Variations on a theme

We had a question and answer session with Andrei Marcu, President of International Emissions Trading Association (IETA)

Does the business world fully understand the need for emissions trading? If not, who and where are the laggards?
I believe most of the business world does understand the need for emissions trading. The magic is the simplicity of the system, so most people do understand it. If there are problems or areas where people are behind in terms of understanding, it’s probably within heavy industry in the developing world where there’s still work to be done. It’s still a novel concept for them.

What, briefly, are the financial benefits of emissions trading? Does having a more ‘green’ approach pay off? And which businesses are likely to reap most from emissions trading?
The benefits of emissions trading affect those who can take advantage of the opportunities. A number of organisations have picked up early on it and moved aggressively. GE and BP have understood it, for example. As far as industry sectors go, a number of organisations in the wind and solar areas are very active. Especially in renewable areas. Cogeneration industry players, where heat and electricity are both generated, certainly understand it, as does the geothermal industry.

What are the most controversial flaws of emissions trading – and how are they being tackled? For example, enforcement and monitoring?
There are a number of approaches that attract debate. The cap-in-trade approach, part of the EU Trading Emissions scheme where a “cap” limits emissions from a group of polluters like power stations, might allocate an initial permit. That has given rise to issues of fairness and how permits are allocated in industries covered by cap-in-trade schemes where there are issues of pricing power and competitiveness. For example, where you have incomplete coverage of emissions trading and price of carbon around the world, you then get producers of certain goods that are very energy intensive. It’s really about competitive distortion. There is monitoring, certainly, undertaken by the European Commission. Then there’s offshore producing projects under the Clean Development Mechanism. So people go to Indonesia, for example, and spend money to make a project more efficient, to reduce its emissions. This is where issues of monitoring become important. There will be people who criticise the scheme and system, because they want a perfect system. That’s understandable, even if unrealistic. And then there are those who criticise it and can always find flaws in, in order to undermine its credibility.

Some argue emissions trading do little to solve pollution issues. Groups that don’t pollute can sell their own permits to the highest bidder. In other words, it allows individuals or businesses to buy a clear conscience. What’s your response?

I say that’s categorically quite wrong. There is a cap in place, so there’s only so much you can emit and that cap keeps coming down. The atmosphere really doesn’t really care if it’s you or me that reduces it. It’s the overall cap that has to come down. If you have the chance to reduce it, people will make a decision on a economic, rational basis. That’s what you want! It doesn’t have to hurt. Not every country produces cars or soybeans. Some people do have a competitive advantage, yes, but as long as you have the overall cap on the carbon in the atmosphere, then you don’t have a problem. The key is the overall cap.

What other issues could impact on emissions trading development. In other words, how will emissions trading look in five years’ time?
What you need to understand is that emissions trading doesn’t basically reduce anything - it just puts a price on carbon. What we need to do - and will do – is look at the different architecture of what instruments are available and to whom. What kind of instruments are used. Emissions trading has a number of tools. You may begin to see more advanced developing countries seeing parts of their economy under some kind of constraint in terms of the concept of emissions trading and cap-in-trade. But the simplicity of it remains. There’s not much you can tamper with. So, it’s variations on a theme.

Lastly, what other issues regarding emissions trading are likely to make their presence increasingly felt?
You’re going to see more of a debate about international offsetting. Some believe more effort should be made in developing countries. For instance, spending money in China to modernise power plants could be seen by some as helping create a more efficient Chinese economy that will be even more competitive for jobs.