Sunday, November 12, 2006

Is Carbon Trading really an "Obscenity"?

Kevin Smith in a BBC Green Room article agrues that Carbon Trading is inherently flawed. The economics of this article need to be carefully considered.

We are linking pollution haven type arguments (that developing countries have a "lower price" for pollution) and the workings of the Carbon Trading scheme and other market based solutions - could it be that these market based solutions are not so efficient after all - who wins and who loses? Are they vunerable to "capture"?

It boils down to the question of whether "free market environmentalism" is: working; is failing; could work eventually; is better than any alternative suggestion.

Undergraduates should try to pick out the "pros and cons of different public policies". Perhaps equity issues need to be considered as well as pure efficiency arguments.

Some interesting quotes are included below or read the full article by clicking:

'Obscenity' of carbon trading

If we want to curb climate change, carbon trading won't do, argues Kevin Smith in the Green Room this week. From the Stern Review to Europe's Emissions Trading Scheme, he argues, the aim of reducing emissions has been perverted by neo-liberal dogma and corporate self-interest.

In 1992, an infamous leaked memo from Lawrence Summers, who was at the time Chief Economist of the World Bank, stated that "the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable, and we should face up to that".

Sir Nicholas Stern argues that the cost-effectiveness of making emissions reductions is the most important factor, advocating mechanisms such as carbon pricing and carbon trading.

While dumping toxic waste in the global South might look like a great idea from the perspective of the market, it ignores the glaringly obvious fact of it being hugely unfair on those getting dumped upon.

In a similar way, Stern's cost-benefit analysis reduces important debates about the complex issue of climate change down to a discussion about numbers and graphs that ignores unquantifiable variables such as human lives lost, species extinction and widespread social upheaval.

In the current neo-liberal economic environment, trading rules inevitably succumb to the pressures of corporate lobbying and deregulation in order to ensure that governments do not "interfere" with the smooth running of the market.

We have already seen this corrosive influence in the European Union's Emissions Trading Scheme (ETS), when under corporate pressure, governments massively over-allocated emissions permits to the heaviest polluting industries in the initial round.

This caused the price of carbon to drop by more than 60%, creating even more disincentive for industries to lower their emissions at source.

There are all manner of loopholes and incentives for industry to exaggerate their emissions in order to receive more permits and thereby take even less action.

Market analyst Franck Schuttellar estimated that in the scheme's first year, the UK's most polluting industries earned collectively £940m ($1,792m) in windfall profits from generous ETS allocations.

Given all we know about the link between pollution and climate change, such a massive public concession to dirty industries borders on the obscene.

We are being asked to believe that the flexibility and efficiency of the market will ensure that carbon is reduced as quickly and as effectively as possible, when experience has shown that lack of firm regulation tends to create environmental problems rather than solve them.

There is a groundswell of opinion that the "invisible hand" of the market is not the most effective way of facing the climate challenge.

The Durban Declaration of Climate Justice, signed by civil society organisations from all over the world, asserts that making carbon a commodity represents a large-scale privatisation of the Earth's carbon cycling capacity, with the atmospheric pie having been carved-up and handed over to the biggest polluters.

Effective action on climate change involves demanding, adopting and supporting policies that reduce emissions at source as opposed to offsetting or trading.

Carbon trading isn't an effective response; emissions have to be reduced across the board without elaborate get-out clauses for the biggest polluters.

There is an urgent need for stricter regulation, oversight, and penalties for polluters on community, local, national and international levels, as well as support for communities adversely impacted by climate change. But currently such policies are nigh-on invisible, as they contradict the sacred cows of economic growth and the free market.

There is, unfortunately, no "win-win solution" when it comes to tackling climate change and maintaining an economic growth based on the ever increasing extraction and consumption of fossil fuels.

Market-based mechanisms such as carbon trading are an elaborate shell-game of global creative accountancy that distracts us from the fact that there is no viable "business as usual" scenario.

Climate policy needs to be made of sterner stuff.


Anonymous said...

Kevin Smith completely misses the point. He claims that carbon trading won't tackle CO2 emissions effectively. Utter rubbish. As long as the ceiling level of emissions is not exceeded (i.e. nobody emits without a permit) then CO2 emissions will be reduced. Remember, permits issued add up to less than the current level of emissions meaning a reduction is guaranteed.

Many people just don't like the idea of firms buying their way out of reducing pollution. But they miss the point. There will inevitably be teething problems, but the scheme will work.

Rob Elliott said...

One still has to follow the money. On CO2 you have a point but with local pollutants equity issues should be considered.

Who is really profiting from Permits - where does the money go? Have CO2 emissions fallen further than they would have done anyway given the advances in technology and the structural changes to the compositon of world production?