Kevin Smith | ukwatch.net

Carbon Trade-off

JamieSW — Tue, 05 Aug 2008 13:07:06 +0000

There’s a global gold rush taking place, with a stampede of investment galloping towards the various forms of carbon trading and offsetting that have been rolled out to supposedly deliver global emissions reductions in the most cost-effective way. Advocates of the booming carbon market say that, in today’s world, it’s green, not greed, that’s good.

In Asia, the biggest involvement in the carbon market has been through the Clean Development Mechanism (CDM). This is a regulated market under the Kyoto Protocol by which countries and companies in the developed world can meet their emissions reduction targets by buying carbon credits that have been generated through projects that bring about reduced or avoided emissions in developing countries. In 2007 this market was worth US$17.5 billion, an enormous 200 per cent increase in market value since 2006. Asia has so far been the global leader in generating CDM credits – in 2007, China alone provided an enormous 62 per cent of the credits on the market, while Indonesia was responsible for 10 per cent and India 5 per cent.

Increasing numbers of critics are challenging the rosy win-win portrait of the CDM market that has been painted. Some commentators in the countries in which the projects are being undertaken, have seen it as creating a new colonial commodity in which the ability to make cheaper reductions in the developing world is being treated as a new resource to be extracted and profitably used for the benefit of Western countries.

Aside from this more politicised perspective of the market, the CDM appears to be failing by the standards it has set itself, with many people asking what happened to the “D” in CDM? The market has been draped in benevolent rhetoric of sustainable development, so that projects are only supposed to qualify for carbon financing if they have some sort of development benefits. In practice, host governments need only rubber stamp their approval to this condition, and genuine developmental benefits on the ground have proven to be elusive to the point of non-existence. An article in the September 2007 academic journal, Climatic Change, stated that, “Close to 200 studies on the CDM have been carried out since its birth in 1997… The main finding… is that, left to market forces, the CDM does not significantly contribute to sustainable development.”

Critics of the CDM have pointed out that, not only do the projects not contribute to development, but, in many cases, the recipients of the money are large, polluting industries that are responsible for all kinds of adverse environmental impacts to the communities who have to endure them. Many thousands of residents of the state of Chhattisgarh, India, have mobilised against the expansion of Jindal Steel and Power Limited’s notoriously polluting sponge-iron factories. Yet the biggest of these factories in the world, which is currently threatening to wipe out three neighbouring villages in a proposed expansion, is currently earning enormous amounts of money and some degree of environmental credibility for having four separate CDM projects on the go.

CDM money is also being used to support the palm oil biofuel industry in Indonesia, which has recently been the subject of a great deal of global concern over its social and environmental impact. In Riau, Indonesia, PT Murini Samsam, a wholly owned subsidiary of the Wilmar Group, received US$8 million in DM funding to expand its crude palm oil refinery.

Leaving aside the issues of sustainable development and the impact on communities, the question that needs to be asked is if the CDM is genuinely providing climatic benefits. One of the thorniest problems with this is “additionality.” The carbon financing through the CDM is supposed to provide emissions reductions above and beyond what would have happened if the money hadn’t been available – i.e in addition to business as usual. If this is not the case and a project that was going to happen anyway is used to justify emissions elsewhere, it can result in a net increase in atmospheric carbon.

Despite the regulatory procedure that is supposed stringently to guarantee that emissions reductions under the CDM are all additional, the market seems to be riddled with examples to the contrary. An adviser to the executive board of the CDM in 2006 conducted an investigation into CDM projects in India and concluded that one third of them were non-additional.

China is home to the lion’s share of hydro-electricity projects registered under the CDM – at the end of 2007, 402 of the 654 hydropower projects in the CDM pipeline were to be found in China, generating 71 per cent of the global annual carbon credits expected from this project category. Given that the Chinese government has been promoting such hydropower development for many years, there are grounds for being suspicious that these projects were happening anyway, and that the government had simply applied for additional funding through the carbon market. The pressure group International Rivers conducted a study that showed that the rate of construction of new hydropower projects in China has been constant for some time. The fact that there has been no significant increase since such carbon financing became available strongly suggests that these projects are simply generating hot air.

Commentators are starting to draw attention to the parallels between the recent sub-prime mortgage credit crunch and the carbon market. In both financial spheres, there is enormous pressure to push through large numbers of transactions regardless of the quality of the deals being done. The UN body administering the CDM has admitted that there is “a clear and perceived risk of collusion” between the project developers and the private, third-party auditors, who are supposed to be verifying the quality of the credits. If in five or 10 years’ time, it becomes even more widely apparent that the majority of CDM credits that have been profitably generated and sold were based on dubious methodologies or even outright deceit, then the impact could be even more catastrophic than the recent financial instabilities caused by the credit crunch. And unlike the global credit crisis, no injection of capital will be able to turn the clock back on an ever-decreasing window of opportunity to meaningfully address the climate crisis.

Offset Standard is Off Target

Ellie Keen — Thu, 03 Apr 2008 21:37:23 +0000

Offset companies across the UK were petulantly stamping their carbon footprints recently following environment minister Hilary Benn’s announcement of a new ‘kitemark’ scheme for the sector. Voluntary offsets promise consumers the chance to pay extra to assuage their guilt when they fly or engage in other carbon-intensive activities. But they have been heavily criticised for making bogus claims about emissions reductions, and for funding projects that adversely impact upon communities in the global South.

In a move designed to weed out the carbon cowboys, Benn’s proposal is that only offset providers using the Kyoto Protocol’s ‘clean development mechanism’ (CDM) will qualify for the government’s seal of approval. This currently excludes all but a handful of offset companies in the UK. Most of the industry has been delegitimised at a single stroke, including such outfits as Climate Care and the Carbon Neutral Company, who have always taken pains to portray themselves as the good apples in the bad bunch.

That’s the good news. The bad news is that Benn’s measure is only temporary. In response, eight of the largest offset providers in the UK are forming an industry coalition to create their own ‘self-regulating’ standards that would replace the government’s best practice code.

There is even worse news when you look at what the CDM entails. As with voluntary offsets, it is designed to shift the burden of cutting emissions onto poorer countries in the South. A range of research has shown that the same problems of corruption, bogus emissions reductions and harm to communities occur within the CDM as with the voluntary offset market.

To take just one recent example, the Oxford-based carbon broker, Ecosecurities, recently sold CDM credits generated by a wind farm in Maharashtra, India. Fantastic, you might think, this is exactly what the carbon market should be all about, promoting renewable energy in Southern countries. A visit to the project in 2007 revealed a different picture. The gigantic wind farm had been built on traditional grazing grounds and provided no energy to the villagers themselves. Those who resisted met with repression.

The company responsible for the project, Tata Motors, also has an appalling environmental and human rights record in India. When people buy these credits, they are putting money in the pockets of those responsible for violent industrial expansion and land appropriation on the other side of the world.

There’s also the thorny issue of additionality. Carbon offsets are supposed to provide investment for emissions reduction projects that wouldn’t otherwise have happened. If not, they are simply selling ‘hot air’.

But a 2006 investigation in India, conducted by an adviser to the CDM executive board (which regulates the scheme), conservatively estimated that one-third of all projects failed to be ‘additional’. An extensive study of CDM hydro-electricity projects, meanwhile, found that almost all such projects were already under construction when they applied for carbon financing – suggesting that ‘additionality’ in this sector is in very large part a fiction.

There is a basic catch-22 with offsets and regulation. The more you regulate, the more expensive it becomes to enter the market, so the more you push it into the hands of the big corporate bad guys with enough money to make it work for them. The less you regulate, the greater the openings for chancers who claim that they’re generating offsets from any old nonsensical scheme.

Establishing a code of best practice does, at least, acknowledge the serious problems with existing offset schemes. But it also reinforces a false dichotomy of good versus bad offsets that distracts attention from their more fundamental problems. No number of regulatory frameworks or best practice codes can resolve the fact that offsets are snake oil, a nonsensical commodity that reduces the problem of tackling climate change to a short-sighted cost-benefit analysis that foists projects on communities ‘over there’, irrespective of the social costs, and is cheaper than making political and social changes here.

Kevin Smith is a researcher at Carbon Trade Watch (www.carbontradewatch.org), a project of the Transnational Institute, and author of the forthcoming Hot Air and Snake Oil: The Top Ten Carbon Offset Upsets

Carbon Trading: The Limits of Free-Market Logic

Tim Holmes — Sat, 29 Sep 2007 15:02:25 +0000

If, as their proponents claim, carbon markets are wonderful tools for bringing about emissions reductions and provide economic support for clean technologies in the global south, then we should ask one question: why have they been met with a mounting chorus of criticism from civil-society organisations, social movements and journalists around the world?

Plans are being made, through processes like the G8+5 Climate Dialogue for countries like China (ie countries currently without commitments under the Kyoto Protocol) to adopt carbon trading as part of their climate policy, and there needs to be an assessment of whether such schemes really work in reducing atmospheric carbon – or if they are simply a means for polluting industries to profitably avoid the issue of making emissions cuts.

Cap and trade

The free-market logic behind the scheme looks simple on paper. Countries taking part in “cap and trade” schemes like the European Union Emissions Trading Scheme (EU-ETS) have a limit set on the amount of carbon they can emit in a given time period (the “cap”). This allotted amount of carbon is carved up and allocated between different industrial locations in the country. If, for example, a cement factory goes over its allocated portion of carbon emissions, it has to purchase spare emissions from another market participant, for example, a power station that has emitted less than its allocation, and can therefore sell profitably sell them on (the “trade”).

The problem lies in the fact that carbon trading is designed with the express purpose of providing an opportunity for rich countries to delay making costly, structural changes towards low-carbon technologies. This isn’t a malfunction of the market or an unexpected by-product: this is what the market was designed to do. The economist John Kay wrote in the Financial Times: “when a market is created through political action rather than emerging spontaneously from the needs of buyers and sellers, business will seek to influence market design for commercial advantage.” In terms of climate change and carbon trading, the “commercial advantage” (at least in the short term) lies in avoiding the costly structural changes, and industry has influenced every stage of the design and implementation of the carbon market to this end.

Businesses and industries in the global north have avoided making these infrastructural changes by ensuring that the price of carbon permits is kept absurdly low. It is much cheaper for industry to purchase cheap carbon credits to make up any emissions short-falls than to implement the technologies that would actually bring about real emissions reductions at source.

The low price of carbon permits was ensured in the first round of the EU-ETS by governments handing many more emissions permits to industry than was necessary; the majority of industrial locations had more emissions permits than they needed. When news of this massive over-allocation was revealed, it caused the price of carbon to drop dramatically. Economists estimate that carbon permits should be priced at around 30 to 50 euros per tonne in order to create sufficient incentives for low-carbon technologies. Towards the end of the first round of the EU-ETS the price of permits was regularly dipping below one euro per tonne.

Market enthusiasts argue that the “cap” will be tightened in the second round, causing the price of carbon to rise. But in order to prevent this happening, business has lobbied for a means of importing more cheap credits into the system, generated in countries like China, through the Clean Development Mechanism.

Clean development?

Instead of trading with other market participants in Europe, another option for our cement factory would be to purchase “carbon credits” that have been generated outside of the trading scheme, through a project in a developing country that supposedly reduces or avoids emissions. An example would be a hydro-electric power station in China that has sold its supposed emissions reductions to companies from rich countries as part of the Clean Development Mechanism (CDM). China has been the world leader in this market, generating some 60% of all CDM credits in 2006.

The CDM has had some bad publicity in the last six months. An article in The Guardian newspaper in June 2007, said: “[the CDM] has been contaminated by gross incompetence, rule-breaking and possible fraud by companies in the developing world, according to UN paperwork, an unpublished expert report and alarming feedback from projects on the ground.”

Despite the regulatory framework that surrounds the CDM, there is both the incentive and the opportunity for project developers to distort key information, so as to make a project appear more effective and generate more credits – or gloss over any local resistance to the project.

For example, the principle of “additionality” is a pre-requisite for a project to qualify for CDM status: it has to be proved that the project would not have taken place without the funding provided through the CDM; any climate benefits should be additional as a result of the funding. Otherwise, unscrupulous operators could simply claim carbon funding for projects that would have taken place anyway, meaning industries in rich countries could justify further pollution on the false premise of being responsible for emissions reductions elsewhere.

However, many CDM projects under consideration in China involve generating hydro-electricity: there are 248 currently in the pipeline. There are strong grounds to be extremely sceptical over whether these are genuinely additional, given that such projects are very common in China, and have been actively promoted by the government. The question arises over whether they would have been happening had it not been for CDM funding. In 2005, the International Rivers Network submitted a comment to the CDM panel in reference to the Xiaogushan Large Hydroelectric Project in northwest China’s Gansu province, which pointed out that the application for CDM funding was submitted two years after the construction of the dam had begun, and that “project documentation from the Asian Development Bank clearly states that Xiaogushan was the least–cost generation option for Gansu and that revenue from CDM credits was irrelevant to the decision to go ahead with the project.”

It is not well documented whether there is local support for the various hydro-electric projects in China that are being promoted through the CDM, which as a pre-requisite should bring developmental benefits to local communities. Many of the corporate benefactors of CDM money in other countries are the target of sustained local resistance from communities who have to endure the often life-threatening impacts of intensive, industrial pollution.

In 2005, about 10,000 people from social movements, community groups and civil society organisations mobilised in Chhattisgarh, India, to protest the environmental public hearing held for the expansion of Jindal Steel and Power Limited (JSPL) sponge iron plants in the district. The production of sponge iron (an impure form of the metal) is notoriously dirty, and companies involved have been accused of land-grabbing, as well as causing intensive air, soil and water pollution. JSPL runs the largest sponge-iron plant in the world, which is spread over 320 hectares on what used to be the thriving, agricultural village of Patrapali. This plant alone has four separate CDM projects, generating millions of tonnes of supposed carbon reductions that could be imported into the EU-ETS. The inhabitants of three surrounding villages that would be engulfed are resisting a proposed 20 billion rupee (around US$412 million) expansion. In this case, the CDM is not only providing financial assistance to JSPL in making the expansion, but also providing them with “green” credibility by putting them at the forefront of the emerging carbon market.

The head of China’s environmental agency, Zhou Shengxian recently attributed the rise in social unrest across the country to pollution scandals and the degradation of the environment. An article in the Guardian newspaper said that his comments “underscore the frustration of state mandarins at local government officials who ignore environmental standards in order to attract investment, jobs and bribes.” Given such circumstances, it is highly possible that the CDM will provide financial support to the sort of environmentally irresponsible power and chemical plants that are increasingly becoming the target of community protest in China.

Pollution and power

The largest share of CDM credits worldwide (30%) has been generated by the destruction of HFC-23. This potent greenhouse gas is created by the manufacture of refrigerant gases. A study in the February 2007 article of Nature showed that the value of these credits at current carbon prices was 4.7 billion euros. Not only was this twice the value of the refrigerant gases themselves, but it was also estimated that the cost of implementing the necessary technology to capture and destroy the HFC-23 was less than 100 million euros: something in the region of 4.6 billion euros was being generated in profit for the owners of the plants and the project brokers. In an article in the Sunday Times, it was reported that two Chinese companies were set to make around US$1 billion in 2007 alone as a result of CDM money given for the destruction of HFC-23.

This enormous sum of money generated by these Kyoto-style trading schemes has not gone to the companies and communities who are taking action on clean energy and energy-reduction projects, but rather to big, industrial polluters who are then at liberty to reinvest the profits into the expansion of their operations. Ashish Bharat Ram, the managing director of an Indian company that reported a profit of 87 million euros from the destruction of HFC-23 in 2006 and 2007, told the Economic Times that: “Strong income from carbon trading strengthened us financially, and now we are expanding into areas related to our core strength of chemical and technical textiles business.”

The structure of the CDM is such that it is usually an option reserved for large companies who can provide the capital needed not only to implement the project, but also to go through the long process of accreditation and certification, with all the attendant expenses of carbon consultants, third-party verifiers, ongoing project monitoring and so forth. Larry Lohmann argues in his book Carbon Trading – A Critical Conversation on Climate Change, Privatisation and Power that this “reinforces a system in which, ironically, the main entities recognized as being capable of making ‘emissions reductions’ are the corporations most committed to a fossil-fuel burning future… while indigenous communities, environmental movements and ordinary people acting more constructively to tackle climate change are tacitly excluded, their creativity unrecognized, and their claims suppressed.”

It seems that the only people who are benefiting from the carbon market and CDM projects are the polluting corporations that are involved in both Europe and the global South, as well as the new class of handsomely-salaried carbon technocrats and brokers, which has sprung up to service the needs of the market. There is an urgent need to recognise that the market’s fixation on short-term profit maximisation is not an appropriate instrument to induce the large-scale and costly infrastructural changes that need to take place in all countries in the transition to low-carbon economies.

Kevin Smith is a London-based researcher with Carbon Trade Watch, which is a project of the Transnational Institute. He is the author of the reportThe Carbon Neutral Myth – Offset Indulgences for your Climate Sins and the co-author of Hoodwinked in the Hothouse – the G8, Climate Change and Free Market Environmentalism.

www.chinadialogue.net

Profiting From Pollution - the G8 and Climate Change

Alex Doherty — Sat, 26 May 2007 17:23:26 +0000

Tackling climate change is likely to be at the top of the agenda at this month’s G8 summit in Heiligendamm, Germany. But the emissions trading schemes promoted by G8 countries are deferring genuine climate action, while generating massive profits for the largest polluters. Kevin Smith investigates

The hegemony of the G8 in international forums such as the United Nations Framework Convention of Climate Change means that global climate policy is being chosen for its compatibility with the existing economic system rather than its effectiveness in reducing emissions.

Carbon trading is central to this approach. It turns the earth’s carbon-cycling capacity into property to be bought or sold in a global market.This use of market forces to address environmental problems takes two forms. First, governments allocate permits to big industrial polluters who then trade these ‘rights to pollute’. Second, surplus carbon credits are generated from carbon offset projects that claim to reduce or avoid emissions in other locations, usually in Southern countries.These credits may be purchased to top up any shortfall in permits. Under the Kyoto Protocol, such offset projects are carried out in the South through the Clean Development Mechanism (CDM), or in Northern countries through Joint Implementation (JI).

The market is growing enormously.A World Bank report valued it at US$21.5 billion for the first three quarters of 2006, up 94 per cent on its value of $11.1 billion in 2005.

Gleneagles onwards

Despite the hype, the 2005 G8 summit in Scotland produced little in the way of concrete action in dealing with climate change.The final communiqué made limp resolutions to ‘promote’ better practice on climate change, with no mention at all of reducing the rate of extraction and consumption of fossil fuels. Blair was widely praised, however, for bringing the heads of state of Brazil, China, India, Mexico and South Africa to the negotiating table, and it was with these countries that the G8 plus 5 Climate Dialogue was launched.The dialogue brings senior legislators together with international business leaders, civil society representatives and opinion leaders to discuss a post 2012 climate change agreement, with the aim of agreeing a consensus statement at the G8 2008 Japan summit.

The dialogue has a heavy bias towards trading schemes as the best way of dealing with climate change, with one of its four working groups dedicated specifically to developing market mechanisms. Furthermore, the G8 plus 5 summit has mandated the World Bank to facilitate the creation of a framework for climate change management, clean energy and sustainable development.This is in spite of the fact that the World Bank is part of the climate problem rather than the solution: since the UN climate convention was signed at Rio earth summit in 1992, the Bank Information Centre calculates that the World Bank has single-handedly financed over $25 billion in fossil fuel based projects. In response to the G8 mandate, the World Bank produced a report called Clean Energy and Development:Towards an Investment Framework, an updated version of which was presented at the G8 plus 5 meeting in Mexico in October 2006.

The report promoted carbon trading as the main means of financing the development of clean technology.

The Bank’s promotion of emissions trading through the G8 plus 5 creates a clear conflict of interest in that it is also the largest public broker of carbon purchases, with over $1 billion in its carbon credit portfolio. It generates a great deal of revenue for itself through receiving a percentage commission on all the carbon credits it purchases to administer through its Prototype Carbon Fund.Through its influence in political processes like the G8 plus 5, it has actively lobbied to make the CDM a more attractive proposition for investors and less effective in terms of actually reducing emissions.

The G8 plus 5 met again in February 2007 in Washington, at a meeting spearheaded by five US senators who have introduced a congressional bill that would allow US companies to certify emissions reductions, which may be traded on the international market to other nations. Keynote speakers included German chancellor Angela Merkel as well as Nicholas Stern, whose influential Stern Review on climate change has been promoted as providing the economic rationale for the global carbon market, and Paul Wolfowitz, president of the World Bank.

It is not yet clear what targets there are for dealing with climate change at the 2007 G8 summit in Germany, but the majority of governments, industry and international financial institutions are keen to see the groundwork laid for an international emissions trading framework to extend beyond the 2012 Kyoto commitment period that will include the other greenhouse gases and other emissions-producing sectors, such as the airline industry.

Carbon trading won’t work

The G8 and free-market environmentalists have been at the forefront of championing a rosy narrative of ‘win-win’ scenarios in which the quest to maximise corporate profits can go hand in hand with addressing the climate crisis. But this is largely an act of faith, as there is no evidence that climate change can be tackled while maintaining an economic growth pattern based on the ever-increasing extraction and consumption of fossil fuels. Carbon trading encourages the industries most dependent on coal, oil and gas to delay shifting away from fossil fuels. There is little incentive for expensive plans for long-term structural change if you can get by in the short term by buying cheap permits-pollution rights from operations that can reduce their emissions.Yet for G8 countries seeking to demonstrate their commitment to climate action, these inherent problems of emissions trading are swept aside in favour of a system that sustains the economic dominance of the most powerful industrialised nations.

The G8 nations and emissions trading

France, Germany, Italy & UK

Since the start of 2005, France, Germany, Italy and the UK have been participating in the European Union Emissions Trading Scheme (EU-ETS), the biggest experiment yet in carbon trading, and the harbinger of the global market that will begin in 2008. The EU-ETS works on a ‘cap and trade’ basis. The amount of permissible carbon pollution is divided up between industrial locations (called ‘installations’ in the scheme) across Europe – this is the ‘cap’ part. If any installation goes over its limit, it must purchase the equivalent amount of permits on the market, and conversely, if an installation is under its limit, it can sell its shortfall on the market – this is the ‘trade’ part.

The first phase of the scheme has been a disaster. Under sustained corporate lobbying, almost all EU governments made huge overallocations of permits to industry in the first phase. In 2005, the first year of trading, the relevant industries across Europe emitted 66 million tonnes less than the cap that had been allocated. This meant that the cap was effectively meaningless as it had not forced any net emissions reductions. A preliminary analysis of the 2006 data shows that 93 per cent of the 10,000 installations covered by the ETS emitted less than their allotted quota.

These over-allocations have resulted in windfall profits for the biggest polluters who, in successfully exaggerating their need for emissions allowances, received enormous amounts of permits that they could then profitably sell on. The companies also made money by passing on the nominal ‘market costs’ of these free permits to consumers. The German environment minister has claimed that the four biggest European power producers – Eon, RWE, Vattenfall and EnBW – have profited from this to the tune of Ř6 billion and Ř8 billion. With the second phase of the EUETS due to start in 2008, the evidence suggests that lessons haven’t been learnt. A working paper released in November 2006 by German researchers said that of the 25 second-phase national allocation plans submitted for EU approval, 18 were too generous, and many of the new caps were set above 2005 emissions levels.

Japan

As the most energy-efficient country in the industrialised world, Japan is struggling to meet its Kyoto commitment to below 6 per cent of 1990 levels (current levels are 8 per cent higher than 1990). Consequently, Japan is heavily committed to using emissions trading to make up the shortfall. The Japanese government set aside 5.4 billion yen (US$45.9 million) in its 2006 budget to purchase carbon credits from abroad, and has approved some 41 predominantly CDM projects, in countries such as Malaysia, India, South Korea, Indonesia, China and Vietnam, with even greater numbers of such projects in the pipeline. In addition, Japan is one of the biggest investors in the World Bank Prototype Carbon Fund, with eight out of the 17 corporate investors being Japanese corporations, as well as the government’s own Japan Bank for International Cooperation.

Canada

Canada’s conservative government has been making disgruntled noises about its Kyoto commitment of reducing its emissions to 6 per cent below 1990 levels. Environment minister Rona Ambrose has stated this target is ‘impossible’, that the EU trading scheme was a failure, and that the CDM was little more than a recipe for corruption and wasted money. The conservative administration has not delivered on promised funding for the CDM executive board, the international body that oversees and approves CDM projects, and it has underfunded the Canadian office for administering CDM and JI schemes to the point of its near irrelevance.

Russia

The collapse of Russia’s economy during the 1990s has seen a slump in emissions, at one point reaching 40 per cent below 1990 levels. This has resulted in Russia having a huge supply of surplus carbon credits that it can sell on to other countries when the global emissions market opens for business in 2008. But these have been achieved by external circumstances rather than by the country having implemented any sort of energy efficiency or renewable energy measures, an example of how emissions trading can be profitably exploited with no sustainable action to tackle climate change. Not surprisingly, Russia has been enthusiastic about its opportunities to profit from emissions trading, with one World Bank estimate suggesting that it could profit by $11 billion under Kyoto.

USA

George Bush famously refused to ratify the Kyoto Protocol in 2001, so the US is not taking part in emissions trading in order to meet any domestic compliance targets at the national level. Yet several private initiatives, including the Chicago Climate Exchange, are trading in offset credits. With the recent Democrat takeover of Congress the US attitude to emissions trading looks set to change. Ten US corporations, including DuPont and General Electric, have joined with green groups to form the US Climate Action Partnership to urge Bush and Congress to create a carbon market for the US. At the 2007 World Economic Forum in Davos, chief executives of European and US power and industrial companies said that the US needs to lead the way in setting up a global carbon emissions trading regime.

Kevin Smith is researcher at Carbon Trade Watch, co-author of Hoodwinked in the Hothouse: the G8, Climate Change and Free Market Environmentalism and contributor to G8 Club Governance.

Obsenity of Carbon Trading

jo — Sun, 19 Nov 2006 19:24:25 +0000

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”.

The recently released Stern Review on climate change, written by a man who occupied the same position at the World Bank from 2000 to 2003, applies a similar sort of free market environmentalism to climate change.

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.

‘Junk economics’

Cost-benefit analysis can be a useful tool for making choices in relatively simple situations when there are a limited number of straight-forward options to choose from.

But as Tom Burke, visiting professor at Imperial College London, has observed: “The reality is that applying cost-benefit analysis to questions such as [climate change] is junk economics… It is a vanity of economists to believe that all choices can be boiled down to calculations of monetary value.”

Some commentators have applauded the Stern Review for speaking in the economics language that politicians and the business community can understand.

But by framing the issue purely in terms of pricing, trade and economic growth, we are reducing the scope of the response to climate change to market-based solutions.

These “solutions” take two common forms:

under emissions trading, governments allocate permits to big industrial polluters so they can trade “rights to pollute” amongst themselves as the need arises
another approach involves the generation of surplus carbon credits from projects that claim to reduce or avoid emissions in other locations, usually in Southern countries; these credits may be purchased to top up any shortfall in emissions reduction
Such schemes allow us to sidestep the most fundamentally effective response to climate change that we can take, which is to leave fossil fuels in the ground. This is by no means an easy proposition for our heavily fossil fuel dependent society; however, we all know it is precisely what is needed.

What incentive is there to start making these costly, long-term changes when you can simply purchase cheaper, short-term carbon credits?

Forcing the market

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.

Community interest

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.

Kevin Smith is a researcher with Carbon Trade Watch, a project of the Transnational Institute which studies the impacts of carbon trading on society and the environment.

This article orginally appeared here http://news.bbc.co.uk/1/hi/sci/tech/6132826.stm