The meeting in Katowice is only the first of many dedicated to climate change, where the world is finally sobering up to the fact that ambitions to affect the climate must fit reality, be fair and be shared.
Paris agreements remain an unattainable goal if judged on data gathered and trends in carbon emissions dynamics in recent years. The U.S., which did not ratify the Paris climate agreement, continues to reduce its emissions. The EU has also managed to reduce its carbon footprint, but efforts on both sides of the Atlantic seem to be too little to affect global parameters of carbon pollution. Ultimately, the EU and the U.S. make up 35% of global emissions, with their share falling. Their ability to lead and shape the global agenda, however, wanes. So does their willingness and capacity to fund environmentally-friendly restrictions in emerging markets. This extensive, heavily subsidized model of fighting climate change via restrictions on growth, has reached the stage of self-denial.
For years the science of climate change has been moving between extremes – denial and praise. Gradually, science started tracking the curves and logic of political and business expediency, as behind the high carbon reduction targets, there were specific business interests and geopolitics involved. Over time, climate research funding favored almost exclusively work supporting the main thesis – that the climate is changing and human intervention is the culprit.
The governments leading the process developed two parallel ‘carrot and stick’ scenarios – one escalating restrictions and banning all fossil fuels, hiking the price of emission allowances and the “cap and trade” scheme, thus clearing the market from competitors to renewables, and second – the forced and heavily subsidized development of an innovative climate protection industry, related to achieving goals – solar panels, wind generators, storage batteries and energy saving technologies, which constituted an alternative growth track – at least in theory.
Recent data on the magnitude and nature of climate change are both worrying and contradictory, as higher levels of greenhouse gases do not have a linear causal relationship to what we see as proof of climate change, such as polar ice caps. A NASA study published at the end of October refutes data on the reduction of the Antarctic ice sheet, not only considering the snapshot of the ongoing processes, but also in retrospect. At the same time, analytical papers and research, mostly funded by EU member states, are sounding alarm bells on climate change.
The graph below shows unequivocally that the volume of carbon emissions is on the rise every year, which is undisputed proof of the failure of the “stress and agree” decarbonization policies.
At the COP24 meeting in Poland, the report prepared by the International Panel on Climate Change (IPCC), which has so far been routinely accepted as the debate baseline at annual meetings, was overturned following objections from the U.S., Saudi Arabia and Russia. This has interrupted a long tradition where recommendations and conclusions in the IPCC report served as undeniable justification for accepting the global warming mantra – the new alarm forecast of a 3 degrees Celsius increase, rather than the current 1.5 degrees increase – as well as that delegates usually agreed on ‘voluntary’ emission reductions with a more ambitious 45% cut by 2030. This ritual was followed by unswerving commitments by members states for higher government spending on climate change policies and new even more proficient subsidies for RES. This time, however, the flawless mechanism experienced a hiccup.
Despite what happened in Katowice and especially in Paris after the revolt of the “yellow vests,” things remain extremely worrying from the perspective of die-hard supporters of the current model of fighting climate change. “If France puts carbon tax brakes, it stops the energy transition, which sends a bad signal,” says Pierre Canet of the World Wildlife Fund (WWF).
Pessimism is contagious as the European Union fails to call the shots in the agenda on climate change for the rest of the world. This concerns both the short-cut to banning fossil fuels, including the most polluting of them, coal, and the failure to use market mechanisms to secure a soft transition to a low-carbon economy in economically sound and socially acceptable pattern. Emissions trading exchanges have suffered a fiasco, lacking global span and integrated global pollution control.
The emissions trading schemes do not actually act as a global trading platform for the implementation of the Paris Agreement.
The Chicago climate exchange closed eight years ago due to lack of interest, which closed the chapter on emission allowances trading in the U.S. at the federal level, with a mini-version of it happening at the state level. The Chinese Emission Trading Exchange, which opened at the beginning of the year, was expected with great interest given that China is the largest greenhouse gas polluter. Commitments under the Paris agreements that the country undertook covered an emissions reduction by 2030 of 60-68 percent per unit of gross domestic product. The figure looks impressive, but not judged against the background of the Chinese GDP forecast of 7-8 percent growth a year. The benchmark – Guangdong Stock Exchange – started with limited liquidity, but trade gained momentum, with the price per ton of carbon dioxide emissions rising steadily from 1 to 13 dollars/ton from January to October this year, with an expected annual turnover of about $2 billion for 2018. Neither the volumes of traded allowances nor the direction of Chinese energy development, however, confirm definitive, irrevocable and, above all, proportionate commitment on the part of the Chinese government.
The European Emissions Trading Scheme (EEX) is the last chance for climatists, the only relevant benchmark for assessing the dynamics and prospects of the global emission allowance market. It has reached nearly 40 billion euros in annual turnover, which at first glance, creates the feeling that the target has been reached – at least in terms of liquidity and market interactivity. But the price per ton during the last year jumped from 8 to 25 euros/ton, which has sent shock waves and has dramatically undermined trust in the exchange as a predictable platform for the transition beyond coal. Instead of a smooth and gradual transition, with a phased increase in the financial burden of emission allowances, coal-fired power stations abruptly faced immediate and early bankruptcies, which called into question basic assumptions on the relevance of European energy security and climate change policies.
The biggest problem is that the emission allowances trading felt the disruptive impact of mass entry of speculative capital, including by large investment banks, who foresaw a convenient opportunity to earn profits at the expense of consumers and taxpayers. Nobody can blame speculators for seeking secure and the highest returns. Their logic is iron-clad – the fight against climate change is pursued primarily at government level, which results in government induced price hikes via emission allowances trading, and this implies almost risk-free gains both on ongoing transactions and in futures.
Looking at the above graph, it becomes crystal clear that the Paris accords not only do not generate self-regulated synergies and shared commitments, but on the contrary, there is a yawning gap between the leading polluting countries, on one part, and the EU and the U.S. on the other. While both sides of the Atlantic have successfully reduced their carbon footprint, the largest polluter, China, has steadied pollution levels of around 10 gigatons annually, which roughly equates the total amount of emissions produced by the US and the EU combined. In addition, India and the rest of the world (ROW) continue to emit each year higher levels, without any idea of emission containment or compliance with the targets set out in the Paris Agreement.
Coal-fired power plants continue unabated activity, while new thermal coal sourced power plants with more than 1000 GW capacity are entering the energy market in Asia. The average age of the TPPs in Asia is 11 years, while in the U.S. and the EU it is 42 years.
Current approaches to combating climate change have lost their appeal and efficiency.
Firstly, there is a clear absence of pragmatic and balanced cost-benefit policy analyses that would address climate change via sensible, coherent and sustainable policies. The lack of a sound and proven business and market logic makes these policies ever more dependent on government subsidies and support. Protests in France are a living proof of the limits in tolerance and acceptance of climate change as an all-purpose excuse for greater government spending, especially in countries with higher taxes and eroding welfare standards.
Secondly, the EU’s efforts to direct and drive the climate change process on a global scale go well beyond its resource base. Without doubt, China’s dualistic approach is not helping either. On one hand, Beijing advocates containment of its economic carbon footprint at current values, and on the other hand, it has no intention of sacrificing economic growth for climate change restrictions. China’s coal-based power generation demonstrates no sign of slowing down, even less of reversal. So far, China has been seen as supportive of the general outfit of the global climate change debate, but solely in the context of the emerging opportunities for it to become the global manufacturing hub of the renewable industry – solar panels, wind turbines, batteries etc. Beijing has recently carefully balanced the pro and cons of climate change compliance with the immediate prospect of plant closure. China has since sharply reduced its enthusiasm for climate change..
Third, the leading motive of India and the rest of the world (ROW), and the main developing countries in Asia, Africa and Latin America, was that climate change matters would be funded by the rich countries. The generous promises of hundreds of billions of dollars in grants and investments that developed countries gave in the first years of the climate change surge vanished after the first serious challenges and contact with reality.
France and Germany have failed to win the hearts and minds of their own peoples on the need for limitless donations to Third World countries, or to finance a substantial chunk of the cost of transition to a carbon-free world. The EU has been even less successful with establishing a working and, above all, socially balanced model of a strategy combatting climate change. Rich countries like the Netherlands and Denmark enjoy sufficient resources to afford high-end, high-cost transition, but when the times come for delivery of billions of dollars to Third World countries, the wish menu is drastically cut.
The United States under President Trump refused to follow the routine and finance climate change programs and the global transition to a low-carbon economy in developing countries, focusing instead on meeting national carbon reduction targets and bilateral assistance formats in which the donor can control the end effect and secure benefits to his home country’s business.
In conclusion, the EU needs to rethink its climate change policies, as they have reached a breaking point as enforcement of current plans and adoption of more ambitious targets that ultimately would only cover EU territory and punish European industries – affecting producers, consumers and taxpayers – contradicts common sense and easily translates into a self-inflicted wound. The social costs of these policies is skyrocketing and public acceptance is dwindling, as the EU climate policy pattern fails to accommodate diverging interests, while damaging the competitiveness of the European economy, which in turn funds the protection of the environment.
A part of the EU climate policies is hypocritical, as the exports of waste from the EU is on the rise. Most of this transfer of pollution to developing countries, mainly in Africa, seems meaningless on a global scale. Such tricks hollow out the pretense of Europe to lead the global fight against climate change.
President Macron, who tried to set the pace and lead Europe and the world into the future of a low-carbon economy, has finally got the message in the form of the protests of the “yellow vests.” It is a matter of time, as if lessons are not learned, analogous protests will spill over across the EU. Equally certain is that these new vulnerabilities will be exploited by the enemies of the union, which use the climate change extremes to undermine the trust in the global drive for a cleaner environment.
Once again the market won over ideology.