Innovative sources of financing

Repairing emissions trading: We’re counting on you, Mr. Röttgen!

Maintain emissions trading as a climate protection and financing instrument

It’s less than two years since the German federal government created a dedicated “Energy and Climate Fund.” The aim of the new fund is to provide financial support for Germany’s move toward sustainable energy sources and for international climate finance. From 2012, all the revenue from auctioning emissions permits within the European Emissions Trading Scheme has flowed into the new fund. By instigating this funding mechanism, Germany has shown a genuine spirit of innovation—and has also won accolades around the world. So far, so good.

At present, however, emissions trading is completely ineffective as an instrument of either climate protection or financing. One ton of carbon can be had for the ridiculously low price of €8.50—but the German government had expected to receive €17 per ton of CO2. What does that mean? It’s very simple: by auctioning its carbon credits to companies this year, the government will earn not the anticipated €780 million but just half of that, €390 million. That sum is nowhere near enough to cover the fund’s planned outgoings. These might include the energy-efficient modernization of buildings, the promotion of renewable energies and energy efficiency, or national—and, vitally, international—climate change finance. It is not yet clear what the federal government will do to close this funding gap.

What it should do, though, is evident. Repairing emissions trading is a matter of urgency. In order to reactivate this very useful instrument in the battle against climate change, the EU-wide emissions reduction goal should be raised from its current 20% to 30%. That would mean superfluous permits being taken off the market—and cutting the volume of permits would serve to drive up prices. Before long, the permit price would approach the originally expected €17. The German government would then be able to earn more than €3 billion in the following year. The most important source of funding for the turn to sustainable energy and international climate protection projects would no longer be at risk.

On March 9, 2012, German Federal Environment Minister Norbert Röttgen will be meeting his European colleagues in Brussels. He’ll have the opportunity to initiate the repair of the emissions trading system, enabling it to survive as an instrument of finance and, of course, also as an effective instrument of climate protection. Germany has already proved its willingness to innovate by establishing the special Energy and Climate Fund. Now determination and decisive action are required from this country in order to convince even climate-change skeptics, such as Poland, of the 30% goal.

In that process, Mr. Röttgen, we’re counting on you!


Anja Esch, Germanwatch