"There Is a Tendency to Be Over Preoccupied with Carbon Finance and Carbon Markets"
14 May, 2007 01:01 pm
The World Bank released its seventh annual carbon market intelligence study on carbon trading for 2007. Dennis Anderson, professor and senior research investigator at the Imperial College of London answers Scitizen's questions.
The main conclusions, as far as I could see, were that there were substantial investment opportunities in the sorts of projects that carbon finance can support. So it was less about carbon markets in and of themselves, and more about the kinds of technologies that can be financed. For example, there were wind energy projects in Colombia. I recall there were similar projects in other countries. In other words, as far as I could see, it was talking about projects on the ground that can be financed. Which I think is the right way of looking at it. There’s a lot of interest in carbon markets, but really the focused interest should be on the sorts of things carbon pricing can finance. In that sense, I thought the report was very useful and a good indicator of investment opportunities.
The EU trading scheme represents a large majority of the carbon trading market. Is the EU trading scheme effective?
It was beginning to be effective, then the carbon price collapsed. It can be effective and very important. The problem with the EU trading scheme are the caps. The amount of carbon permits that can be traded are too lax. They were manipulated politically, and when it was found that there were too many permits the price collapsed. So is it effective at the moment? I would say no. It promised to be effective barely a year ago when the price was reasonably high. It could be effective in the future if they tightened the limits on carbon emissions. In which case the trading price of carbon will go up. Once again, it could be effective in providing financial incentives for low carbon technologies.
The World Bank study states that the carbon traded within the offset schemes could rise by 400 million tons by 2010 by individuals and companies. Does the system need more standardization?
What the system needs is less standardization than, first of all, carbon markets that work well. Also, off set mechanisms like the CDM, Clean Development Mechanism. We need a pipeline of projects on the ground, like the projects emerging in solar energy, wind and bioenergy, and many others, and possibly in energy efficiency. We need those sorts of things to come through.
The great danger is that we will be so preoccupied with carbon markets and prices per se that we could loose sight of the importance of the things that we need to finance, that is, the projects being built that will provide electricity, energy, or saving energy in the case of energy efficiency. There is a tendency to be over preoccupied with carbon finance and carbon markets, and perhaps under preoccupied with the real investments they’re supposed to finance. I would like to see that balance redressed. As far as I can see the World Bank report was headed in that direction, and I though that was very welcome.
Interview by: Christopher Le Coq
Dennis Anderson is professor and a senior research investigator at the Imperial College London in the Center for Environmental Policy.