and cement making, to car manufacturing and the food and drink industry. Dozens of household names such as Ford, Thames Water, Astra Zeneca and Vauxhall are among the companies that could benefit.

Some companies are getting 40% more permits than they need. The car industry is getting twice as many. And that's a direct transfer of wealth from the UK government (and hence its people) to the pockets of those companies' shareholders. And the dirtier a company is, the more it benefits - those who cleaned up their act and reduced emissions early have been penalised, not rewarded. And so "polluter pays" has become "polluter profits", while the rich laugh all the way to the bank...

Whether this happens in New Zealand will depend in large part on who the next Climate Change Minister is, and how sceptical they are of industry special pleading. As mentioned above, the law allows a potentially very large pool of credits, but how big is really determined by the tests the Minister sets, and they don't have to hand it all out. So basically it will all come down to Ministerial discretion. Which means we need to watch them like hawks, and make sure they know we're watching. Fortunately, we have just the tool for the job...