International Environment Law

Question: Discuss about the International Environment Law. Answer: A recent phenomenon has been noticed where the NGOs working for the environment have been hypnotized by the multi-stakeholder dialogues of the corporate. To develop the image of being a good corporate citizen, the corporate organizations procure the help of the friendly NGOs to carry out the controversial activities, as a means to outsource the legitimacy in an effective manner. This is done as the environmental NGOs act as the moral stamp of approval for the activities undertaken by the organizations which are involved in emissions trading. This phenomenon was not limited to the conservative environmental NGOs, which had been neutralized as a result of the strategies of such corporate polluters[1]. An alternative treaty was designed to influence the official Rio Declarations, and this was presented at the original Earth Summit in Rio by the NGO Global Forum[2]. This was a visionary document where the declaration was made by the NGOs stating that there was a need for the climate negotiators to avoid such emission trading schemes which address the climate change problems in a superficial manner, perpetuate or worsen the inequities which are often hidden behind the problem, or which have a negative ecological impact[3]. In the following parts, this very statement of the NGOs have been analyzed and evaluated to present a legal perspective of the statement. This has been done by evaluating the legal framework of EU regarding the emissions and its emission trading scheme. The reason behind the analysis of the EU norms is to establish that the schemes of EU address the climate change problems in a superficial manner only and the spirit behind the statement made by the NGOs has not been fulfilled. The EU Emissions Trading System, or the EU ETS, is a cap-and-trade mechanism, which has been designed to reduce the greenhouse gas emissions, in addition to building a low carbon economy in Europe, in a manner which can be considered as both economical and environment efficient. On January 1st, 2005 the EU ETS was launched as a major pillar of the climate policy of EU and to fight global warming. The scheme covered the large emitters in the EUs 27 Member States, in addition to Lichtenstein, Norway and Iceland[4]. Presently, this number was increased to 28 Member States of EU, in addition to the three nations[5]. Under the principle of cap and trade, a limit in the form of maximum cap is set on the sum total of greenhouse gases which can be released/ produced by all the partaking installations. There is then an auction for free or action off of the allowances for emissions and these can be traded subsequently[6]. The installations have to compulsorily monitory and report the CO2 emissions, and ensure that they hand in sufficient allowances to the authorities so as to cover the emissions[7]. If the emission goes beyond the permitted limited made through the allowances, then the installations have to buy allowances from the others. Alternatively, when any installation performs well towards the reduction in its emissions, they have the freedom to sell their leftover credits. By following this, the system is able to find the most cost effective way of reducing the emissions, without any major intervention of the government[8]. There are a number of trading periods through which the scheme is divided. The initial period of EU ETS spanned from January of 2005 to December of 2007. The next trading period lasted from January of 2008 to December of 2012 and this period coincided with the Kyoto Protocols first commitment period[9]. The third period of EU ETS initiated in January of 2013 and would continue till December of 2020. In comparison to the time when EU ETS was initially implemented in 2005, the caps proposed for 2020 shows a 21% reduction in the greenhouse gases. Though, this target was achieved by 2014, six years before its targeted, as the emissions in ETS fell to 1812 mln tones[10]. But the figures fail to highlight the truth regarding the superficiality of adoption of these norms. The cap and trade framework created through the Kyoto Protocol of 1997 did provide a framework, but till now, very less has actually been achieved at this level. During the inception of EU ETS, there was a strong belief regarding the view that the global carbon trading would become a primary tool in the global emissions reductions eventually. Though these expectations seem to have been delayed, and there is also a possibility of these being dashed[11]. The journey of EU ETS has been a rocky road till now as it has been constantly subjected to close scrutiny by the media, and the academic literature[12]. Even though it has been accredited as an innovative, as well as, an adaptive policy instrument, and has experienced a steep learning curve during its initial two phases of inception, it has to face a number of setbacks, which have been documented time and again. These include the over allocation of the allowances which have led to inevitable price crashes, huge windfall profits from the generous free allocation, in addition to the issues relating to the financial frauds[13]. The commodity markets contain some or other form of illegal activities, but the carbon markets have particularly been susceptible to fraud. One of the main reasons is the nature of the commodity which is being traded. Unlike corn or oil, carbon is not a tangible product. The carbon permits covered under EU ETS are an explicit permission to pollute in the future, and this is estimated on the basis of proxy, instead of actually measuring the same. There have been a number of frauds and scandals, for instance the 5 billion VAT fraud, which involve stolen, as well as, re-used allowances. In the view of the EU Court of Auditors, this depicts that the financial side of EU ETS remains under regulated[14]. There is also a lack of clarity regarding the legal definition of the emission allowances, in addition to the lack of sufficient fiduciary control of the Registry of allowances, as well as the lack of proper cooperation amongst the national financial regulators and the Commission. The General Report on Activities for 2009 covered that the ETS market remained at risk to the VAT frauds. There was an estimate by Europol regarding the loss to carbon credit fraud, between June 2008 to December 2009, through the VAT carousel fraud, and this amounted to an approximate of 5 billion euro. There was a particular vulnerability of the ETS market to such cross border trading criminal activities. To deal with this issue, a directive was adopted, i.e., Council Directive2010/23/EU of 16March2010, which would give the Member States the possibility of implementation of a mechanism of VAT reverse charge, which would put the compulsion, on the individuals, to whom the allowances or other compliance units are transferred, to pay the VAT[15]. Though, this provision has been postponed till December 2018, i.e., Council Directive2013/43/EU of 22July2013[16]. When the audit was done, nearly one third of the Member States had ignored to implement the reverse charge mechanism for the emission allowance. So, the risk of VAT fraud over the EU ETS allowances still remains unaddressed in a proper manner by the European Union. When the Member States were visited by the Court, Italy was the one out of the five Member States who had not applied for this mechanism. The sole platform for trading of emission allowances in the country, had suspended the operations in December 2010, in the emission allowances market, because of the anomalies which were noticed in the fluctuations of the trading. In March 2014, there was a permanent shut down in the operations of the exchange. According to the National Registry Administrator and the Competent Authority, there was a substantial risk of VAT carousel fraud, at the time of the audit, which was happening in Italy as a result of the absence of implementation or adoption of the VAT reverse charge mechanism[17] . Another reason behind the superficiality of EU ETS is that it fails to reduce the emissions in a substantial manner[18]. In the decade since the ETS began operating, the greenhouse gas emissions of the EU have fallen and this includes the sectors which are covered under the scheme. Though, there is very little evidence to prove that the emissions trading have caused these reductions. The majority of the emissions which are covered by ETS accounts for the electricity generation, but the reductions in the electricity generation sector, is majorly due to the environmental policies, specially the green certificates and the feed-in tariffs[19]. Moreover, as per the analysis conducted by the economy-wide drivers regarding the changing levels of the green house gas emissions depict that the reduction in the ETS sectors can be explained in a different and complete manner, as a result of combination of the fuel switching, i.e. from coal to gas, the improved energy efficiency, increase in the renewable energy, and the economic downturn post 2008, in a response to the economic variables and other policies[20]. The EU ETS has the habit of undermining the other climate and emissions control policy. Often the business lobbyists put up the excuse of not fulfilling the emission norms, by stating those emissions have been covered by the emissions trading. This is the favorite refrain quote used by such individuals in the face of the proposed environmental regulations, and surprisingly, it has worked successfully time and again[21]. The EU IPPC, i.e. the Integrated Pollution Prevention and Control Directive was explicitly modified to exclude the CO2 emission limits for the installations (in terms of the industrial plants and the power stations) which were covered under the EU ETS, due to the fear that the same would result in reducing demand for emissions allowances, energy efficiency improvements, which ultimately would result in the weakening of the carbon prices[22]. In the same manner the Energy Taxation Directives revisions was firstly weakened, and then abandoned, due to the fear of it affecting the prices of carbon, and the loopholes which exempted the shipping and aviation fuels from the minimum tax rates where instead maintained, on account of the ETS. As per the leaked documents of the UK Government, this was done in the attempts to weaken the renewable energy targets and the energy efficiency measures, on the basis that these could possibly result in the crumpling of the carbon prices[23]. The Directo rate-General of the European Commission on the Climate Action warned in a notorious case against tougher energy efficiency measures due to the fear that the same could result in the carbon prices falling steeply[24]. A ceiling has been set by the ETS regarding the climate ambition. The ETS makes certain that the targets set for greenhouse gas emissions are taken as a ceiling on the climate ambition, instead of treating them as a floor for the same. There is a sheer lack of incentives for the nations to implement such policies which would encourage the organizations to surpass the stated targets, as this would open up the channels for the organizations in other nations to emit more. This is because of the principle of cap and trade of the EU ETS. The abundance of the allowances present in system makes it quite easy and painless for the nations to avoid any domestic actions by purchasing the emission allowances cheaply from some other place. Till the present time, the net results have been cancelling out the abatements which have been delivered by the other policies, for instance the Energy Efficiency Directive and the Renewable Energy Supply Directive[25]. This very failure of the EU ETS has been augmented due to the fact that the current emissions target of EU regarding a 20% emissions reduction by 2020 has been acknowledged widely as being very less, and this has generated a huge surplus of emissions allowances which would undermine the system way before 2020. This has been proved correct, as the targets were achieved six years before the target year. A Market Stability Reserve tried to remove such emission allowances temporarily, but this too fails to cancel them. After all such removals have been properly accounted for, there has been an estimate of 2.3 billion as the surplus allowances and these would remain to be utilized by 2020 as per EU ETSs principle of cap and trade[26]. Another reason why EU ETS has a negative ecological impact relates to the fact that this has failed to be a cost-effective measure and has only subsidized the polluters at the expenses of the tax payers. It has been noticed that since the implementation of the ETS, the businesses have passed on the carbon costs to its customers, which in reality, should not have incurred in the first place. Only a few of the big organizations have attained high amount in terms of tens of billions Euros, in the unearned profits by following this way and this has been shown by a number of academic studies[27]. The sector which has benefitted the most is the power sector, even though there has been evidence to show that he industrial sectors, specifically the oil refineries, have starting following the same pricing tricks. The heavy industries also have profited in a considerable manner from the excess in the emission allowances. This is evident from the hold of excess permits, which amount to more than 4 billion, under the second phase of this scheme, by the ten largest steel firms, as well as, the cement sector. Another source of unearned profits and inefficiency relates to the changes in the state aid rules. This meant that the public money could be used as a means to pay back the amplified costs of electricity, which are a result of the profiteering highlighted above. The chemical, paper, steel and aluminum sectors have the freedom of claiming up to 85% of these increased costs in form of the state aid. This figure is set to fall to 75% from 2019[28]. The emission allowances, regarding the free allocation is set to be continued. This is a major reversal as in January 2008, it was announced by the Commission that such free allocations would be put to an end by the year 2020[29]. And yet, as per the current reform proposal, this has to be continued and so the 43% of emissions allowances would continue to be handed out until at least 2030, for free. As per the Impact Assessment of this proposal, the free permits, which were handed out under EU ETS, is almost scandalous, as it could amount to approximately 160 billion Euros[30]. Hannah Mowat from FERN believes that no amount of structural tinkering would help in evading the fact that a wrong tool has been elected by the EU to reduce the emissions in Europe. The EU ETS is inherently weak and fails is getting the EU where it needed to be, in the given time period. These comments of Mowat were made when a report was released, which exposed the Myths of the EU ETS[31]. The report was published by the organizations which were signatory to the Time to scrap the ETS declaration[32]. Five major myths were highlighted in this report, which related to the EU ETS[33]. The first myth was that the best tool for reducing emissions was EU ETS. The reality showed a rise in emissions during Phase I of ETS. And the decrease in emissions in Phase II, were linked to economic crisis, and not EU ETS. No real shift has been noticed in the way the energy is used by the industry or the manner in which it is produced. The second myth was that ETS acted as a key booster of investments in low-carbon solutions and clean technologies. In reality, neither Phase I, nor Phase II triggered any transformational investment in low-carbon technology or sustainable renewable energy. As per the report, the ETS was incapable of triggering any regulatory action or transformation, which was needed for a just and sustainable path, which could be attained by a clear direct policy. The third myth covered under this report was that this was a system which was functioning as it was intended to do, and that it was a flexible solution. The reality was quite different from the myth as this system is an unresponsive mechanism and is cumbersome, and has even failed to achieve the objectives set out by it[34]. The fourth myth relates to the system delivering cost-effective emissions reductions. In reality, this system has failed to be cost-effective for both the consumer and public purposes. A question was also raised in this report asking to identify for whom the ETS was cost effective. The businesses have continued to make windfall profits, as they have passed on the costs to the consumers, which they got free of charge from the permits to pollute. This was put down as market teething problem, but even after such a long time, the issues remain and are only getting worse. The fifth and last myth relates to the positive thing that the ETS was working successfully. As per the report, the ETS was a paradise for the fraudsters, which fostered frauds, tax evasions and other criminal activities[35]. From the above analysis, a clear opinion can be formed that indeed the EU ETS was addressing the climate change problems in a superficial manner. Moreover it was only worsening the inequities and acting as a negative ecological impact. This is evident from the faulty cap and trading principle of the ETS, which allows the underperforming organizations from performing better by simply purchasing the allowances for emissions from others. Moreover, there is no incentive for the companies who perform better. Also, when any nation performs better, it only helps the non-performing entities, as they can continue breaching the emission norms by simply purchasing the allowances from the ones who perform well. This shows the scheme is defective, as it fails in actually reducing the carbon emissions, which help the environment. To sum up, the EU ETS addresses the climate change problems in only a superficial manner and this scheme has failed in fulfilling the statement made by the NGOs. Bibliography Books/ Articles/ Reports Bachram, H, Climate Fraud and Carbon Colonialism: The New Trade in Greenhouse Gases (2004) 15(4) Capitalism Nature Socialism 11. 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Timmons Roberts, The Globalization and Environment Reader (John Wiley Sons, 2017) The Global Development Research Centre, Alternative Non-Governmental Agreement On Climate Change (2017) https://www.gdrc.org/uem/Trialogue/alt-cc-ngo.html House of Commons, The EU Emissions Trading System (17 January 2012) https://www.publications.parliament.uk/pa/cm201012/cmselect/cmenergy/1476/1476.pdf European Commission, The EU Emissions Trading System (EU ETS) (30 January 2017) https://ec.europa.eu/clima/policies/ets_en Larry Parker, Climate Change and the EU Emissions Trading Scheme (ETS): Looking To 2020 (DIANE Publishing, 2011) Wolf Friedrich Spieth, Reform of EU emissions trading system likely to fail (24 March 2015) https://euobserver.com/opinion/128119 Will Denayer, Why the market approach fails to lower greenhouse gas emissions. Part 2: the failure of the EU Emissions Trading System (12 May 2016) https://www.flassbeck-economics.com/why-the-market-approach-fails-to-lower-greenhouse-gas-emissions-part-2-the-failure-of-the-eu-emissions-trading-system/ Peter Jones, Saving the planet or selling off the atmosphere? Emissions trading, capital accumulation and the carbon rent (2008) https://www.anu.edu.au/polsci/mi/1/mi1jones.pdf Stephen Payne, European Union Emissions Trading Scheme (2015) https://www.theinfolist.com/php/SummaryGet.php?FindGo=european_union_emissions_trading_scheme UK Parliament, Energy and Climate Change (26 January 2012) https://www.publications.parliament.uk/pa/cm201012/cmselect/cmenergy/1476/147604.htm Jillian Ambrose, EU has failed to save carbon market from long-term gloom, say analysts (12 MARCH 2016) https://www.telegraph.co.uk/business/2016/03/03/eu-has-failed-to-save-carbon-market-from-long-term-gloom-say-ana/ Tim Laing, Misato Sato, Michael Grubb and Claudia Comberti, Assessing the effectiveness of the EU Emissions Trading System (January 2013) https://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2014/02/WP106-effectiveness-eu-emissions-trading-system.pdf European Court Of Auditors, The integrity and implementation of the EU ETS (2015) https://www.eca.europa.eu/Lists/ECADocuments/SR15_06/SR15_06_EN.pdf European Union Law, Council Directive 2010/23/EU (16 March 2010) https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:072:0001:0002:EN:PDF European Union Law, Council Directive 2013/43/EU (22 July 2013) https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:201:0004:0006:en:PDF At 12 The Economist, ETS, RIP? (20 April 2013) https://www.economist.com/news/finance-and-economics/21576388-failure-reform-europes-carbon-market-will-reverberate-round-world-ets Berghmans Nicolas, Chze Benot, Alberola Emilie and Chevallier Julien, The CO2 emissions of the European power sector: economic drivers and the climate-energy policies contribution (October 2014) https://www.cdcclimat.com/IMG/pdf/14-10_cdc_climat_r_wp_14-17_power_sector_in_the_eu_ets-2.pdf Olivier Gloaguen and Emilie Alberola, Assessing the factors behind CO2 emissions changes over the phases 1 and 2 of the EU ETS: an econometric analysis (October 2013) https://www.cdcclimat.com/IMG/pdf/13-10_cdc_climat_r_wp_13-15_assessing_the_factors_behing_co2_emissions_changes.pdf Corporate Europe Observatory, EU emissions trading: 5 reasons to scrap the ETS (26 October 2015) https://corporateeurope.org/environment/2015/10/eu-emissions-trading-5-reasons-scrap-ets European Environment Agency, Application of the Emissions Trading Directive by EU Member States - reporting year 2007 (13 March 2008) https://www.eea.europa.eu/publications/technical_report_2008_3 Ashley Seager and Mark Milner, Revealed: cover-up plan on energy target (13 August 2007) https://www.theguardian.com/environment/2007/aug/13/renewableenergy.energy European Commission, Directive Of The European Parliament And Of The Council on energy efficiency and amending and subsequently repealing Directives 2004/8/EC and 2006/32/EC (2011) https://ec.europa.eu/energy/sites/ener/files/documents/sec_2011_0779_impact_assessment.pdf At 21 Ibid Timothy Laing, Misato Sato, Michael Grubb and Claudia Comberti, The effects and side-effects of the EU emissions trading scheme (2014) 5(4) WIREs Climate Change 509519. At 21 European Commission, Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC (23 January 2008) https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52008PC0016from=EN At 21 Chris Lang, The EU Emissions Trading Scheme has failed: Time to scrap the ETS (16 April 2013) https://www.redd-monitor.org/2013/04/16/the-eu-emissions-trading-scheme-has-failed-time-to-scrap-the-ets/ Chris Lang, Time to scrap the EU Emissions Trading Scheme (20 February 2013) https://www.redd-monitor.org/2013/02/20/time-to-scrap-the-eu-emissions-trading-scheme/ REDD-Monitor, EU ETS myth busting: Why it cant be reformed and shouldnt be replicated (April 2013) https://www.redd-monitor.org/wp-content/uploads/2013/04/Myths_internet.pdf Ibid Ibid