EDITION: April - June 2010

WHAT IS CARBON TRADING?

Ana Digón



 















Leaders from most of the world’s countries were present in Copenhagen last December to participate in the negoti­ations of the United Nations Framework Convention on Climate Change (UNFCCC), with the aim of putting into place tools to curb greenhouse gas (GHG) emissions, which are widely understood to be one of the driving causes behind the climate chaos we are all witnessing already. So what exactly are the tools the UNFCCC is discussing, and which ones are central to the Copenhagen Accord that came out of the COP15 meeting? The main one is carbon trading, which proponents say will: help reduce emissions and do so at the lowest cost, stimulate investment in low-carbon infrastructure and help generate finances for developing countries to tackle climate change.
Carbon trading is like the stockmarket, but what is bought and sold is an artificially-created commodity: the right to emit greenhouse gases (GHG). It works like this: each industry is given a “cap” or limit to how much GHG they can emit, with the idea that caps will be lowered each year to encourage reductions in emissions. If an industry is emitting more than it should, however, it can buy the credits from another that is not emitting as much as it could. The caps themselves raise concerns for some, because industries who traditionally pollute a lot are given higher caps. Expert analysts say it means giving high polluters the prize of a “licence to continue polluting”, which they can then top up with credits bought elsewhere, and that it would be much more effective to impose legislation that forces industries to find and invest in ways to pollute less.
Carbon trading relies heavily on “offsetting”, which allows developed countries to meet their emission reduction targets by paying developing countries to deliver GHG reduction projects. One of the main tools to distribute this money is the Clean Development Mechanism (CDM), which awards funds to projects that will mean a reduction of emissions, for example to a factory in India so that it can put GHG filters on its chimneys. The “savings” in emissions (ie. how much less GHG is presumed to be entering the atmosphere than would have been the case in the absence of the CDM funds) then constitute “carbon credits” that can be sold to a factory in Europe, for example, that is emitting more than it should. Unfortunately, as many experts point out, this does not constitute a real reduction in emissions – instead, it creates a tradeable commodity (carbon credits) out of deducting what you hope will happen from what you guess would have happened. Another reality that many observers have noted is that, so far, the CDM is mainly investing in high-carbon and fossil-fuel technologies such as coal, instead of investing valuable funds in low-carbon ones, which means it could in fact be contributing to locking us into high-carbon pathways. Expert analysts warn that it could also contribute to locking poorer countries into poverty, as the cost of applying for CDM funds is upwards of $100,000, meaning only large companies can compete for the funds.





Another tool that is being used to facilitate offsetting is the REDD scheme (Reduced Emissions from Degradation and Defore­station), and its newer version which was mentioned in the Copenhagen Accord, REDDplus. The idea behind REDD is to offer financial incentives that will prompt those engaged in deforestation to switch to managing forests, which would reduce the emissions caused by deforestation of native forests (mainly in developing countries) and generate carbon credits that can be traded. Although this sounds like a great idea, expert critics reckon that in practice it serves to reinforce the trends of “paying the polluter” and providing lucrative opportunities only for those with money to invest, while the credits generated allow industries in developed countries to continue polluting. Unfortunately, REDD is also already known to be causing the displacement of local indigenous communities whose forests are fenced off from them when they are bought by foreign companies for offsetting, and is allegedly exacerbating corruption and poor governance in some countries with tropical forests. Worryingly, steps are now being taken towards declaring plantations (eg. palm oil) to be “forests”, which would mean that a pristine native forest would be worth the same on the carbon market as a palm oil monoculture, seriously threatening biodiversity and native species and livelihoods.




Carbon trading is a market-based tool which does not seem to tackle emissions directly, in contrast to more direct tools available to governments, such as taxation and regulation of emissions, or public investment towards a low-carbon economy. Another concern that many expert analysts are voicing is that, due to the complexity of the carbon markets and the involvement of speculators, there is a risk that carbon trading could result in a “carbon bubble” that could lead to a global financial crash similar or worse to the one caused by the recent subprime mortgage crisis.




In the meantime, carbon trading could be a dangerous smokescreen that lulls us into a false sense of security in which we feel that something efficient is being done about the climate challenge. However, its main drive is the economic interest of an elite (this new market was worth $126 billion in 2008 and is expected to reach $3.1 trillion per year by 2020) and it does not seem to solve the problems, but rather aims to maintain the lifestyle of the developed world, while it wastes valuable finances that should and could be spent on more grounded solutions.







Climate science is clear on the fact that reductions in emissions and a transition into low-carbon economies need to happen both in the developed regions and in the developing countries of the Global South, and they need to happen fast, if we are to avoid catastrophic climate change. While the North represents only 15% of the world’s population, it is actually responsible for 75% of global emissions, and many claim that it should exercise its moral obligation to make the biggest reductions in emissions and provide finances to the Global South, to compensate for the climate impacts they are already suffering, and to support clean development.





Unfortunately, climate negotiations are very much gridlocked around all these and other complex issues, and a globally binding deal that truly deals with the systemic reasons for our present crises seems very far away. In the meantime we, the people in the developed world, need to lead the way by looking at our own consumption habits and making the daily choices that allow us to tread lightly on our planet, showing our leaders that we are prepared to make the changes and sacrifices that will be required in order to put into place real solutions to the very real challenges we face. •





Text: Ana Digón