![Sample our Politics & International Relations journals, sign in here to start your FREE access for 14 days]({"type":"image" , "src" : "/sda/5947/TOC-Subject-Sample-2021-Politics-International-Relations.jpg"})
ABSTRACT
This is part 2 of a paper that revisits the European Union’s Emissions Trading System (EU ETS) in an attempt to take stock of how the system has worked and evaluate it from the standpoint of radical political economy. In part 1 of the paper the basic design, the workings and the outcomes of the scheme were discussed with critical perceptiveness. In particular, the paper revealed the unsatisfactory results of the scheme (even in its own proclaimed aims), including allowances surplus, allowance trades for pure financial profit, low and volatile prices of allowances, windfall profits, extensive use of Kyoto project-based credits, and several malfunctions and instances of fraud. These findings set the ground for part 2 of the paper, which offers a critical assessment of ETS, proclaimed by mainstream analyses as the major vehicle for the transition to a low-carbon economy. In particular, the complications and instabilities created by the increasing financialization of the carbon market are exposed. Moreover, the ineffectiveness of the ETS as a catalyst for investments in clean energy technologies, especially in times of economic crisis, is substantiated. Since the deep embeddedness of the scheme in capitalism risks climate sustainability, the analysis concludes that a more radical transformation of society with an eco-socialist orientation is needed.
Disclosure Statement
No potential conflict of interest was reported by the authors.
Notes
1 See Vlachou (Citation2014) for a discussion of the class-biased process towards establishing EU ETS and for aspects of the scheme’s conduciveness to capitalism.
2 According to Labban (Citation2010, 546),
financial and stock markets have historically provided capitalists with the flexibility and liquidity that enabled them to place and move their (money) capital in search for higher profits without committing to any particular productive activity, and without having to participate in that activity.
3
“But property rights come into many forms. Titles of any sort can in principle be traded. Government can sell rights to a portion of future tax revenues. Property rights to commodities can be traded without the commodities actually changing hands or, as in commodity futures markets, prior to actual commodity production. Rights to land, buildings, natural resources (oil drilling, mineral exploration rights, etc.) can also be traded. There are, it seems, as many different markets for fictitious capital as there are forms of property ownership under capitalism.” (Harvey Citation1999, 276)
4 In this argument Bryan, Martin, and Rafferty (Citation2009) do not seem to differentiate between risk and uncertainty—to be discussed later.
5 Market maker is “a trader who is willing to quote both bid and offer for an asset” (Hull Citation2012, 809).
6 Aldred (Citation2012, 1052–1053) distinguishes risk from uncertainty in the following way: “when probabilities can be attached to all possible outcomes, the decision takes place under risk. Otherwise there is Keynesian/Knightian uncertainty. In what follows, uncertainty refers to the absence of probabilistic information in this sense.”
7 Tickell (Citation2000, 89) observes that “despite the increasing sophistication of risk management, there continue to be inaccuracies in the measurement of risks inherent in specific instruments … and changes in value that may not be easy to predict.”
8 Vincent de Rivaz, the chief executive of the EDF Energy in UK, alerted, for instance, that selling operations of the ETS observed in 2008–2009 needed to be reviewed by the EC before carbon was turned into a “sub-prime tool” by unscrupulous companies, instead of doing the task it was set up for: “to encourage real investment in real low-carbon technology.” See Macalister (Citation2009).
9 In July 2010 the International Exchange (ICE) bought the ECX. ICE operates an electronic platform which trades commodities and commodity derivatives, including electricity and emissions allowances, on a global scale (Kachi and Freck Citation2013, 6).
10 Several critics have pointed out that this political determination opens the door for “regulatory capture” as it makes “the EU carbon market particularly prone to lobbying influence.” Lobbying influence can be exerted
through direct lobbying by Brussels-based associations, or by lobbying national governments to act on behalf of certain industries in EU processes. Such lobbying effects not simply the rules governing how the market operates, but the supply of permits and credits. (Reyes Citation2011, 5)
11 See “Ensuring the Integrity of the European Carbon Market.” http://ec.europa.eu/clima/policies/ets/oversight/index_en.htm (accessed 21 March 2016); European Commission (Citation2014a).
12 For instance, IETA expressed its opposition to the classification of EUAs as financial instruments and to the inclusion of spot trades under MiFID in terms of the negative cost implications for compliance buyers: “[E]liminating the option for trading on own account in the secondary [spot] market, would raise compliance costs, especially for larger emitters. This is not reasonable, unless specific exemptions are provided.” Moreover, with respect to the holding of large positions by larger emitters, IETA argues that “the reasons for holding large positions in the carbon market are mainly to hedging needs rather than for speculative purposes. They mitigate and do not leverage the risk profile of the company” (IETA Citation2011, 4). Apparently, these arguments run against setting position limits. However, the fact that increased transactions were observed for speculative reasons rather than for compliance purposes was noticed even by the World Bank, as mentioned above.
13 For the side of environmental and social movements, see, for instance, the interventions of Oscar Reyes associated with the Carbon Trade Watch organization and that of Lohmann associated with the Corner House Organization. See also Bond and Dorsey (Citation2010).
14
“According to CDC CLIMAT Research (Citation2013), compared to a ‘business-as-usual’ scenario, around 1.2 billion tCO2 of emissions were avoided between 2005 and 2011: around 30% of the reduction was the result of a fall in manufacturing output, while approximately 60% of the reduction was caused by the development of renewable energy and the improvement in energy intensity. Research suggests that the carbon price (also weakened by the economic crisis, the deployment of renewable energy and the new Energy Efficiency Directive) does not seem to have been the main driver for domestic CO2 emission reductions.” (EDF et al. Citation2015, 15)
15 In their literature review, Hintermann, Peterson, and Rickels (Citation2016, 118) draw from P. Heindl’s work on Germany that impressively “only about 51 percent and 54 percent of German firms covered by the EU ETS were involved in trading in 2009 and 2010, respectively, and almost two-thirds of those that did trade did so only once a year.” When this information is combined with the high traded volumes of allowances, it might shed more light on the real prospect of speculative trade by major traders, with electricity firms being the most likely candidates.
16 It should be mentioned that labor unions had proposed trade restrictions on carbon-intensive imports to answer carbon leakage and job losses concerns. The business side, however, expressed fears with respect to the trade-restrictive action. According to Folker Franz (senior advisor for the European employers’ organization BusinessEurope), such measures could provoke retaliatory measures on the part of competitors. Interestingly, Franz suggested as an alternative that the EU should continue to promote the use of CDM (EurActiv Citation2008).
17 See New Energy Finance, “44% plunge in investment as crisis catches up with clean energy,” Press Release 2 April 2009, available at http://www.energy2025.com/Energy_Investment_Figures-2009.pdf (accessed 5 July 2009).
18 Malm (Citation2016) provides a fresh insight into the roots of the predominantly fossil-fuelled EU capitalist economies and into the difficulty associated with changing it.
19 The following quote from a report on EEPR’s implementation resonates clearly the EC’s anticipations and policy priorities with respect to energy and climate:
[F]ossil fuels will continue to be used in electricity production and even if renewable sources do gain a greater share of the market, the use of coal is not expected to drop in the decades to come. Thanks to its ability to decarbonise power generation, the CCS can make a major contribution … however, this technology is not yet commercially viable and needs to be tested. The EEPR addresses this problem by supporting six large scale CCS demonstration projects that are expected to develop the CCS concept, reduce its investment and operating costs and build a public awareness of this technology. The EEPR represents the first step towards the objective of making CCS-based power generation commercially viable by 2020. (European Commission Citation2010a, 5–6)
20
The IEA World Energy Outlook 2014 estimated the total value of subsidies to renewable energy in the European Union of around USD 70 billion or EUR 52 billion in 2013, which equals to 57% of the global subsidies to renewable energy, with solar PV accounting for over USD 30 billion or EUR 22 billion, followed by wind with over USD 15 or EUR 11 billion. (IEA Citation2014a, 5)
21 For a discussion of New-Keynesianism and Neoliberalism, see Vlachou and Christou (Citation1999).