THE HOPE of the bureaucrats who devised a European carbon permit trading system to tackle global warming was that polluting firms would have to pay for their anti-social actions, so letting 'market forces' encourage green behaviour. However, due to the crazy market system, it is now clear that the worst environmental culprits, far from being made to pay up, are actually being paid by us to continue polluting.

Pete Dickenson

The permit trading system operates by issuing companies with a quota of permits to emit carbon dioxide, the gas that is mainly causing global warming. If firms need to emit more they must buy permits from other companies, so encouraging them in theory to invest in renewable energy.

According to Paul Newman of the brokerage Inchcape, the price of the permits must be between €35-€45 to have any chance of success but it has never reached this level. In fact, governments issued so many permits for the first three years of the scheme they were virtually free, so undermining the whole claimed logic of the system.

To try to rectify this, the permit system was revamped in 2008 to push the price up, which resulted in it rising to €30 last summer, but this proved to be only temporary and it quickly collapsed to €11. This fall partly caused the nosedive in investment in green technology that coincided with the economic crisis that began last autumn.

The reason for the current low price is perverse but entirely 'rational' from a capitalist point of view. The price of permits fell because a large number of them came onto the market late last year, so forcing down the cost. This was a direct result of the fall in production due to the economic crisis. It meant greenhouse gas emissions by the main polluting industries also fell, allowing firms to sell unwanted permits (see the Global Warning column in Socialism Today, December/January 2008/09 for more background).

The fall in the price of oil, due to the economic crisis, reduced the market incentive for firms to make green investments, but perversely the price of carbon permits fell at the same time, reinforcing this effect, at a time when, according to market logic, the price needed to go up to encourage green behaviour.

The main industries that appear to be selling permits are cement and steel who are some of the biggest polluters and where output is expected to drop by 20% and 15% respectively this year.

Highly profitable

A study commissioned by the WWF environmental pressure group, found that British companies such as these could make €15 billion from selling unwanted permits, a figure that was calculated before the current downturn and so will be far higher now.

The scandal is that most firms cashing in on this did not pay for the permits in the first place, they got them for free, or virtually for free, due to government policy.

The money they will get is therefore largely clear profit, a reward for continuing to emit huge quantities of greenhouse gases, making a complete mockery of the 'make the polluter pay' market mantra.

To make matters worse, the power-generating companies are buying these unwanted permits and passing on the cost to us, their customers according to The Guardian (28 January).

It is not due to mistakes or teething problems that the permit trading system has been a fiasco.

Its failure is rooted in the structure of capitalism: a system where it is impossible to reconcile the needs of the corporations to maximise their profits and therefore to minimise what they pay for carbon permits, and the imperative to take decisive measures to stop global warming.

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