UBS Bank Report: European Carbon Trading Scheme Has Cost 210 Billion Euros for "Almost No Impact"


Kyoto Protocol RIP?

I have been trying to get hold of a (free) copy of a new report by the Swiss bank UBS which various media outlets have cited as damning the European carbon Emissions Trading Scheme (ETS). No luck so far, but what has been reported is pretty grim. From an op/ed by indefatigable and indispensable climate change skeptic Benny Peiser: 

European consumers are facing up to the reality that their political leaders have already squandered more than 200-billion euros ($277-billion) on completely inane and ineffective climate policies. A new report by Swiss bank UBS reveals that the EU's emissions-trading scheme has cost European consumers 210-billion euros for "almost zero impact" on cutting CO2 emissions. It warns that the EU's carbon market, which has collapsed in recent days, is on the verge of annihilation once the Kyoto Protocol runs out next year.

From a news artlcie in The Australian

In a damning report to clients, UBS Investment Research said that had the €210bn the European ETS had cost consumers been used in a targeted approach to replace the EU's dirtiest power plants, emissions could have been reduced by 43 per cent "instead of almost zero impact on the back of emissions trading".

Describing the EU's ETS as having "limited benefits and embarrassing consequences", the report said there was fading political support for the scheme, the price was too low to have any significant environmental impact and it had provided windfall profits to market participants, paid for by electricity customers.

Actually, according to an April, 2011 study (blogged at Hit & Run) by the German Economic Research Institute the ETS has had the unintended consequence of encouraging investments in fossil fuel electricity generation. It bears quoting again: 

Despite political activities to foster a low-carbon energy transition, Germany currently sees a considerable number of new coal power plants being added to its power mix. There are several possible drivers for this "dash for coal", but it is widely accepted that windfall profits gained through free allocation of ETS certificates play an important role….

We find that technology specific new entrant provisions have substantially increased incentives to invest in hard coal plants compared to natural gas at the time of the ETS onset. Expected windfall profits compensated more than half the total capital costs of a hard coal plant….

While German policy-makers intended not to hamper investments in the power sector by carbon regulation, they designed an allocation scheme which in the end created perverse incentives and massively promoted investments into emission-intensive hard coal plants. Obviously, policy makers failed to take the effects of free allocation-related windfall profits on coal profitability into account. We have thus shown that the details of implementing carbon regulation can be extremely important in a dynamic perspective. Different allocation regimes may not just have distributive effects, but also important consequences for investment choices.

Although the analysis has a retrospective focus, our findings are relevant in support for current policy-making. We conclude that by introducing full auctioning of emission permits from 2013 on [National Allocation Plan III] (NAP III) Germany is providing the right incentives from an environmental perspective. However, the new coal capacity brought on the way has created a heavy burden for ambitious future transition to lower carbon intensity.

Not only have billions been wasted; governments have figured out how to waste billions in such a way as to encourage investment in the very power generation technology that is supposed to be phased out by the subsidies. Just brilliant!

And if the U.N. climate change conference that just kicked off earlier this week in Durban, South Africa can't find some way to put the Kyoto Protocol on life support, there won't be any need for the Germans (or anyone else) to bother with auctioning carbon credits since they will be worthless.