E3G

Will carbon markets save the planet?

By Tom Burke

Markets, even when mature, are by definition volatile and prices in them difficult to predict. This discourages precisely the kind of high risk, long life investments in the step change technology transition we need to stabilise the climate.

Without a global price for carbon, there will be competitiveness risks for those economies that do put a price on carbon. But to get a global price for carbon we have to agree a global cap on emissions and a mechanism for allocating the permits under that cap.

You have only to have read the papers in the past week to know what an impossible dream that is. America will not agree until the Chinese agree and the Chinese will not agree unless the Americans act first. And in any case, it they were to agree, it would be to the least they thought they could get away with.

The widely held belief that building carbon markets is the best policy for tackling climate change is the triumph – and tragedy – of theory.

Of course they have a role to play but it is currently much smaller than is believed and much too small to solve the problem.

In practise, three other policy tools are much more important and reliable if we are to mobilise the tremendous capacities of the business community in time to make a difference.

The first is to set the right technical standards to drive the technology deployments we need. The European Union has already shown the way by beginning the legislative process to require all fossil-fuelled electricity generation to be carbon neutral by 2020. It is a pity, however, that it lost its nerve on vehicle emissions under German pressure and ceded leadership in this field to California.

The second is to structure the regulation of energy markets so as to allow utilities to pass through the additional capital costs of making the low carbon transition to the whole of the rate base. This would spread the costs so thinly as to make them much more bearable than the oil price rise we have absorbed with little difficulty.

The third is to spend public money on buying the public good of a stable climate by paying to accelerate the rate at which low carbon technologies are deployed, thus driving down their costs more rapidly than markets alone could ever accomplish.

We can have green growth, but only if we reject the irrational market optimism of the proposers and deploy those policy tools that will actually deliver a stable climate.

It is for these reasons that I am pleased to oppose this motion.