Fiddling the Books While Rome Burns

25 September 2008 (Last Updated September 25th, 2008 18:30)

Carbon trading has to move from the balance sheet to the station before any real benefits can be realised. By Mitch Beedie.

Fiddling the Books While Rome Burns

Renewables trading enthusiasts make a simple but persuasive argument. Trading renewable energy certificates (RECs) allows companies and countries to comply most cheaply with renewables targets. 'Green' certificates give a single price for energy savings, and enlarge the territories for project developers to find the best locations for their projects. So, these automatically choose the most profitable locations first, which ensures lowest costs for maximum returns.

Supposedly. But RECs only work if everyone keeps to the rules, and the various schemes seem widely abused, with few real checks. So far, most of the 'savings' have turned out to be just tricks of accountancy so that energy waste in the developed world can continue unchecked.

"Renewables trading enthusiasts make a simple but persuasive argument."

The first round of the EU Carbon Trading scheme, for example, has been a fiasco. Power companies were allowed to inflate future estimates of pollution levels to give themselves higher credits. And then there is the fact that too many credits were given out anyway, so polluters could buy the oversupply at ludicrously low prices – €1 rather than the €30+ that would more honestly reflect the environmental damage.

The major gainers have been the power companies that are actually Europe's biggest polluters, with more subsidies going to coal plants than sustainable fuels. UK Regulator Ofgem reports that customers are even being charged for the free allocations that companies have received.

Proponents describe these as temporary blips to be solved by the market mechanism but the problems are more fundamental than that.

A free ride

For a start, many projects – by definition the most 'profitable' ones – would be profitable without RECs and so would have gone ahead anyway. That seems to include hundreds of hydroelectric plants in China and elsewhere, which have only applied for funding after construction had already started.

There is a huge market (estimated at about 30% of all carbon credits) in cleaning up HFC-23 in China and India. This gas has nearly 12,000 times the greenhouse gas effect of CO2, and is a by-product of manufacture of the HCFC-22 refrigerant. However, the HCFC-22 production is itself being subsidised by the carbon credits for cleaning up HFC-23. Those have been estimated at 50 times the actual capture costs, with the extra hundreds of millions of dollars just going to company profits.

"RECs only work if everyone keeps to the rules, and the various schemes seem widely abused."

Even projects that aren't actually fraudulent can be a wildly inefficient use of resources. The price of electricity is often several times higher than similar unsubsidised projects, just giving the project companies a subsidy that – again – does nothing to halt climate change.

The real savings

Renewables trading has only taken attention away from the real solution to energy waste and has actually helped destroy energy efficiency efforts in the west. In the UK, for example, it has shifted government focus away from the successful Energy Efficiency Office Best Practice programme. Instead, what was needed was a massive programme expansion. Renewables trading ignores the basic lesson of energy saving – that it is a profitable exercise.

We don't have time for huge bureaucratic paper pushing exercises that, five years on, end with a footnote that they didn't work. Energy use has to be reduced in the west as well as in the developing world. More so, since we are the ones wasting the most. The actual aim of carbon trading was to allow rich countries to continue polluting, and RECs are now simply certificates to pollute. It is just fiddling the figures while Rome burns.