Carbon Trading: The Next Sub-Prime

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Climate and Capitalism has long argued that carbon trading is a scam to boost profits without reducing emissions. Here’s confirmation from an unexpected source: the CEO of a major European energy company.

By Terry Macalister
The Guardian, Friday 30 January 2009

The row over the working of the European Union’s emissions trading scheme intensified last night when EDF Energy warned that speculators risked turning carbon into a new category of sub-prime investment.

Vincent de Rivaz, the chief executive of the UK arm of the French-owned gas and electricity group, said politicians and regulators needed to revisit the way the ETS was working and whether it was bringing the results they wanted. “We like certainty about a carbon price,” he said. “[But] the carbon price has to become simple and not become a new type of sub-prime tool which will be diverted from what is its initial purpose: to encourage real investment in real low-carbon technology.”

Green campaigners have long been critical of the way the emissions trading scheme was set up, but it is unusual for a leading industry figure to cast doubt on it, as power companies lobbied hard for a market mechanism to deal with global warming.

“We are at the tipping point where we … should wonder if we have in place the right balance between government policy, regulator responsibility and the market mechanism which will deliver the carbon price,” said de Rivaz.

De Rivaz’s comments came as Tony Hayward, chief executive of BP, emphasised that a predictable global carbon price was important because it would make “vast numbers of alternative energy sources competitive”. He told the World Economic Forum in Davos that certainty over carbon emissions would help “solve the world’s energy problems”.

Their comments came days after the Guardian revealed that steelmakers and hedge funds were cashing in ETS carbon credits obtained for free, causing the price of carbon to plunge. The price of carbon has slumped from €30 a tonne to below €12, leading to a tail-off in clean-technology offset projects in the developing world.

The EU’s emissions trading scheme was set up as a market solution to cut greenhouse gas pollution from industry. Polluters were issued with permits that can be traded between companies and countries as a way of encouraging an overall reduction in carbon output. However, companies are now cashing them in. Up to €1bn-worth of permits are said to have been sold off in recent months as companies see an opportunity to bring in funds at a time when their carbon output is expected to fall due to lower production.

De Rivaz said an over-reliance on markets without tougher safeguards was responsible for the financial turmoil that has sent banks into administration or forced sale. He believed there had been a “lost sense of values” and he was anxious that this should not extend into the energy sector, but was not prepared yet to call for a carbon tax to replace the ETS.

Point Carbon, an information provider and consultancy, claims the sell-offs are only one of a number of factors influencing carbon prices and argues it is “rational” for them to be selling off credits.

“Recession in Europe is bringing a slowdown in manufacturing, meaning less production and less emissions,” said Henrik Hasselknippe, global head of carbon at Point Carbon. “Companies are doing exactly the rational thing in these circumstances, which is to sell if they are long on credits. If they are emitting less then they do not need the credits so much and the price of carbon will fall.”

However, Bryony Worthington, an expert on climate change and founder of, said: “What should have been a way to kick-start investment in much needed low-carbon, efficient technologies is now a cash redistribution exercise.”

A study commissioned by the WWF environmental organisation from Point Carbon, published in March last year, estimated that “windfall profits” of between €23bn and €71bn (£20.9bn-£64.4bn) would be made under the ETS between 2008 and 2012, on the basis that the price of carbon would be between €21 and €32. Up to €15bn could be made by British companies that were given credits they did not need.


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