Many claim that carbon trading is an effective mechanism for reducing emissions. It has failed spectacularly – yet lots of governments remain committed to it.
The rationale behind carbon trading goes like this. Polluting companies are issued with free carbon credits that allow them to emit a certain amount of carbon dioxide.
If they want to emit more they have to buy more credits – making it more expensive to pollute. In contrast, if they don’t use up their credits, they can sell them to other polluters and make money – creating an incentive to pollute less.
It sounds straightforward. But carbon trading has allowed businesses to emit more carbon, more cheaply. The European Union’s European Trading Scheme has been operating since 2005.
In 2006 Britain emitted 6.4 million tonnes more carbon than in 2005. In 2007 Britain’s emissions rose again. Some 16 million more tonnes of carbon were emitted across Europe.
Emissions rose yet again in 2008 and they are rising faster.
Carbon trading has turned carbon into a commodity – and it is big business. It’s estimated that the global carbon trading industry will be worth $3.1 trillion by 2020.
But it has been a disaster. Under the scheme, governments gave out more credits than the total amount of carbon emitted. This allows firms to increase their emissions and sends the value of the credits plummeting, making it cheaper for everyone to pollute.
The biggest winners from carbon trading are the biggest polluters. Ofgem, Britain’s energy regulator, has estimated that the Britain’s power companies will receive a £9 billion windfall out of free carbon credits between 2008 and 2012.
Firms are being handed money while doing nothing to halt climate change.
Even if governments slashed the number of free credits, unlikely in the face of powerful business lobbying, firms have a myriad of ways to grab more. “Carbon offsetting” is one of them.
Companies can get extra carbon credits if they invest in projects to cut emissions in the developing world. This is known as the Clean Development Mechanism (CDM). They can then use these credits to emit more themselves, or trade them so that someone else can.
This is supposed to create an incentive for businesses to invest in green initiatives. But companies are getting credits for projects that would have happened anyway – and many are far from green.
In 2008, more than a third of official CDM projects were hydroelectric dams. But most were either under construction or completed before anyone applied for carbon credits. Construction started on the Xiaogushan dam in Gansu province, China in 2003. Yet it later qualified for carbon credits.
Some of the projects are destructive – burning biofuels, for example. And CDM gives Western companies a green light to pillage poorer countries in the name of saving the planet.
Poorer countries become trapped into carbon-intensive development, with some money used to support the building of fossil fuel power stations and other carbon intensive industries. Britain is at the heart of it – nearly 30 percent of the world’s 2,500 CDM projects originate in London.
The British government then uses this “offsetting” to justify things like expanding Heathrow airport. Trading and offsetting entrench the idea that the only way to get investment in clean, renewable energy is to allow investment in dirty energy too.
It also shores up the power of the most powerful and influential.
Relying on market mechanisms doesn’t work whatever the state of the market – but what happens when those mechanisms go into crisis?
Boom or slump, big business wins. During the boom, cheap (or free) permits flood the market encouraging pollution.
As the recession hit, polluting companies cashed in their carbon credits. The price collapsed.
This doesn’t mean that less carbon is emitted – other companies are still buying the credits and emitting the carbon. The whole process makes emitting carbon cheaper.
Carbon trading and offsetting was not devised to save the planet. It was devised to protect the power of the polluters and allow them to continue, and even increase, their emissions. In that sense, it has been a resounding success.