Today access to COP15 was denied to the vast majority of the Business and Industry community (known by the acronym BINGO) after having been allocated a total of 75 passes, which were non-transferable.
Besides the greatly reduced number of people allowed access, the non-transferability imposed by security meant that in contrast to previous days, the business community couldn't trade entrance passes amongst itself to find the most efficient allocation of a scarce resource. Which is of course, what we do best.
Naturally, trading the passes didn't actually reduce the number of passes available. As mentioned that was security, but it did mean that whilst there was a general feeling of ho-humness about the whole thing and some meetings were missed or moved out of the Bella Centre, BINGO people on the whole got the access they needed when they needed it and then left, which is to say there was an equitable distribution of a limited resource -- until today, when the time between meetings that would otherwise have been shared has been lost.
Put another way, the efficiency of sharing the passes was lost. Which is starting to sound somewhat like a metaphor!
Now it's probably worth repeating that just as trading the limited number of COP 15 entrance passes available didn't change the total number up or down, the limit or cap did that, so trading the limited number of emissions permits allowed under a cap-and-trade scheme doesn't reduce the number of permits. What limits emissions in a cap-and-trade scheme is the emissions cap. What the trading part does is allow the cap to be achieved in the cheapest possible way.
Environmentally, a cap without trading is the same as a cap with trading; economically and socially, they are however poles apart. One of the biggest obstacles to domestic legislation -- besides the kind of people who feel global warming can't be true the moment a single snow flake falls from the sky -- is the cost, or put more specifically the cost to consumers. Trading keeps this cost down to the bare minimum, it allows governments to be more ambitious in the cuts they hand down to industry, it promotes change and innovation, and crucially it provides choices to the installations or sites which are covered by the cap-and-trade scheme as to how and where they will reduce their emissions.
The crucial part of all cap-and-trade schemes is the cap.
Given a weak cap, prices can crash, price floors simply give value to something that is environmentally meaningless; given tight caps, then prices can soar. Combining a strong cap with limited access to offsets means that if the price hits a certain level it becomes rational to make use of emissions reductions outside of the scheme and moderate prices. As with trading this has the same environmental impact it simply reduces costs.
The global emissions cap out to 2017 or possibly 2020 will be agreed in the next few years. I sincerely hope that market mechanisms get to work their magic underneath the cap, but I tend to hope the cap isn't agreed in Copenhagen. The political skill, will and leadership despite all of the rhetoric in Copenhagen has been somewhat absent from these negotiations with some instances of negotiators from the developed world fumbling key issues.
So signing off from my second to final Copenhagen blog, I am still optimistic that an overall non-binding commitment to make significant reductions can be achieved, but that discussions on the detail of caps and the flexible mechanisms that underpin these are left for another day, when they get the necessary due diligence that they deserve.
Miles Austin is head of European Regulatory Affairs for EcoSecurities.
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