Examination of Witnesses (Questions 28-48)
MR LARRY
LOHMANN, MR
OSCAR REYES
AND MR
TIM JONES
31 MARCH 2009
Q28 Chairman: Good morning. I think
you have heard the preceding exchanges. We are quite tight for
time, we have got about 30 minutes or so, so we will try and do
as much as we can in that period. I know that two of you are calling
for the Government to withdraw from the international carbon markets.
How practical is that? If we wanted to come out of the EU ETS
for example, what would be the obstacles for doing so?
Mr Reyes: To take the EU ETS as
a starting point, obviously what we have at the moment is the
Directive that went through in December. There are still various
negotiations on-going with that in relation to comitology and
review processes that we can feed into. To actually withdraw,
there would need to be a reassertion of that debate. There are
other ways in which the UK could take leadership, particularly
in terms of not encouraging the further expansion of the carbon
markets in relation to international processes. That would have
the de facto effect of requiring a revision of existing
policy at EU level. At the moment I would say that the focus should
be on the Copenhagen negotiations on the international framework
within which the EU ETS sits, and that will be the means by which
you will stimulate a re-opening of that debate.
Mr Lohmann: I guess I would add
I do not see any obstacles to the UK showing leadership by unilaterally
saying it will not use the linking Directive to accept offset
credits to fulfil its obligations. I do not think there is any
obstacle to doing that immediately. I think that would be a good
start and it would set a pattern of leadership which would have
reverberations worldwide.
Q29 Chairman: What would then replace
the trading scheme?
Mr Lohmann: A few weeks ago Adair
Turner made a statement which amused me. He said something like
few would shed a tear if suddenly the collateralised debt obligation
squared disappeared from the face of the earth. I think we need
to look at the carbon markets in the same light. Do we need a
replacement for collateralised debt obligation squared? No, we
need to get rid of them, and the same could be said of the carbon
market. We need to get rid of the carbon market. In the last session
we have heard people talk about how regulation is indispensable
and how standard-setting for specific projects is indispensable.
What was not stressed so much in the last session perhaps was
the fact that carbon trading interferes with many of these measures.
That was stressed to a certain degree but I think not enough.
I think we need to step back from the question of what would replace
the carbon market and say why is the carbon market failing and
what sort of measures is it interfering with and what sort of
measures would have a chance of success?
Q30 Chairman: Tell us what sort of
measures would have a chance of success?
Mr Lohmann: We have heard already
that regulation has a proven record of success in these matters
in fostering innovation. Britain is full of all sorts of positive
initiatives, proposals and detailed plans for transition to a
zero carbon economy. We have people like Roger Levitt and we have
Zero Carbon Britain. What we lack is support for these resources
and plans that are already there for restructuring the way energy
is produced, for even restructuring the way communities operate
and think about their power, for restructuring transport. There
is no lack. We could stack up the documentation to the ceiling
here for the initiatives that are there that would work.
Q31 Chairman: I am asking you what
the policies are to introduce those. There are plenty of plans
but they not being implemented. You say that the carbon markets
will not help them so what will help them?
Mr Lohmann: We need policies to
support resources and plans that are already there.
Q32 Chairman: Regulation?
Mr Lohmann: Regulation, support
for already existing community initiatives. We are all aware of
things like the Transition Towns and instead of interfering with
these initiatives, governments should be supporting them. One
of the prerequisites for talking about what has to be done is
to find out the things that are already being done that are working,
instead of concentrating on the ideologically motivated idea that
the markets are going to solve all of these problems automatically
without us paying attention to what knowledge already exists in
society.
Q33 Chairman: Is there a role for
carbon taxes in this process?
Mr Lohmann: Yes, there is a role
for carbon taxes, but what I would add to the discussion in the
previous session is, like carbon trading, carbon tax is a price
mechanism and there are certain limitations to price mechanisms
when you are talking about the kind of fundamental transitions
that climate change demands. There is a problem here which I like
to call the "Goldilocks" problem. I would say it is
an ideology that somewhere out there, there are prices which are
not too low and not too high, but they are just right. In other
words, they are not so low that they would not allow any change
to take place, but they are not so high that they would bankrupt
so many companies and bankrupt society and which would be so disruptive
that they would disrupt society. The idea of the carbon market
is that there exists this ideal Goldilocks set of prices but,
in fact, if we reflect just a moment, we realise that that is
not true. It depends on the context of existing research and development.
For example, is there existing development of other forms of energy
production that do not rely on carbon? If those have not been
developed previously then introducing a carbon tax by itself is
not going to solve the problem, because you have an incentive
to switch to something else but when you look around there is
nothing else to switch to. Carbon tax is useful once it is placed
in that context but what we are lacking now is the context of
concerted investment in restructuring the way energy is produced
and the way transport is organised and so on.
Q34 Colin Challen: Is it your view
that the ETS cap-and-trade scheme should not be part of the suite
of policy approaches to climate change or do you think that the
ETS poisons the other policy approaches?
Mr Lohmann: So far I think the
record is, yes, it has poisoned other policy approaches. It is
quite clear from both UK and EU policy that carbon trading is
actually interfering with restructuring the way that energy is
produced. The UK Government has been quite explicit that one of
their reasons for reluctance in more support for renewables is
that they are worried that it will interfere with the carbon market,
with the carbon price. Article 26 of the EU legislation (and I
forget the name) requires that shifts in energy production be
the most efficient. What do they mean by efficient? Well, given
carbon trading, what efficient means is that you can be efficient
by going abroad and finding rather bogus or fraudulent offset
credits in order to claim that your operations are more efficient.
If that is the way trading is working, obviously it is poison
for an attempt at a fundamental technological shift. It is poison
in other ways as well, including the dangers of a bubble, the
dangers of a crash, the dangers of the financialisation of the
carbon market, but maybe we can get to that later.
Q35 Colin Challen: This efficiency
philosophy underpins this whole approach. Is it the philosophy
that you find wrong-headed or merely the application of it?
Mr Lohmann: There is nothing wrong
with the idea of efficiency, but what the word efficiency does
in the context of a carbon market is it sets up an incentive for
all the players to use their maximum ingenuity in order to find
gimmicks to say that they are efficient. They find efficiencies
by making one thing equivalent to another, by telling us that
it is the same thing whether we stop the third runway at Heathrow
or we stop Kingsnorth, and that is the same thing as planting
trees in some country abroad or setting up a wind farm somewhere
else. This is supposedly efficiency because those things are made
into the same thing and so you can say since they are the same,
let us choose the cheapest one. The problem is you have to step
back and ask are these things actually the same or not. No, they
are not, but the use of the word efficiency encourages us to believe
that they are. I would say there is nothing wrong with the word
efficiency by itself, but as it is used in the creation of this
new market and all of these new equivalencies which are not equivalent,
then it becomes a problem and the word efficiency starts to justify
all sorts of regressive and counter-productive measures.
Q36 Dr Turner: Talking of uncertain
offshore credits, I would like to hear your views on the Clean
Development Mechanism and what contribution you feel it makes
to either tackling climate change or promoting sustainable development
around the world?
Mr Jones: In terms of tackling
climate change, it makes a negative impact because it gives us
an excuse to carry on with projects like Kingsnorth in the UK
whilst funding things which do nothing to cut emissions. We know
about the issue of additionality with CDM credits. I have heard
a European Commission spokesperson publicly saying that 40% of
CDM credits are not additional and there are other estimates which
push it much higher to 75%, so 75% of these projects would probably
not happen anyway.[28]
It is a negative impact in tackling climate change because of
the excuse it then gives us in the rich world to keep on emitting.
In terms of sustainable development, the whole thing is structured
around providing cheap ways of getting carbon credits for northern
companies, so it is not rooted in trying to look at how do we
allow sustainable development and a low-carbon economy to happen
in developing countries. It needs a complete mind-set shift. The
key way we need to do this is to de-link what we are doing to
help develop low-carbon development from targets in the north.
We have to accept that in the UK and in the EU we have to radically
decarbonise our economies as quickly as possible. That is one
challenge. The separate challenge is how we support low-carbon
development in the south. As long as you link the two then you
will have this incentive to just look for the cheap ways of generating
credits to meet our own targets. Any effort to reform the CDM
needs to look and say we need to completely de-link it from northern
targets and then look at how can we promote low-carbon development
in the Global South.
Mr Lohmann: I agree with Tim.
My only addition would be that it is not only that the CDM is
interfering with climate progress here in the North and also with
sustainable development problems in the South, it is also that
the CDM, in practice, as I have seen from visiting some of these
projects myself, is actually interfering with climate progress
in the south as well. Two easy examples just from India which
I have visited. There is a huge complex of sponge iron factories
in Chhattisgarh state. These are hugely polluting, coal-fired,
water-abstracting plants and yet they are deriving extra funding
from the CDM. You ask the question how is this helping India turn
toward a green development pathway? It is not, it is actually
propping up the same companies that have to be the targets for
change in the global South. Another project I visited with some
colleagues was a hydroelectric dam project where again the hydroelectric
dam project is receiving funding from the CDM which is helping
these projects continue, yet the projects themselves are actually,
in fact, destroying a lot of the low-carbon practices, a lot of
the knowledge of low-carbon agriculture which is being used in
the local area, because it is incompatible with the irrigation
system which the villagers have developed there, and are continuing
to develop, which does not use fossil fuels, yet the dams are
actually destroying the system and probably will be displacing
the villagers. Again, you have to ask, is this helping India preserve
what it already knows about a low-carbon way of living, way of
livelihood, way of providing jobs, or is it interfering with that
and the answer has to be it is interfering with that.
Q37 Dr Turner: I think what you are
telling us is that as a mechanism the CDM is pretty much discredited.
One of the things which have certainly contributed towards that
is the HFC replacement projects under the CDM. We have heard that
UNFCCC might decide to take those out of the Clean Development
Mechanism. Do you know what the latest position on that is?
Mr Jones: I am not sure any of
us know the latest position. The one thing I would add is HFC
projects are clearly the most outstandingly bad of the CDM projects
in terms of helping cut emissions. It does not mean that other
kinds of projects are okay, all kinds of projects, whether around
N2O, renewables, hydro, coal powered stations, have additionality
problems and all the problems which are not exclusive to HFC.
Getting rid of HFC projects, even if it did happen, would not
tackle the problems of the CDM.
Q38 Dr Turner: The CDM forms part
of the policy portfolio of both DfID and DECC. Do you see any
evidence that they are working together on this? To what extent
do you think UK policy on emissions trading and reduction is dependent
on the CDM process, after all a certain percentage of our climate
reduction targets under the Climate Change Act is anticipated
being achieved offshore, ie mainly in CDM projects? As far as
DfID is concerned, how does this mesh with proper sustainable
development? You have given us one outstanding example of how
it is anti-sustainable development. How do you see these problems?
Mr Reyes: The other player is
BERR here and to date, as far as I am aware, it is DfID and BERR
who have had the major stake in setting out the relationship with
CDM.
Mr Jones: On the UK position,
we know that because of the huge number of CDM credits in the
ETS, 50% plus, and the fact that the Climate Change Act allows
for meeting our targets through the ETS, we are set to be meeting
our targets primarily through offsetting. The Committee on Climate
Change did not help clarify the situation totally because they
argued strongly that CDM credits should be very limited, but also
did not differentiate between how the ETS is full of CDM credits
in the advice they gave us at the start of December before the
directive midway through December. We are mad. We are absolutely
mad because we have set up what we think is this grand target
of 80% by 2050 and maybe something like 40% by 2020 and huge amounts
of it are going to happen through paying for dodgy offsets. The
Government is using this to justify allowing a third runway at
Heathrow in particular, but also the worry is they are going to
use it to justify new unabated coal power.
Mr Reyes: There are various other
problems of counting this in this regard to which are not just
about the CDM, but are also about what happens domestically within
Europe in relation to effort sharing, for example, which is further
allowing industry to buy credits, in this case from Eastern Europe,
and treat those as equivalent to emissions reductions in the UK.
The point we would make is reductions need to be domestic reductions
to see that we are actually reducing something and not simply
buying in credits from elsewhere as a replacement for that.
Q39 Dr Turner: We want to encourage
climate change mitigation in developing countries anyway. Clearly,
as it stands, the CDM is not fit for purpose as far as that is
concerned. Can you see any policy mechanisms which will achieve
that?
Mr Jones: The point was made earlier.
First of all we need to de-link this from having ways to meet
UK targets. You have got to look at it purely as a problem of
how you help low-carbon development in the global south. One key
thing which does not happen with the CDM is getting the buy-in
from local communities, for local communities to want projects,
to give their consent to projects and to benefit from those projects.
What you will find if that happens is that would increase some
of the economic cost of it. One of the reasons credits are so
cheap in the global south is because CDM projects do not have
to get the buy-in from local communities. To get local communities
agreeing to projects and benefiting from them would be a key requirement
which will involve more resources and more technology being made
available. At the moment we are so far away from getting into
the detail of this because the position of the UK and the EU within
the global negotiations is still very much focused on offsetting,
and when they are talking about additional funds they are talking
about channelling them through the World Bank. A key thing that
developing countries are saying is these funds cannot go through
the World Bank because that is an institution which is governed
by the rich world, it needs to go through an institution under
the UNFCCC. There needs to be that accountability to developing
countries' governments, but then in terms of programmes on the
ground it needs to be accountable to local people. What we need
to see in the negotiations is far more understanding on the part
of the EU and other rich countries of justice, that they are still
entering these negotiations in a world view of, "Well, we're
just going to try and get as much out of it as we can", rather
than humbly saying, "We're the ones who have caused this
problem, we're going to work with you to help tackle it".
At the moment there is far too much of the EU going in and grandstanding
developing countries and insisting on things and ignoring the
proposals that are coming from developing countries.
Mr Lohmann: I think traditionally
one of the problems with bilateral development agencies or organisations
such as DfID is they tend, in a way—to overstate it a little
bit—to become appendages to export industries. I mean that
very broadly, not only exported technologies but export of our
expertise that we are still very proud of having developed and
so forth. One of the problems with linking development to the
CDM is it makes this problem much worse than it was to begin with
because of the huge sums of money involved, the connections with
local rich polluting companies in the South that come into the
equation, and so forth. In answer to the question of what can
we do to support green development paths, which already exist
in many southern countries—again, as in Britain, a lot of
the resources for a turnaround of the way energy is organised,
the way transport is organised and so forth, they already exist
in the South—in order to tackle this, in DfID and other
organisations, for one thing this has to be disentangled from
the thing called "the carbon market". Tim was saying,
that is a first step, a basic step. Also, it has to be recognised
that there is a lot of research to be done on our part in the
Northern countries, the industrialised countries, to try to find
out what resources exist in the South, not only will that benefit
Southern countries in their turn towards a green development path
but would benefit us in learning to benefit our own technologies
and so forth. This research is not taking place, especially with
the carbon market, because of the incentive to find offset credits
so that we can continue business as usual. But there is also a
more traditional problem here. There is also a traditional bias
in organisations like DfID. They are tied too much into the mentality
and the practices of, "Let's make some money out of this
for Britain."
Q40 Joan Walley: You are painting
a very depressing picture. I think what you have said and in the
evidence you have given you have pointed to some of the weaknesses
in the whole CDM structure and how you define additionality and
all these kinds of things. Do you think there is anything that
could be done to improve oversight and regulation of the Clean
Development Mechanism and, if so, what should that be?
Mr Reyes: I have a Uruguayan colleague
who was asked, "How do you improve the Clean Development
Mechanism?", and she said it is like being asked, "What
is the best way to kill my mother?" and her answer was, "I
don't want to kill my mother, I don't want you to kill her".
I think it is a bit of a similar question from our point of view
in relation to the Clean Development Mechanism. There are various
proposals for how it could be differently regulated and improved
which have differential implications, some of which are quite
technical in relation, for example, to banking or price floors
and so on. What these do not do is address what some of the fundamental
problems are with the mechanism, in particular, like any carbon
trading, it is abstracting from how and where particular changes
are made. It is reducing those kinds of changes to price incentives,
then adding on a series of other problems in relation to additionality
criteria. The forms that are being proposed in terms of regulation
are not getting to the root of what the problems are with the
offset mechanisms and particularly how those would interrelate
with emissions trading.
Mr Jones: You can set up debates
about reform or abolish in terms of saying there is a need for
some kind of resources or maybe technology transfer to the global
south to help in low-carbon development, but that is so far removed
from how the CDM is set up at the moment that I do not think it
makes much sense talking about tweaking with the CDM. It would
be a lot more sensible to get rid of the thing. We could talk
about a more positive vision, and unfortunately it comes across
as negative because we are stuck in a world with these really
bad things, but there are visions out there of a more positive
way of doing this, but you need to get rid of the bad stuff first
before you can move on to the good stuff.
Q41 Joan Walley: Moving on to what
could be the good stuff. We had evidence in our last inquiry about
where you could get money directed to smaller local community
initiatives of one kind or another instead of the traditional
way of using the CDM. Could you see that as something which could
be developed?
Mr Lohmann: It could be developed
independently of the CDM. Obviously from a climate point of view
you do not want any kind of project, no matter how good, if it
is being used to produce carbon credits for us to slow down our
progress, that is a very negative thing. As Tim was saying, the
problem is not so much money but, yes, money is needed for support
of a lot of locally responsible initiatives. These will not be
projects that will necessarily make money for the export industry
here and they will not at all be projects which are going to provide
us with carbon credits to continue business as usual. That is
quite a difficult challenge, but I do not see anything negative
about it, I see that as a refreshing way of re-orienting our mindset
to what really matters. There is a lot of will out there. One
of the problems with "foreign aid" as it is conceived
now is a lot of people in the public at large think it already
is helping people to achieve their own low-carbon, environmentally-responsible,
provision-of-livelihood sort of projects, whereas the rule is
that it is not. That does not mean it cannot be and by acknowledging
what has to be done I think is a positive step.
Q42 Joan Walley: How would you set
out to achieve doing that so that money could go to these smaller
community projects in that kind of way and changing the whole
system really? How would you move towards doing that?
Mr Lohmann: An indispensable first
step which has never been taken is serious research in hundreds
and thousands of localities to find out what is going on there,
what progress has already been made, what the problems are and
so forth, to find out from the local perspective, as Tim was mentioning.
Q43 Joan Walley: Who would co-ordinate
that research?
Mr Lohmann: I think the Government
would be a very good candidate to help provide support for researchers
to undertake that kind of project.
Mr Reyes: I would say two additional
things. One is in terms of the current money framework. We have
made the point that it is problematic to link this money coming
to projects to prevention or emissions reductions here effectively
as a sort of structural link. The other thing is one of the things
carbon trading does is that it tends to encourage the financialisation
of a lot of problems which are not simply financial. One example
of this is I just got back from Costa Rica where they are pushing
to become a carbon neutral country effectively. What that means
in practice is a lot of money is going to pineapple plantations
for an export industry, it is based on an export-led development
model, and the carbon neutral label there is being used as an
additional selling point. That, in turn, is undermining the food
sovereignty of communities there and it is also having a damaging
effect on forests, as many monocultural plantations do. At the
same time, we also visited a reforestation project that had been
ongoing for 25 years which was not able to access such funds,
yet this was someone who was doing reforestation in a proper way,
which involved seed gathering and whatever. What they said was
these large-scale structures of economic incentives at international
level were preventing the kind of project work they wanted to
do because, in effect, they were feeding the wrong kind of development
model for the kind of work they were trying to do at community
level. I would be wary of putting the problem in terms of simply
large financial transfers.
Q44 Chairman: Is not your view that
the CDM is so irredeemably flawed that the European Commission
idea of having credits which are based on whole sectors rather
than individual projects is not worth exploring?
Mr Reyes: It is radically unclear
what is being proposed by the EU. Even IETA, the International
Emissions Trading Association, said is this action that is being
proposed another form of offset, in which case it runs into all
of the same problems and further ones in terms of the fact that
instead of having an additionality criteria you now give to the
industry a role to set its own standards and then talk about those
efficiency standards as equivalent to emissions reduction, when
clearly it is not. It could mean in expanding the carbon markets
in that way from a project-based or sectoral-based approach, you
could compound the problem. I think what is being proposed at
the moment is really unclear. There can also be various kinds
of perverse incentives which come into that to not regulate. We
have seen in the carbon markets they can often have perverse incentives
to not regulate and they are not stimulating public investment.
I think we would put the emphasis on not running these things
through a market-based approach. Insofar as you are talking about
sectors—and there is also talk in the international negotiations
about sectoral approaches that are not related to markets—they
should not be running it through markets, they should be talking
about what is the kind of investment, what are the kinds of international
standards that are needed and can we ensure those are strict.
I would say that would be a better framing for approaching sectoral
problems rather than running it through the carbon market and
then having all those additional problems of how that links into
existing market structures, how that makes things fungible equivalent,
which we are already seeing as a problem with the carbon market
space.
Q45 Colin Challen: First of all,
I would like to ask about REDD. In Copenhagen this year it may
well be that forestry comes into the flexible mechanism structure
somehow. What impact do you think that might have on markets if
it were to be the case that we have forestry credits coming in
from that?
Mr Lohmann: In my view it would
be a disaster. It would compound all of the problems we already
see with standard offset projects through the CDM with a whole
new set of conflicts, a whole new set of fraudulent procedures
for accounting, a whole new power politics, in effect. What we
are talking about is basically using enormous land areas which
people are already living on, using, deriving their livelihoods
from, and saying, okay, the carbon in this area is going to belong
to the industrialised countries. What that entails in terms of
legal measures and enforcement measures is very frightening, especially
when you look at the precedent of previous global schemes for
supposedly solving the forest problem through market means, such
as the Tropical Forestry Action Plan of the 1980s and early 1990s.
You can see the precedent for disaster is enormous, especially
given the huge sums of money that are involved. A lot of this
stems basically from a very fundamental misconception, the idea
that biotic carbon is somehow going to give us a free licence
to continue the use of fossil fuels. There is not going to be
enough biotic carbon in the world to make up for even a fraction
of the fossil fuels which remain to be mined underground. The
solution is to keep the fossil fuels underground, not to try to
find millions and millions of hectares of land which people are
already using for a multitude of other purposes and then turn
it into a carbon preservation machine using often draconian methods
of enforcement and economically insensitive ways of ensuring carbon
rights.
Mr Reyes: I have two additions.
In relation to how the market works, one of the problems we have
with the carbon market is that in a sense the cap is a bit of
a misnomer because what we have seen in relation to offset is
that all of these mechanisms are coming in to loosen what is a
cap. Instead of having tight regulations on emissions, carbon
markets are effectively offering a series of loopholes and gaps
whereby things can appear to be reductions which are not, in fact,
reductions. REDD just exacerbates that problem on a massive scale,
basically, if you were to link the forest carbon credits which
would be generated by REDD to the mainstream of the carbon market.
One of the other dangers with REDD schemes in financialising forests
and the carbon store within them is that it can exacerbate land
concentration and land conflicts, which is similar to the example
I gave before. A much better approach would be to grant proper
tenure rights and land rights to people, forest dependant communities,
indigenous communities there, rather than seeking to run REDD
schemes which, from what we see at the moment, look likely to
benefit the main drivers of deforestation, the companies and industries
that have been involved in that, whether it is the pulp and paper
industry or other extractive industries in forest areas which
are what actually have really been driving deforestation.
Q46 Colin Challen: From the evidence
from all three of you I feel what we are talking about here in
the cap and trade system is something akin to the Emperor's clothes,
that we can only think we are dressed if we simply have confidence
in the idea, then somebody just points it out there is no reason
why we should have that confidence, which is similar, perhaps,
to the way the financial markets work. We are now told that is
all based on confidence and if people believe it is going to work,
then it generally works. With the collapse of the markets and
the economic crisis we face, do you think there are any lessons
that people who are wedded to cap and trade should learn from
the way we have gone into this economic crisis, notwithstanding
your objections in principle to cap and trade?
Mr Lohmann: I think in economic
terms—never mind the climate—there are a lot of lessons
to be learned from the financial crash. What we have seen with
the financial crash, supposedly to provide liquidity, is there
has been the development of a lot of speculative new financial
instruments so that people can take the opposite side of all possible
transactions. These instruments were quickly developed in a way
in which, again, were creating equivalences which were not real,
making predictions that could not be made about the future of
price volatility, and so forth. Everything was riding on these
new products whose value was bogus, could not be determined, and
nobody even knows where they are now. The carbon market is a very
similar thing, in particular with things like CDM credits and
offset credits where the supposed valuation is created by the
private consultants who come up with these additionality equations
and write hundreds of documents with complicated Greek letters
and equations in them to show how much carbon is being saved.
We have already seen the controversies this is raising even at
this stage of the carbon market. If these instruments are allowed
to develop further and if, as some people think, the carbon market
becomes the next biggest market in the world after the derivatives
market, then I think the economic dangers are really severe. Just
last week there was a hearing in the US Congress on what they
are calling "sub-prime carbon". I have got the report
here, which is very enlightening and I would recommend it to you.
It is not talking so much about the climate issues, it is talking
about the problems of sub-prime carbon developing in a way which
could undermine the whole financial system once again just when
we have got through with learning a lesson about these improperly
valued derivatives.
Q47 Colin Challen: You mentioned
the equations, and I have seen one or two in CDM applications,
it is the technical bit I do not understand. Are you saying they
are absolutely refutable, you could find somebody else who would
question the actual carbon which allegedly is being saved simply
by unpicking those equations, is that your assertion?
Mr Lohmann: That happens all the
time. If you hire one consultant to give you an assessment of
how much carbon is being saved by one project, you will get a
different assessment from what you get if you hire another consultant.
It is very much smoke and mirrors, just in the way the financial
derivatives market was smoke and mirrors, a lot of fancy equations
but when it came down to it they were not based on intellectually
respectable premises. We have seen this before and we should not
make the same mistake again.
Mr Reyes: In the case of offsets,
what it is trying to do is take an unknowable future scenario
and reduce that to a certainty, which you need to do in order
to create some kind of tradable commodity effectively. Also, in
relation to your earlier question, this would be one of the fundamental
problems that, in effect, even now we are hearing, "The carbon
market is very volatile, what should we do?", well, we should
increase liquidity and make a global carbon market, which seems
to run in the contradictory direction from what we have seen as
being the problems in the financial crisis. What is underlying
the problems with the carbon market and the reason why it is volatile
is not to do with a lack of liquidity in the market, but to do
with the fact that it is underlain by a fundamentally unstable
commodity. Carbon is not carbon, it is a series of contentious
equivalents between different kinds of gases and very different
kinds of projects. That is both true in terms of what effect that
has in terms of the market but also has very serious environmental
implications because the market will see as the same a tonne of
carbon—a tonne of carbon is a tonne of carbon is a tonne
of carbon—what we are saying is the environmental impact
of these very different processes of whether you are having a
"sink" project in one place or a hydroelectric dam in
another or a coal powered station are very different environmentally.
What we need to do is remove this architecture from the picture
and say we need to concentrate on the tried and tested methods
of regulations, standards and price incentives.
Q48 Chairman: The impact of some
of the fiscal measures can be called into question. Perhaps you
can have a cap without the trade, maybe that is what we should
be talking about. If you take, for example, tax, like airport
passenger duty, which may or may not be a green tax—I cannot
quite decide that point—if the Treasury says that it saves
so much carbon, surely that kind of analysis is just as ropy,
you could argue, as any analysis that underpins the ETS and you
start unpicking the whole question of the impact of CO2 in the
climate change context. Surely if you start unpicking all of this
you could always find another group of people who will question
your particular equation.
Mr Jones: Which is why you need
to get out of the mindset of thinking of one silver bullet solution
to tackle climate change, so this is the one policy, whether it
is trading or a tax. You have to have a vision of where we are
going to go, which is to stop taking fossil fuels out of the ground,
and how to get there is going to be a range of policies. On aviation,
you are going to probably need some kind of price to reduce demand,
but you are also going to need to halt the infrastructure, so
to stop new runways from being built. You need various policies
in different sectors, so get out of the mindset of, "We want
one way of tackling climate change and this is it", which
is the problem, and seeing that we need a whole load of different
solutions depending on the situation.
Chairman: I think we had better call
it a day there. Thank you very much indeed for coming in.
28 Note by Witness: The witness meant to say
that 75% of these projects would probably be happening, not would
not. Back
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