How much longer can we tolerate market-based climate change policies that clearly aren’t working? This is the central challenge in a new report from the New York-based Trade Unions for Energy Democracy , which puts carbon market under its intense spotlight. The World Bank may have been “happily surprised” at the leading role gifted for carbon markets in the Paris Agreement to tackle climate change last December. But TUED shows that the great bulk of the world’s 36 billion tonnes of annual carbon emissions are still unpriced and emitted free to air. An equally large problem is the ‘universally low price of carbon even in areas where a price exists.’

UN’s over-reliance on trading carbon emission allowances to encourage countries and companies to limit their carbon dioxide is clearly a high risk strategy. With global emissions up 61% since 1990, TUED argues that there is nothing to be gained from supporting policies that will not deliver the investment in low carbon, skilled jobs for a sustainable future.

Under carbon cap and trade systems, such as Europe’s emissions trading scheme, carbon emissions from heavy industry and coal and gas power stations are supposedly “priced” so high that market forces drive investment and production into low or carbon free alternatives, like renewable energy.

But in reality, as the TUED paper shows, around 88% of global carbon emissions are unpriced, while in the limited markets now operating the average CO2 price at no more than $10 a tonne. The biggest of these by far is the EU where the CO2 price in 2016 dropped to six euros a tonne, hardly more than the price of a cup of coffee.

Yet the World Bank also acknowledges that ‘a global average carbon price of $80 to $120 a tonne of CO2 would be consistent with limiting global warming to below 2 degrees centigrade.’ How much higher the CO2 price needs to rise to reach the UN’s objective of ‘well below 2 degrees or even 1.5 degrees’ in the Paris Agreement has still to be calculated.

Unions in the UK and more widely across Europe have, with reservations, supported a high carbon price within the EU emissions trading scheme. But, as TUED shows, the European system has failed to deliver a high and sustained CO2 price. Investment in low carbon energy and production is suboptimal. Worse, jobs and investment is spilling over to non-EU competitors with weak or no carbon controls.

So-called “carbon leakage” is the Achilles heel of carbon pricing. It’s leading to massive job losses within the UK and EU as products such as steel, cement, chemicals and ceramics are lost to EU and non-EU competitors. Such huge losses unfortunately sustain somewhat hollow claims that this policy is driving down Europe’s carbon emissions, when arguably it is driving them out, to overseas polluters.

The situation is exacerbated in the UK, where the government introduced without consultation a  national, standalone carbon price “floor” in 2011, now set at £18 a tonne including the EU carbon market price. UK industry complains bitterly of an “uneven playing field” within EU markets.

A new study by FoE sees carbon leakage as a factor behind the UK steel crisis, with China’s steel dumped on world markets because there’s no carbon price in China. Some 40,000 UK steel jobs are at risk directly and in the supply chain. The Celsa steel works in South Wales could be a model for the industry’s future, with massive investment using recycled steel and electric energy rather than coal or gas in blast furnaces.

TUED’s testing analysis urges unions and others to explore radical alternatives – ranging from Just Transition strategies involving massive public-led investments in low carbon technologies, jobs and skills, to ‘a completely different set of policies and approaches anchored in an extension of social ownership and democratic decision making’ over energy and economic policy.

TUED makes a timely call to for fresh thinking on energy and industry policy. Much of TUED’s case for bolder government-led interventions to manage the energy transition in ways that are ‘democratic, equitable and ultimately effective’ resonates with community energy campaigns such as ours.

Philip Pearson, Chair, HE.





Carbon pricing – a bridge to nowhere?