Europe's absurd carbon market....

Of course, it doesn't work at all....

You don't have to be a "climate change sceptic" to assert this unwelcome fact. Professor Gwyn Prins, Director of the LSE's Mackinder Centre for the Study of Long Wave Events, has been advocating measures to reduce what he sees as man-made climate change since 1986. He was a lead author on the Third and Fourth Assessment Reports of the Intergovernmental Panel on Climate Change, and on the Advisory Board of Friends of the Earth UK. For some years now, Prof Prins has been warning that the Kyoto approach is hopelessly flawed – and his unpopularity in the environment ministries of Europe has grown, precisely as his criticisms of their approach have been vindicated.

His basic critique was originally outlined in a paper entitled "The Wrong Trousers" (after the Wallace and Gromit film): "The Kyoto Protocol seeks to square a circle. It seeks to articulate a market-driven trading mechanism, with a top-down detailed specification of how it will work. It is an example of a form of output target-setting that seeks to prevail by institutional fiat, based on over-confident assertion of fragile knowledge, through the sanction of tax and associated punishment. It has been applied to an entirely novel, indeed, a fabricated market."

This fabricated market in carbon has at its heart the UN's Clean Development Mechanism. This is how the EU, which had an obligation under Kyoto to reduce its emissions by two per cent by 2012, has managed to claim success while actually increasing its emissions by 13 per cent. By purchasing so called "offsets" from countries such as China, Britain, for example, proclaims itself a "leader in the fight against climate change".

Most of this is entirely fraudulent, in the sense that the Chinese have been paid billions to destroy particular atmospheric pollutants, such as CFC-23, which have actually been manufactured in order to be destroyed – and for no other purpose. This is hardly surprising: if something is accorded a price (especially a fixed one) then companies will queue up to produce it.

The EU is inordinately proud of its Emissions Trading Scheme – which it calls "the world's first carbon market" – and it is this scheme which has created the creative accounting scam known as "offsets". Even mortgage-backed securities, the financial instrument at the heart of the credit crunch, at least had something useful – houses – at the bottom of the pile of junk. Some people have described offsets as the carbon market equivalent of the mediaeval sale of Indulgences by the Catholic Church; but as Prof Prins points out, the Church sold them only as a means of atoning for the sins of the past – "carbon offsets" are sold to absolve us from sins in the future, an even more preposterous transaction.

Now that the EU is attempting at Poznan to set up a scheme which will make its industries buy carbon allocations via an auction, rather than simply receiving them free of charge, reality is finally intruding on the madness. Angela Merkel, as environment minister in Helmut Kohl's administration, was noted for her promotion of policies solely designed to reduce Germany's carbon emissions. As Chancellor, however, she has become better acquainted with the arguments of her country's industrial base. Thus last week in Berlin Merkel declared: "We must ensure that our energy-intensive industry, which is driven by exports, is of course excluded from the emissions quotas. We cannot stand by while jobs in the chemicals, steel and other industries move to regions of the world where climate protection is less stringent than here."