|
This is a printer friendly version of the article. To print,
please use your browser Print function.
October 15, 2007
Emissions Trading Commodifies Carbon, But Does It
Really Help Solve Climate Change?
by Bill Baue
Proponents of carbon trading see markets
as the best mechanism for reducing emissions, while critics characterize
carbon trading as a devil’s bargain that steers profits to polluters.
SocialFunds.com -- You can’t solve problems just by throwing
money at them, the old saying goes. Capitalists, who think markets are the
solution to everything, reverse this equation by turning problems from
money-pits into money-makers. Essentially, they seek to harness the profit
motive to cure society’s woes by transforming problems into commodities.
This is precisely the strategy behind the emerging carbon trading markets.
While most markets facilitate product accumulation, these
markets encourage problem elimination. For example, by trading carbon
emission rights that are capped and subsequently ratcheted down, the
rights become more scarce and hence more valuable. Voilà, cap-and-trade
markets help solve climate change by lowering carbon emissions while
generating wealth!
If only it were so simple. While the Kyoto
Protocol, European Union Emissions Trading Scheme (EU ETS), carbon trading initiatives in the Northeastern US and California, and the platforms of most Democratic (and
one Republican) presidential candidates rely on carbon cap-and-trade, the
system has problems identified by both its supporters and its
critics. The first contentious question concerns how to distribute carbon
emission rights: auction or allocation.
The EU ETS, the first
major carbon trading experiment that was mandated into effect in 2005,
experienced a price collapse in 2006 when it became apparent that the
European Commission simply handed out too many emissions rights. Either
naively or corruptly, European governments allocated rights based on
companies’ own estimates of baseline emissions, and then--surprise!--their
actual emissions turned out to be much lower, undermining the intention of
reducing emissions and allowing companies a windfall through sales of
unused credits.
“[A] country’s entitlement to pollute relates to
the amount of pollution it already produces,” wrote British journalist
George Monbiot in his recent book Heat: How to Stop the Planet from Burning. “The
dirtier you are, the bigger your entitlement . . . the polluter was paid.”
Democratic Presidential hopeful Barack Obama favors auctioning to
avoid this problem.
“All polluters will have to pay based on the
amount of pollution they release into the sky,” Obama said in a Columbus
Day stump speech in New Hampshire unveiling his plan. “The market
will set the price, but unlike the other cap-and-trade proposals that have
been offered in this race, no business will be allowed to emit any
greenhouses gases for free.”
“Businesses don't own the sky, the
public does, and if we want them to stop polluting it, we have to put a
price on all pollution,” Obama added. “It's time to make the cleaner way
of doing business the more profitable way of doing business.”
These comments highlight the second problem with carbon trading:
mandatory versus voluntary markets. The US, the largest carbon emitter in
the world (until June, when China usurped the dubious distinction), has not signed onto
the Kyoto Protocol, which commits industrialized countries to cut carbon
emissions 5.2 percent below 1990 levels by 2012 (representing a 29 percent
decrease from expected levels.) And homegrown federal carbon regulations
are still on the Congressional drawing board. To fill this regulatory gap,
voluntary carbon markets such as the Chicago
Climate Exchange have sprouted up.
“Financially, voluntary
markets are not very viable and trade carbon from 50 cents to $5 per ton,”
said Peter Fusaro, founder of Global Change Associates, a leading consultancy in
energy and environmental commodity risk management. Voluntary markets also
apply to a miniscule percentage of carbon emissions—about 100 million
metric tonnes of the 6 billion tonnes (and rising) in US emissions,
according to Fusaro.
“My focus is on creating the compliance
driven markets which have a higher financial valuation, probably in the
range of $30 to $40 per tonne and maybe $50,” Fusaro told SocialFunds.com.
“The global carbon footprint of 27 billion tonnes and rising creates a
commodity market of at least $3 trillion. With proper market design--which
means no price cap and a financial penalty for non-compliance--carbon
trading forces the movement to cleaner technology and consequent emissions
reductions.”
Carbon trading critics are dubious, charging that
financial benefits overshadow environmental concerns.
“At present,
there are no sustained, long-term benefits of carbon trading unless you
are a hedge fund, energy trader, or otherwise engaged in arbitrage or
speculative finance,” said Dartmouth Environmental Studies Professor Michael Dorsey, who characterized carbon
trading as a “Faustian bargain” in a recent LA Times op-ed. “And the environmental benefits are
regressive--the design structure of the EU ETS and the incoherence of the
voluntary market aggregate and produce short- and medium-term carbon price
instability.”
A recent Scientific American article, “Making Carbon Markets Work,” illustrates the
variance of carbon prices on voluntary and mandatory markets in a chart.
“So with the carbon price suppressed,
polluters--energy providers, utilities, oil companies, and the like--have
little incentive to curb rising greenhouse gas emissions,” Dorsey told
SocialFunds.com. “Thus the present system undermines the environment and
the planet, as it is helping drive increases in CO2.”
Dorsey
contributed to the book Carbon Trading: A Critical Conversation on Climate
Change, Privatisation and Power, which reveals structural
shortcomings with the Kyoto Protocol. For example, Kyoto created a dual
carbon trading structure: Joint Implementation, or trading within developed
countries, and the Clean Development Mechanism, whereby developed countries
can offset their emissions by supporting clean energy projects in
developing nations. While supporters frame the Clean Development Mechanism
as benevolent developed world support for the so-called developing world,
critics see it as an extension of colonialist exploitation. Another
contributor to the book criticizes certified emissions reductions, a tool
for Clean Development Mechanism implementation.
“Certified
emission reductions being traded are mostly on paper, containing
impossible jargon and sets of figures about which society knows nothing,”
Soumitra Ghosh of the National Forum of Forest Peoples and Forest Workers
in India told SocialFunds.com. “Carbon trading benefits investors hugely,
because this trading carries no necessity on their and the forward
traders' part to deliver anything tangible (such as goods or services) and
measurable. In fact, the trade in carbon takes society and the world for a
ride: it helps create a dangerous illusion of safety where there is none,
and hoodwinks everybody about the very real menace of climate change.”
Concern over the lack of integrity of carbon markets has reached a
boiling point. Die Linke, the leftist party in the German Parliament,
recently called for a moratorium on any new Clean Development Mechanism
project registrations and issuance of certified emission reductions over
concerns of corruption and counter-productiveness. Dartmouth’s Dorsey
points out that nongovernmental organizations, as well as some banks and
Clean Development Mechanism officials, have joined the call for such a
moratorium as a means of focusing attention on identifying positive
solutions.
For better or worse, carbon trading has become an
integral strategy in climate change mitigation, so supporters and critics
are challenged to negotiate collaboratively toward solving shortcomings in
current practice.
©2007 SRI World Group, Inc. All Rights Reserved.
Top
|