ANALYSIS-Carbon price is poor weapon against climate change

LONDON, Sept 24 (Reuters) - The battle to beat climate change has come down to one weapon -- the price of carbon. And analysts say it is not working.

Much lip service has been paid to cutting climate warming carbon emissions through measures such as improved energy efficiency, technological innovation, reduced demand, higher standards and carbon output restrictions.

But in most cases the vital incentive is supposed to be provided by achieving a high price for carbon, from which all else would follow. Neither has happened and time is running out.

"The policy instrument of choice pretty well everywhere is a price for carbon, and it is not going to work," said Tom Burke of environment lobby group E3G.

"To stop climate change moving from a bad problem getting worse to a worse problem becoming catastrophic, you have to make the global energy system carbon neutral by 2050 -- and that will not happen just using carbon pricing."

Burke said what was urgently needed were strict technical standards and investment incentives to achieve the transition.

"You have got to drive the carbon out of the energy system and then keep it out forever," he said. "In the first part of that you are making serious step changes. They are not going to be accomplished by marginal changes in price."

The European Union's carbon emissions trading scheme got off to a shaky start due to over-allocation of permits, but has now established a price of about 20 euros a tonne of carbon dioxide.

There is also the Clean Development Mechanism of the Kyoto Protocol on cutting global carbon emissions, under which developing nations effectively get paid for emissions foregone.


Together, these two have generated a global carbon trade worth billions of dollars and handed vast profits to some key players, but had little measurable effect on carbon emissions.

"Governments are relying way too much on the price of carbon to deliver everything," said Jim Watson of Sussex University's Energy Group.

"It is a prerequisite but not a panacea. It has to go hand in hand with regulations and technological developments, and they are sadly lacking," he said.

"If you rely too much on the carbon price you give people the option of buying their way out of it. It is a very poor weapon in what is supposed to be a war to save humanity.

"The oil price shocks of the 1970s didn't wean us off oil, so why should we believe that a high carbon price will wean us off carbon," he added.

The United States appears finally to have bought into the climate change argument having spent years rejecting the idea of man-made global warming, and is hosting a meeting of major emitting nations later this week.

The United Nations is also holding a climate summit on Monday, ahead of a crucial meeting in December on the Indonesian island of Bali of UN environment ministers that is supposed to kick start talks on a new global climate treaty.

But there is no consensus on what needs to be done or how to achieve it.

While some countries want targets and timetables for emissions cuts, to others like the United States the idea is abhorrent.


The trouble is that Kyoto -- rejected by the U.S. and non-binding on booming emitters China and India -- runs out in 2012 and there is as yet nothing to replace it.

The EU has said its emissions trading scheme will carry on beyond 2012 in any case, but that is cold comfort for environmentalists who see the need for urgent and effective action beyond trying to trade their way out of trouble.

"The price of carbon has had virtually no effect on the market so far and virtually no effect on climate change," said Oxford University economics professor Dieter Helm.

"People like me who think the price of carbon is important don't think it is the only thing that matters. There must be more focus on energy efficiency, more research and development and more renewable energy.

"The truth is that Europe has performed less well on carbon dioxide since the late 1990s than the United States -- and Europe is inside Kyoto and has an emissions trading scheme," he said.

To E3G's Burke the problem is less one of technical availability and ability than of political courage.

"It is well within our technical competence. What you need is the political will," he said. "The trouble is that there are a lot of people out there making a lot of money out of carbon trading and who want to perfect the market rather than press for the changes that are actually needed."