Occupy Emissions Trading

The Problem:

Man-made greenhouse gas emissions which originate from all forms of industrial production processes are the major cause for climate change. In order to mitigate climate change, the European Union developed the European Emissions Trading Scheme – in short ETS. This was the response to the obligations the Kyoto protocol established for the industrialized state parties to reduce the emissions from their industry. The ETS is basically a marketplace where the biggest emitters can trade emission permits, depending on how much they emit. One permit allows the owner to emit one ton of CO2. Initially, the permits where distributed to the companies according to their history of emissions; since 2012, however, a large amount of the permits is auctioned. Once a firm own a permit, it can trade it with other firms. In this way, it is sought to set incentives to reduce emissions and earn additional income instead.

The problem with this well-intended plan is that it is very difficult to establish the ideal amount of permits to be put on the market. Indeed, this is a very complicated calculation, based on the analysis of prospective economic growth, output and energy consumption in the next trading period (usually 5 years). When the economic crisis struck, the emissions trading scheme began to fail, as the price of the permit fell to almost zero, as the economy slowed own and produced less. Therefore, one could again pollute the atmosphere for free, as it was the case before the Kyoto protocol went into force. The problem lies within the core of the system: the thresholds are set by the government, which have understandably a strong incentive to promote economic growth. Lobbyism of the big polluters further increases the amount of initially allocated permits on the market.

To summarize: the ETS has failed. One ton of CO2 costs just above 4,50 Euros on average, which is definitely now strong incentive for firms to cut emissions. By the end of 2013, the surplus permits rose to over 2 billion tons of carbon dioxide.

What is done:

As a response to the failing of the ETS, the British NGO Sandbag developed and realized a plan to change the system from within. The emissions trading takes place according to a free market approach. Therefore, everybody can basically take place in the trading of emissions.

However, in order to be able to trade on the emissions market, one needs to obtain a special license from the exchange place.

Sandbag did exactly this. And now, the organization is collection money in a form of crowd-funding and then buys emission permits at the official marketplace. However, instead of using or trading the permits, Sandbag destroys them. In this way, the organization attempts at reducing the overall amount of permits on the markets and as a result increase the price per permit. That means that everybody can reduce the amount of carbon dioxide released into the atmosphere by a couple of tons with just a few Euros.

Now imagine, what disturbance a Europe-wide action could cause on the emissions trading market!

Many companies have actually benefited from the ETS, as the initial allocation of was wrongly calculated. These “carbon fat-cats” where given too many permits in the first place and could therefore emit millions of tons of carbon dioxide for free. Now it’s time to challenge the system with its own weapons.

Further links:

Picture with courtesy of Aniroudh Koul