World cap and trade - and Edinburgh

PM Gilliard's fate on 21st Aug will
be key to emissions legislation

We are going to hear a lot more about cap and trade in the coming weeks and months both worldwide and in Edinburgh.

The Edinburgh version is a new mandatory carbon trading scheme designed to encourage organisations to become more energy efficient.  Whilst the complexities of the scheme are still being finalised by the UK Government, Edinburgh Council is already participating in a pilot carbon trading scheme.

Here is how the scheme is planned to work.  All organisations with an energy bill above the equivalent of around £0.5m pa will  participate (mandatory). Edinburgh Council's current energy spend is around
£12m.  They will then be required to calculate their carbon emissions and produce an annual report. Energy use in buildings, street lighting, schools will be amongst the expenditure included.  Then each organisation will purchase a 'carbon allowance' at a fixed rate (currently set at £12/tonne of carbon.)

The scheme will be self certified but subject to audit by the Scottish Environmental Protection Agency (SEPA).

Carbon allowances will be sold and traded annually. A league table of energy performance will be drawn up and an organisation's comparative position in that table will govern whether they will be subject to fines.

Costs and benefits:  The benefit is anticipated to be a system  which encourages (on pain of significant financial penalty) greater energy efficiency thus leading to a reduction of carbon emissions.

There will be considerable work in setting up the scheme (there is a team already working on this).  It is estimated at least  £1.5m will be required to purchase 'allowances' in 2011. There will be hefty fines in areas of non compliance (eg late reports) and if the Council does not make significant progress in saving energy it may have to purchase (trade) significant allowances.

Energy efficiency is a worthy aim.  However, the system is bureaucratic - creating as it does a whole new regulatory framework.   The potential for cheating is considerable and the accuracy and fairness of the league table of comparisons - upon which some of the penalties depend - will be a challenge!  It is by no means clear that the costs to an organisation will be met by the savings above those which would otherwise have been gained.

Elsewhere in the world cap and trade has had political consequences .

Australia: In June the former Australian prime minister Kevin Rudd was subject of a coup from within his party and he is now succeeded by Julia Gilliard. One of the key issues at stake was how to handle the proposed cap and trade scheme. Implementation has been suspended. The new Prime Minister has called a general election for August 21st and it will be interesting to see how this issue plays out with the Australian public.  Gilliard is an enthusiast for environmental measures and has had a significant lead in the polls (the recent poll showing her behind may or may not be significant).  Before the change of prime minister there had been an equally dramatic change of the leader of the Liberal opposition when climate sceptic Tony Abbott took over.  August 21st will be interesting for the future of cap and trade.

US:  In the US the climate bill seems to be hitting some opposition and with the mid term elections just over three months away it is likely changes will depend on the results of those elections.

Other developed countries:  Japan is one of a number of other countries which have seen emissions trading schemes stall.

Of course, the importance of these decisions depends on how crucial emissions, and in particular Co2, are to the prospect of catastrophic anthropogenic global warming. 

In the coming months this blog will be taking a closer look at scientific issues and their relationship to public policy at a local and international level.