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In CO2 We (Didnt) Trust

Politics / Climate Change Apr 18, 2013 - 06:04 PM GMT

By: Andrew_McKillop


Recent articles by myself have said the obvious - the view of any sane unbiased person - that the European Union's "faith in carbon" was as slippery, unsure and worthless as its "commitment' to the convertible go-anywhere euro. It is now not convertible if you are Cypriot or have a Cypriot bank account, in which case any amount above 100 000 euro in that account will be punitively taxed and any amount exceeding a few thousand euros (the amounts change, by decree, quite often) cannot be legally taken outside the country.

The main difference between "carbon money" and the euro is that "monetized carbon" was worthless to start with.

Enshrined by the December 2008 European parliament's vote for the "climate-energy package", and its transposition into the laws and regulations of all 27 member states from June 2009, the key policy role of "dangerously pollutive" CO2 sought to reinforce the "progressive monetization" of carbon.

This built on the existing and mandatory ETS (emissions permits trading scheme), which started in 2005. The ETS has been one of the most fragile, opaque, manipulated, and corrupt markets that has ever existed, at any time, anywhere. It is now for all intents and purposes finished.

Overpriced assets exert a "certain fascination" not only for traders and hedge fund managers. The cozy elite network of unelected technocrats, major financial and corporate interests, and easily corrupted and replacable politicians which operates or "manages" Europe also likes overpriced assets, because their manipulation delivers large easy pickings. The European Union’s 54 billion-euro ($71 billion) cap-and-trade system, the ETS, was created with this of course unavowed goal, but is now clinically dead or close to that state. One basic reason is this worthless hot-air "asset" was vastly overpriced, from the start. It is now well on its way towards the "intrinsic value" of any paper asset - which is zero.

At an 18th April overnight meeting, the 27 EU governments reached no breakthrough at a meeting in Brussels aimed at finding a way to save the EU emissions law, following the rejection by the Parliament of the "backloading fix", in a vote on April 16, triggering the biggest-ever single day drop in permit prices, of close to 45%. The "backloading fix" had been championed by the European Commission's Climate Commissioner, the former Danish TV talkshow hostess, Connie Hedegaard.

The "save the system" strategy, known as backloading, would delay the issuance of some classes and  types of new CO2 emission permits monetized and traded under the ETS which affects about 12 000 power plants, cement factories and other "designated emitters" in Europe (and Australia). Difficult to believe - to any sane unbiased person - Commission technocrats and their experts "did not know" that Europe's CO2 (and other so-called climate changing gases) emissions were declining because of economic recession, de-industrialization, delocalization - and because of the growth of alternate energy supply - one of the supposed "main objectives" of monetizing carbon.

They were "unaware" that Eurozone economic meltdown had slashed the need for emission permits as power demand falls alongside the demand for other products of the "designated emitters". Knowing that each permit had some money value, and the totally opaque group of banks, brokers and traders that are authorized to handle permit trading can always be counted on to generously help needy (that is greedy) technocrats, the supply pump of permit issuance was kept at full bore. The result was a glut of permits chasing too few emissions. Prices had already collapsed, falling from their 2006 peak of around 31 euros per tonne of CO2 equivalent, to around 4 euros in early 2013, for a fall of more than 85%. Present prices are around 2.5 euros.

Hedegaard, playing the "ecological" card to its frayed limits claimed that low permit prices erode the incentive for polluters to invest in "climate protection" technology, the bill for which was always dumped on final consumers, with an additional margin for each intermediary in the "value chain".

Opposition to the European "carbon fixation", as well as the tawdry attempts to create a "backloading fix" for carbon permits, has risen across Europe. Opponents include national governments, such as Poland, as well as NGOs, and political blocs headed by the largest-single group in the European parliament, the European People's Party (EPP), the European political bloc of the centre-right. Attempts at dirtying the image of opponents as "anti European" have completely failed.

The government of mainly coal-fired generator Poland, Europe’s third-biggest carbon emitter, and major corporations which have had their operations severely penalized by the elite obsession with "carbon effluents" and their supposed or imagined effects on climate, such as Germany's BASF, the world’s largest chemicals maker have clearly and repeatedly stated that permits artificially hike energy prices, and the actual prices of the permits are heavily manipulated. Former TV hostess Hedegaard can of course chime that "You can be serious about global warming and (also) have a healthy economy", but she is not forced to pay the same permit two times, or be almost systematically shortchanged when offering surplus permits for sale - at a huge forced discount to the price that the financial intermediaries obtain from the buyers that they supply "recycled" permits to. Permit fraud was rampant.

Hedegaard herself in a March 27 interview said: “I would have told you half a year ago (that) backloading is a no-brainer, everybody will understand that you can’t continue to overflood a market that is already overflooded. Now this has become extremely political.”

Hedegaard and the declining band of elite Climate Crazies, like Britain's Richard Branson and his "Carbon War Room", creakily predicting oil at $200 a barrel at the turn of his prayer wheel, are of course obsessed with image, not substance. The patter or spiel from the Climate Crazies, given supposed scientific sheen by the laughably manipulated and distorted reportsd of the IPCC, assumes that everybody is perfectly brainwashed about the existence of "carbon effluent" and "global warming crisis". Scientists such as Freeman Dyson and Ivar Giaever do not agree - but of course they are "only scientists", of untouchable world renown, so what would they know about climate crisis comparred with a TV journalist or CD salesperson?

Under any hypothesis today, Europe's carbon market is in deep trouble. The price of its emission permits can go a lot further south than the price of gold, because "climate paper" is intrinsically worthless, like the rhetoric cobbled together to support it.

The European Commission has an emergency plan, according to Hedegaard, for "saving the permit system", but this again would need a yes vote by the European Parliament. Saving the permit system would need maor changes to existing provisions of the ETS emissions-trading law, and would almost certainly be so complex that the simplest alternative - a new and additional flat tax on  energy - would be the default solution.

The European Commission’s now abandoned "backloading fix" would have delayed the sale of 0.9 bn tons-worth of permits and spread their sales over the next three years, and then "backload" or add 0.9 bn tons of permits to sales made in years 2019 and 2020. By then, supposedly, economic recovery would make it possible to backload this quantity of additional permits, with utterly destroying the price. What has happened is that in a rare example of democratic decision making,the Parliament has thrown out the "fudge and fumble" that was cobbled together in an attempt to keep gravy train going,

From now on EU member state governments will be prompted to start implementing their own climate measures, marginalizing the common emissions market. In turn this will send a no-signal to similar initiatives and proposals - notably by Barack Obama in his overtly political attempts at "reviving carbon consciousness" in the US.

Even the promoters of "climate boom" for traders, brokers and bankers from "climate doom" for the masses, like Hedegaard's political allies inside the Commission and Parliament had only hoped for a price "bounce" to around 8 euros per tonne - if their plan had been accepted - but time is now up for this tawdry attempt at twinning pompous elite notions of "carbon effluent" with the frenzied greed of the casino 24/7 trading circus to supposedly deliver "climate stability". A bad joke from the start.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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