Carbon Trading - bad for the environment?

An interesting debate on MaxSpeak putting forward the idea that carbon trading may actually be bad for the environment. In the wake of the Mexico meeting the publication of this new report is of course timely.

This post was also picked up in an RGE econmonitor blog post here.

What these posts are using as their foundation is a new 360 page report or book published by Sweden’s Dag Hammarskjold Foundation together with the international Durban Group for Climate Justice and the UK-based NGO The Corner House.

Here are a few quotes to whet the appetite.

The growing debate over what to do about climate change promises to heat up further this week with the publication of an exhaustively-documented new book that says that the dominant “carbon trading” approach to the problem followed by the Kyoto Protocol and the EU Emissions Trading Scheme is both ineffective and unjust.

Carbon trading “dispossesses ordinary people in the South of their lands and futures without resulting in appreciable progress toward alternative energy systems,” said Larry Lohmann of the Corner House, the book’s editor. “Tradable rights to pollute are handed out to Northern industry, allowing them to continue to profit from business as usual. At the same time, Northern polluters are encouraged to invest in supposedly carbon-saving projects in the South, very few of which promote clean energy at all.”

Most of the carbon credits being sold to industrialized countries, Lohmann explained, come from polluting projects that do nothing to reduce fossil fuel use, such as schemes that burn methane from coal mines or waste dumps. The bulk of fossil fuels must be left in the ground if climate chaos is to be avoided, the book warns.

“This is the most absurd and impossible market human civilization has ever seen,” said Indian activist and researcher Soumitra Ghosh, a contributing author of one of the book’s nine detailed case studies on carbon projects in the South. “Carbon trading is bad for the South, bad for the North, and bad for the climate.”

From the start of Chapter 3

In which carbon trading, contrary to slogans about the universal effectiveness of markets in dealing with environmental and social problems, is shown to be ill-suited to addressing climate change. The experience of the US in pollution trading is demonstrated to be an argument not for, but rather against, making carbon markets the centrepiece of action on global warming.

Some more:

But I thought pollution trading was a huge success in the US!

That’s what carbon trading proponents often say. The reality is more complicated. US pollution trading schemes have produced no more reductions, and spurred less innovation, than traditional regulation, to say nothing of other possible programmes for cutting emissions. US pollution trading schemes have cut only short-term costs, and only for some actors, have raised many questions of equity, and in many ways have distracted attention from fundamental issues. Equally importantly, the conditions that made possible the bestdesigned US emissions trading scheme – the US’s sulphur dioxide programme – are simply not present in global regimes for controlling greenhouse gases.

I don’t understand. What could be wrong with trading? Isn’t trading always the most efficient way of reaching a given goal

Carbon trading’s claim to be ‘efficient’ is certainly its main attraction – together with its claim to be able to stimulate change in a relatively politically ‘easy’ way. But to decide whether such claims are true, you need to look carefully at specific cases.

Trading’s ‘efficiencies’ tend to conceal a lot of ‘inefficient’ stage setting: arranging infrastructure, working up a legal framework, and so forth. Global trade in paper pulp, for instance, becomes ‘efficient’ only after subsidies or violence have gone into building roads and ports; securing large-scale, contiguous areas for producing raw material; finding ways of convincing people that local land is of ‘greater economic value’ when under tree plantations than when treated as a commons; hiring and training police; ensuring sustained high demand; and so on. At the same time, trading is often a singularly inefficient way of attaining goals that require sweeping structural changes in society, or that place local rights before accumulation. It’s also ineffi cient when the necessary conditions for trading – measurement instruments, legal institutions and so forth – are inadequate. Where pollution trading is possible at all, it can get in the way of achieving changes of the kind required for breaking industrialised societies’ addiction to fossil fuels. Its cost savings, while often real, tend to fall only to some members of society. In addition, it can exacerbate political conflict. Pollution trading, in short, only makes harder the difficult job of broad-based political organising required for coping with global warming. To put it another way, the ‘efficiency’ that is fostered by trading is often not effective.

They then go to to provide 5 reasons. The book carries on in this vein.

The book is in the form of questions and answers and includes a large number of well researched facts and figures. This is an interesting read and is accessible to a wider readership. It includes a good explanation of the Coase theorem for example. It would also make an excellent foundation for an undergraduate dissertation for example.

The full 360 page PDF report can be found here. It is large.

As economists we must always look at all sides of any argument and this makes for interesting reading. The balance between the north and south does need to be looked at closely in my opinion. What are the benefits? Who gains? Who loses - there are always losers?