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Global attempts to restrict emissions

World Cement,

Carbon leakage
Since restrictive emissions regulations have taken force, the argument from industry has been that the expense of meeting emissions targets will ultimately result in the outsourcing of production to countries with less stringent legislation. This so-called ‘carbon leakage’, industries argue, will simply move pollution elsewhere and with it will go money and jobs. Now, a UK government advisor is proposing that a tax be levied on imports from China.
Lord Turner, who is the head of the UK committee on climate change, argues that the allocation of free permits to heavy industries such as cement and steel is not the answer, but that the government should ‘rigorously assess’ the benefits of taxing imports. The committee will review the issue this summer, before the government decides whether or not to implement the committee’s recommendations. There is some concern that a carbon tax on imports would benefit some but not all industries, and could damage trade relationships with developing countries.

City-wide cap-and-trade
Meanwhile, China is reportedly to establish a city-wide cap-and-trade system in Tianjin by June. Tianjin, a port city in the northeast of the country, is planning to restrict the amount of energy used to heat buildings in the first half of this year. Those property managers that are able to reduce energy usage to below the set limit will earn credits they can then sell on. The emissions trading program was jointly established by Arreon Carbon U.K. Ltd and the Tianjin Climate Exhange, which is itself a venture of China National Petroleum Corp., Tianjin Property Rights Exchange and the Chicago Climate Exchange. John Shi, CEO of Arreon told Bloomberg: ‘Pursuing energy efficiency has truly risen to the top of the agenda for local governments’. This is the first market-based carbon-trading plan in China, but will not be the only one, as Beijing and Shanghai are also working on similar programmes. China has pledged to reduce emissions by 40 – 45% based on 2005 levels by 2020.

Breaking even?
Recently, a new report into the EU ETS has found that the carbon quotas allocated have actually enriched Europe’s biggest polluters. Ten firms acquired free permits for 2008 worth €500 million, and this figure could hit €3.2 billion by 2012 at the current rate. The beneficiaries are largely made up of cement and steel producers.

Sandbag, a British company that analyses carbon market policy, claims that the companies will have earned in permits the equivalent of what the EU has invested in renewable energy and clean technology, and will have done next to nothing to earn them. Most of them were simply over-allocated and do not reflect the amount of effort put in to reduce emissions. The following statement appears on Sandbag’s website:

‘Our aim in publishing the report was as ever to point out that trading can be effective if implemented correctly and we also focused on the companies who are being required to make deep cuts - the power companies. Sadly a lot of their effort is being cancelled out by buying spare credits from the fat cats who were handed credits far too generously. In fact, this scheme would have had more effect if we had just included the power sector and left most of the others out. Hindsight is a marvelous thing - perhaps the US can learn this lesson though as they consider what shape their legislation should now take - power first is the key.’

Slow progress, but progress nonetheless
Hopefully this advice will be taken into account, as reports last week indicated that the EPA will require power plants among other heavily polluting industries to get permits from next year that will require them to cut emissions. Cap-and-trade legislation is still under discussion in the Senate and so regulation, not legislation, is the current path being chosen by the EPA, which will begin regulating stationary emissions sources that emit 75 000 tpa of CO2-equivalent gases in 2011 and 2012. This will cover power plants, refineries and cement plants. Smaller sources will not require permits until 2016 at the earliest.

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