Isra-Mart srl: Carbon tax: Emissions trading - the reality.

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Some concepts work much better in theory than in practice. One of the problems with emissions trading schemes is policing the non-delivery of an invisible product to no one especially when this takes place overseas.

The theory of emissions trading schemes is that carbon credits are gained for recognised emission abatement activities which can then be bought and sold on an open market. The problem is knowing whether abatement has in fact taken place. For some carbon traders, there’s a temptation to scam the system especially in jurisdictions without a strong and scrupulous administrative tradition.

Under a UN programme in China, large quantities of the gas HFC-23 (a much more powerful greenhouse gas than CO2) have been created just to receive carbon credits for destroying it. These were then sold for hundreds of millions of dollars. The green groups that uncovered the scam called it “the biggest environmental scandal in history” that made “an absolute mockery of international efforts to combat climate change”.

Under the UN’s “Clean Development Mechanism”, coal-fired power in the third world can generate carbon credits provided it’s from a newer and more efficient power station. Australian coal that would attract a $23 a tonne tax if burned here could attract millions in clean energy incentives if burned in India or China. Indian environmental groups have characterised this as “perverse policy” that Australia had a “moral obligation” to oppose.

An example of direct fraud emerged last year in Spain. Some solar generators were claiming feed-in tariff incentives for alleged solar power generation occurring at night. The crooked firms were simply hooking up diesel generators to the grid and claiming it as solar power because the solar feed-in incentives were so generous.

Late last year, European police raided several hundred offices throughout the continent and arrested more than 100 people over suspected fraudulent transactions on the Italian Power Exchange. Afterwards, carbon trading volumes in Europe dropped by 90 per cent.

In January, trading was suspended in the EU emissions spot market for several days after computer hackers stole 28 to 30 million euros worth of emissions allowances from the national registries of several European countries. The Wall Street Journal subsequently concluded that the EU emissions trading system was not a functional scheme at all but a “political smokescreen” to enable European politicians to claim green credentials while avoiding the difficult decisions on reducing emissions.

In 2020, under the government’s own forecasts, about $3.5 billion worth of carbon credits will have to be purchased from foreign carbon traders if our emissions reduction targets are to be met. As these scams show, emissions reduction can easily turn out to be a real life version of the emperor’s new clothes. Under the Coalition’s direct action plan, emissions abatement will have to take place in Australia and be linked to tangible activities that can be monitored.