By Michael Dorsey and Patrick Bond
In the middle of last year, when carbon prices fell 15 percent in one week, industry analysts termed it ‘carnage’. Then in the fortnight before last month’s Durban climate summit, carbon prices fell more than 30 percent, with front-year European Union Allowance permits dropping below €9/tonne. And they have crashed even further since.
During the Durban talks Deutsche Bank confessed: ‘We do not expect the pricing outlook to improve materially in the foreseeable future.’ A leading UBS analyst predicted a €3/tonne price in coming months, because the EU Emissions Trading Scheme ‘isn’t working’ and carbon prices are ‘already too low to have any significant environmental impact.’
PointCarbon, Reuters’ climate trade news service, concluded that, ‘Carbon markets are still on life support after the COP17 put off some big decisions until next year and failed to deliver any hope for a needed boost in carbon permit demand.’
The French bank Societe Generale projects said that, ‘European carbon permits may fall close to zero should regulators fail to set tight enough limits in the market after 2020’ – and without much prospect of that, the bank lowered its 2012 forecasts by 28 percent. A 54 percent crash for December 2012 carbon futures sent the price to a record low, just under €6.4/tonne. Making matters worse, an additional oversupply of 879 million tons was anticipated through 2020, partly as a result of a huge inflow of United Nations offsets: an estimated 1.75 billion tonnes.
Those UN carbon credits include Clean Development Mechanism projects which are notoriously bogus. The UN estimates that 40-70 percent of the projects are fraudulent or ‘non-additional’ — which in lay terms means they do not mitigate climate change. South Africa’s leading pilot in Durban, the Bisasar Road waste-to-energy site, is a case in point. The project is bound up in a corruption controversy surrounding former mayor Obed Mlaba and an official’s false claims to the UN that without foreign funding the project would not have gone ahead.
Many analysts openly admit carbon prices are far too low and may never rise high enough to catalyse the transformative innovations – most costing in excess of €50/tonne (the EU peak was just over €30/tonne five years ago) – necessary in energy, transport, production, agriculture and disposal to achieve a solid post-carbon foothold. By all scientific accounts, by 2020 it is vital to wean the industrialised world economy from dependence upon more than half the currently consumed fossil fuels, so as to avert catastrophic climate change.
Africa hasn’t received this bad news, mainly because even the continent’s finest daily paper, Business Day, doesn’t report the carbon markets with a fraction of the critical vigour given to interrogating African National Congress Youth League grandstanding over the word ‘nationalisation’, for example. Indeed after Durban, Business Day merely (uncritically) cited National Business Initiative CEO Joanne Yawitch’s remark that ‘the most important’ of Durban’s outcomes is securing Kyoto’s ‘second commitment period and the carbon market.’
The lack of awareness of the carbon market’s crash is a travesty because far too often these past two centuries, the continent has been looted by faraway financiers selling snake-oil.
This week at Johannesburg’s ultra-luxurious Sandton Sun Hotel, a conference aims to ‘make Africa a major focus for climate finance into the post-Kyoto era’ with keynote speakers from Morgan Stanley, Standard Bank, Nedbank, Carbon Check, CDM Africa Climate Solutions, SouthSouthNorth, similar emissions traders, the Johannesburg and Cape Town municipalities and SA’s national Department of Energy.
Caveat emptor to carbon buyers, sellers and speculators. Climate gamblers have been led astray since 1997 when the Kyoto Protocol was amended – at US vice president Al Gore’s request – to let corporations buy the right to pollute in exchange for endorsing the treaty. Predictably, Washington has refused to honour this ever since, even though it represents a world-historic broken promise, followed logically by US secretary of state Hillary Clinton’s 2009 pledge to raise $100 billion per year for the Green Climate Fund, also worthless.
Pulling at straws, that Fund’s design co-chair Trevor Manuel – South Africa’s planning minister – has suggested getting half the revenues from carbon markets. It might have been feasible if the emissions trade reached the anticipated $3 trillion mark by 2020. In reality, after a decade, the market seems to have peaked at $140 billion in annual carbon trades.
These trades are mostly in the EU where the Emissions Trading Scheme was meant to generate a cap on emissions and a steady 1.74 percent annual reduction. Unfortunately, the speculative character of carbon markets not only encouraged rampant fraud, Value Added Tax scams, and computer hacking which shut the Scheme for two weeks last year.
The EU’s carbon trading also included perverse incentives to stockpile credits when large corporations as well as Eastern European states – with ‘hot air’ excess emissions capacity subsequent to their 1990s manufacturing collapse – gambled the price would increase.
With the market now collapsing, the current perverse incentive is to flood supply so as to at least achieve some return rather than none at all when eventually the markets are decommissioned, as happened in 2010 to the Chicago climate exchange. Powerful equity backers of the Chicago market – once the lead US carbon exchange – recently sued the high-profile founder, Richard Sandor, for misrepresenting the value of their assets. If they win perhaps other investors can follow suit and squeeze back the vast losses from the investment banks now selling the declining credits.
Africa can and must do better than invest faith and state resources in yet another Ponzi scheme: the ‘privatisation of the air’. The North’s ‘climate debt’ to Africa should be paid not through such gambling, but in genuine income transfers that reach ordinary people who are taking the brunt of worsening climate chaos.
Dorsey and Bond are development and environment professors at Dartmouth College and University of Kwa-Zulu Natal respectively. Last year, Bond authored Politics of Climate Justice (UKZN Press) and edited Durban’s Climate Gamble (Unisa Press).