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The Great Lull

February 11, 2010

There’s no denying that 2010 is (not a good year) a bloody terrible year for action on climate change.   

First, at the end of last year, there was the hype followed by the often mis-interpreted let-down of the Copenhagen summit. Second, the vacuum of progressive international action following the conference has not yet been be filled by individual countries taking suitably strong action at home, with the US and Australian cap-and-trade schemes looking unlikely to pass this year, and Korea and Japan are still a couple of years away from getting their schemes going.

Moreover, in yet another set-back, the BASIC countries (China, Brazil, India, South Africa), are now  wriggling their way back from the bits they didn’t like agreeing to at that summit, although, be aware that they are likely to pursue their pledges on emissions intensity reductions from Copenhagen.

The vacuum we are now witnessing on policy solutions has left the door wide open for “skeptics” to get their disingenuous and fundamentally dishonest foot in it. They are increasingly spreading unjustified doubt among the public, who will often miss the follow-up articles showing that the subsequent  investigations are vindicating key scientists

And then, just at the worst time, when cap-and-trade is being put under the spot-light in the Australian and the US Senates, the EU ETS suffers three much publicised credibility tests.  A. The financial crisis has driven the EUA price too low to drive important long term low carbon capital investments.  B. The EU ETS suffered a carousel fraud scandal (where players used the market to create fake tax deductions for themselves).  C. The recent ‘phishing’ attacks occured, with traders conned by computer hackers into giving up their EUAs to fraudsters.

These threats to carbon trading’s integrity – although I have to insist that they don’t prove much about carbon trading itself  – come exactly at a time when faith in market mechanisms is at its lowest ebb in decades. And yet, the hopes of passing carbon taxes – the other form of carbon price – are even less than that of cap-and-trade.

What next?!!

Here’s a prediction. The anti-action mob will win this round.  Australia probably won’t be able to get its scheme up before at least mid-2011 when the Senate changes over. And the US probably won’t pass carbon price legislation until the economy bounces back in a couple of years.

But, the anti-action mob will see their luck change. The pressure on US federal legislation is likely to be kept up, at one level, by a rising tide of ligitation – not to mention the longer term needs of shareholders for regulatory certainty about future action on a carbon price.  In fact, the litigating has already started, and it’s also popping up here, and here.

Also, in the US, there are still some 15 states which are going ahead with carbon trading starting in 2012 through regional schemes like WCI, MWRGHGCA and California’s AB32. Not to forget RGGI in the north-eastern states. That is surely got to lead bottom up action.

Moreover, unless the Democrats lose their majority in the US Senate this November, it’s hard to see the Congress putting a stop on the US EPA from going ahead with some pretty un-business-friendly regulation. In fact, in fear, even the US Chamber of Commerce seems to be changing its position on a climate bill right now!  And if the US starts moving federally, then stronger action will almost certainly role out pretty quickly in Europe, Australia, Asia and the international negotiations will be back on.

But here’s the catch. Developments in the US Senate this year suggest that there is broad support for a strong energy security bill, and for energy technology support that puts the US back in strong competition with China. However the question is, will Obama and the Dems burn their best cards by agreeing to such a bill this year without stubbornly insisting on pricing carbon at the same time?

If Obama can hold onto carbon pricing, and protect the EPAs power to regulate going forward, then nothing short of an avalanche of Tea Partiers will be able to stop a climate bill getting up once the economy improves.

In the mean-time, something will need to be done to convincingly show the middle-of-the-road voters that the sceptics really are bogus. Personally, I would advocate large and highly visible public inquiries into the science and the methods of the IPCC. Not to mention a huge media campaign exposing the sceptics and investigating the IPCC themselves. It would almost certainly exonorate the science of climate change. The sceptics are invariably over-relying on pseudo-scientists paid by vested interests.

Anyway, I don’t think the issue can be left up to public trust in the science and politicians faith in it right now. The public’s trust has been broken, and nothing short of a few more years of rising temperatures, extreme climatic events, and a very credible vindication of the science in key countries can exonerate it so long as ‘nothing big is happening’ at the international level.

BTW, in the meantime I would also favour putting a price floor in the EU ETS to get that price back to levels that can drive long term investment again. In fact, in some ways the delay in other nations putting a price on carbon gives carbon trading the chance to prove itself. For this reason the EU ETS needs a price floor. Otherwise, its very possibly going to be swallowed up by an inefficient bungle-load of feed-in tarriffs, subsidies, and other direct interventionist measures.

  1. Great post. I agree the climate debate’s been set back about two years (most likely because of the hype for COP15). What we need is an Obama jump start! Some sort of rallying point or event. 2011’s all that comes to mind.

    Btw have a look at the Crikey article posted today on Abbott’s policy (I’ll email it to you). Really shows how many holes there are in the carbon tax policy, the criticism it’s received on every front and even points out Abbott himself would be in favour of moving towards an ETS (‘great big tax’) sometime in the future… even the Liberals don’t really believe in it!

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  1. The Australian’s Paul Kelly quotes industry lobbyist to surreptitiously push climate action delay « The Carbon Economist

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