Jutta Kill explains her fight for the end of carbon markets

With another disappointing climate summit behind us it looks like a new end of year tradition is in the making. As a consolation prize, the Kyoto Protocol - which covers only 15% of global greenhouse gas emissions – was extended. Just enough to keep the tradition alive.

The main reason this was achieved is not concern for global warming, some scandalmongers argue, it is the rescue of the carbon trading mechanisms attached to it. The largest and most developed of these mechanisms is the EU Emission Trading System (EU ETS), Europe’s number one policy tool to tackle climate change. Although it is under heavy pressure due to successive price crashes, questionable offset projects and critiques that it has been unable to drive the transition to a sustainable energy infrastructure, it remains big business. “A lot of companies have made a lot of money out of it. Carbon trading has become a means in itself with its own dynamics. Making profit and not the fight against climate change became the leitmotiv of its strongest proponents”, explains Jutta Kill, an experienced climate activist and one of those scandalmongers who is very sceptical about carbon trading as a mechanism to tackle climate change.

Together with some other organisations (among which Counter Balance), Kill recently set up a coalition of NGOs campaigning against the ETS. At the kickoff of the third phase of the EU ETS, this sounds like a provocative position. Most progressive players are pushing for a thorough reform of the EU ETS. By demanding an end to the EU ETS after 2020, the coalition is taking it a step further.

The European Commission recognised the EU ETS should be improved and proposed several reforms. Given the fact that some industry lobbies are trying to further dismantle it, would a more constructive position to push it in a better direction be more effective?

Kill: Just withholding permits for a while as the Commission proposes may have a minor effect but it will never get the carbon price to a level that is needed to really trigger serious thinking about a different energy infrastructure in the time that transition needs to happen. More importantly, it doesn’t change anything about the flaws in the design of the EU ETS that lead to the oversupply in the first place.

The carbon market is the only market where supply is set years in advance and demand changes in real time. Add to that a group of carbon traders and brokers whose primary objective is not the energy transition but making a profit from the price volatility they generate and you have a system that creates large price fluctuations. This is exactly the opposite of what large industry and energy utilities say they need in order to make the right investments.

Since the EU ETS has been operational in 2005, it has failed to trigger transitional investments in different energy infrastructure, it has undermined other policy instruments and legislation that could have done this more effectively and it has become the model for trading in other areas such as water, biodiversity and species which are even less suitable. These are pretty disappointing results for the EU’s number one policy instrument.

The Commission’s reform proposals only really address one flaw: the oversupply. And even here the proposed measures will fall short. The many structural design flaws that the EU ETS contains cannot be reformed. So let’s put our energy into something that works.

Can you give a concrete example of how the EU ETS has undermined other more effective legislation and why both cannot be combined?

At the beginning carbon trading was always presented as the number one policy instrument to fight climate change. The rhetoric has changed as it became clear that carbon trading wasn’t delivering and it is now often described as one instrument among many. In reality however other policy instruments remain secondary and are always set up in service of the EU ETS.

When negotiating the EU energy efficiency target for example the price of carbon permits proved to be a valid argument among EU policy makers not to make the target too ambitious. An ambitious target would reduce emissions. But it was not possible to adjust the already set allocation of the permit volumes until 2020. And therefore, the more ambitious the energy efficiency target, the bigger the oversupply of emissions permits which in turn would undermine the price. This is a very concrete example of how the EU ETS is holding back more ambition in other policy tools.

Another one is the EU large combustion plant directive, a piece of legislation which said that the dirtiest power plants had to either clean up or close by 2015. Under the ETS however, they could switch to biomass and they were given a lot of permits for free as if they were operational until the end of their time. The ETS allowed the continuation of the dirtiest power plants and gave them an extra windfall profit.

By killing the ETS you choose the same means as an infamous coalition of climate skeptics, laisser-faire capitalists and heavy industry polluters. Isn’t it naïve to believe you are doing anything else but helping the struggle of this powerful group?

I’m not concerned that our call to end the EU ETS by 2020 will strengthen the goal of either climate skeptics or the fossil fuel industry which is also calling for the end of the ETS but for obviously very different reasons. Their motivation is to ride the fossil fuel wave until the very end. Our intention is to end that wave as soon as possible. For anybody even remotely following the discussion it will be very clear that the motivation is very different. We are not saying get rid of the ETS and then do nothing. We argue for a clear phase out year beyond which no industrial exploration or use of fossil fuels happens any more, because that is what is needed if we are serious about avoiding runaway climate change. Without the ETS there will be much more room for effective climate policy. It will also serve as a clear word of caution not to expand trading into other areas of nature.

Many green and progressive forces see a lot of benefits in the EU ETS. It might not be perfect but it is better than nothing they argue.

It is a false and dangerous argument to say that it is this or nothing. False because there are a lot of other policy instruments in place already. Feed-in tariffs e.g. can be a lot more effective. Their effectiveness depends much on the way they are set up but in Germany tariffs lead to a much bigger change in energy infrastructure than the EU ETS has.

Dangerous because the argument is the expression of a mindset that has already given up on us collectively as society being able to make the transition and avoid runaway climate change. We will need a lot more creativity and courage to get that transition underway than sticking with an instrument unfit for purpose just because politicians and industry say that is all we can get.

It is an illusion that carbon trading can replace the hard political discussions and decisions that need to be taken over how we take that change and fundamentally change the energy infrastructure. If the EU ETS is seen as a shortcut to prevent this, it is no wonder that it has not been more effective.

You plead to fight climate change through a political battle. How come you are so sure you will win this battle?

I’m not sure about that. Without much more mobilisation and pressure from EU citizens and courage from politicians we won’t see the changes that are needed. But not being sure that we will win is not a good enough argument to continue with a bad policy instrument. That leaves the public in the illusion that politicians and companies are doing enough to prevent catastrophic climate change, and that NGOs are fulfilling their role as critical watchdogs. I think it’s the responsibility of environmental organizations to challenge that illusion.

I am certain that the alternative to the ETS is not nothing. We have moved – particularly in Europe – beyond that point. The effects of climate change are and will become more obvious every year. Much more of a problem is the lost opportunity because of the financial crisis. It could have been a driver for change e.g. to chose to end our dependence on fossil fuels. But instead the old economic model - that can’t be continues if we are serious about avoiding climate chaos - is strengthened in order to grow out of this crisis – and head-on into the next one.

Now the carbon market is launched, it is being investigated how other ecosystem services can be traded. How has the EU ETS influenced the creation of additional markets for nature?

The EU ETS serves as a model for expanding the idea of carbon trading to other sectors that are even less suitable for trading. Trading species, biodiversity, water and even the beauty of nature are being considered. Carbon trading has provided the political, technical and financial backing for these ideas to be promoted.

Markets for species trading have been around for over a decade but they have never been able to expand. Contrary to other markets where supply and demand exist naturally, it is the state which creates scarcity by setting a cap on carbon emissions for example. Only then is the trade able to take off. For local ecosystem trading there was never this international cap and this commitment to scarcity that is required. Once the Kyoto protocol was there and the carbon market was launched all other interest groups that wanted to trade in other ecosystem services saw they needed to campaign for some kind of target at a higher level.

If you consider how difficult it is to calculate different greenhouse emission and making them the same – they are all calculated as if they are equivalents of CO2 - imagine how difficult it would be to compare a river in Flanders with one in the North of France. Of making the effluent of a pulp and paper company comparable and tradable with the effluent of an oil refinery. You have to make them comparable if you want to trade them. These are not just obstacles these are impossibilities which will lead sooner or later to the collapsing of these markets should they ever take off in the first place.

But once the infrastructure or vested interest groups are in place it will be very difficult to get rid of them even if the trading is not really functioning. In all that time damage will be done, communities will bear the brunt of that damage and - as is the case with carbon markets and climate change - those that have least contributed will be at the centre of the experiment and therefore pay the highest cost. It’s not just about environmental effectiveness, it’s also a question of justice.

What is role of the European Investment Bank in carbon trading?

The EIB, and the World Bank maybe even more so, are part of these vested interests that prop up the carbon market. They are intermediaries that see their role increasing and which gain from these new markets. The EIB has been an institution willing to take up extra financial risk by providing the guarantee that they will buy up credits for use after 2012 when everybody is uncertain what will happen with the carbon market and which offset credits will be good for use. It has also been a risk absorber for a lot of carbon offset projects in Eastern Europe and has been the fund manager for a lot of carbon projects where it helps EU member states buy cheap carbon credits and therefore avoid reducing emissions at home.

In addition the EIB is also auctioning off permits from the EU ETS’ new entrants reserve. These are meant for new factories that will need permits to cover their emissions in the third phase (until 2020). Besides making a handsome profit, the EIB intends to finance carbon capture and storage and renewable energy projects from the auctioning revenues.