• June 7th, 2020

Carbon markets: Will trading lessen or worsen climate change impacts?

Victoria Tuwilika Shifidi

Carbon trading is like selling company shares on the stock market except that in this case it is not shares of a company that are sold, but shares of pollution. 
Globally, carbon dioxide (CO2) emissions (and other greenhouse gases (GHGs) in their CO2 equivalent) have become a tradeable commodity under a cap-and-trade system. In this trillion-dollar trade system, a price is put on carbon which will then enable entities to buy it in the same manner as stock and bonds, and each day on the world market, emissions can be bought and sold like any other commodity. 

The principle of this pro-market lobby was established in the 1997 Kyoto Protocol and carried on in the Paris Accord.
Industrial companies are awarded annual quotas of how much GHGs they may emit (a cap). Establishments that emit more than their allowed cap pay a fine or buy surplus allowance from those entities that stayed below their limit. 

If, hypothetically, Company A uses only, say 70 percent of its annual allocated carbon emissions quota, thereby having a surplus of 30 percent, and hypothetical Company B uses 130 percent, thereby having a deficit of 30 percent, Company A may sell its surplus to Company B (the trade) so that the latter can offset its emissions excess, making Company B look as if they did not pollute. 

Buying emission reduction credits will not extract pollution out of the atmosphere, but it perhaps eases Company B’s eco-guilt. 
Progressively, allocated quotas will then be reduced, increasing scarcity of emission reduction credits, thereby increasing demand for companies who want to increase production (unsustainably). Commodity price then starts to increase rapidly, becoming economically unsound for companies to keep buying credits or to emit, and therefore rather investing in renewable energies. 

It is a noble idea. On the other end, this creates a market because there is now money exchange in polluting. To this effect ‘unsustainable’ activities may be selfishly fuelled as thus far there have not been measurable and attributable reductions in emissions since the implementation of carbon trade and, instead, emissions have increased. Unintended consequences of legitimising increased emissions are counter-productive as businesses profit from a warmer world, forgoing mitigation and adaptation.

Corporations have long embraced the benefits of carbon trading as there had been several carbon   exchange markets, including the privately-owned Chicago Climate Exchange (CCX). 

The CCX (initially funded by a US$1.1 million grant from the Joyce Foundation of Chicago, of which then USA President Obama was a board member at the time) was developed by economist and university professor Richard Sandor and co-owned by environmentalist businessman Al Gore (former USA Vice President, and a popular author of ‘An Inconvenient Truth’ which partly strengthened the concept of global warming). 
The lucrative nature of carbon trading can only be understated, that Sandor himself pocketed just under U$100 million for his 16 percent share after selling CCX to a company involved in commodity trading. 

Other carbon market examples include the European Climate Exchange (ECX), European Energy Exchange (EEX), Power-Next Exchange, Nard Pool (NP), Blue Next Exchange and Climax Exchange all under the European Union Emissions Trading System (EU ETS); Chicago Climate Futures Exchange (CCFE); Montréal Climate Exchange (MCeX); and several Chinese climate exchange platforms. 

China, the world’s top GHGs emitter, is preparing to launch its national carbon market - which is expected to be the world’s largest.   
Dodgy industries can generate lucrative credits and in 2012, selling credits alone constituted more than 93 percent of a particular company operating in India. Big companies exploiting the developing countries’ environments and resources want to be paid for them to stop those illegal environmental atrocities such as improper gas flaring.  These industrial companies have been deceivingly profiteering from the UN’s Clean Development Mechanism (UN CDM) trading system by habitually doing something wrong, then rectifying it later only to be rewarded with saleable certified emission reduction credits and to profiteer from something that was supposed to be regulated in the first place.  An example is offsets approved by the UN CDM board involving illegal gas flaring in the Niger Delta and in which the big oil companies have received credits for stopping the improper flaring. Basically, these corporations get paid twice. They get the natural resources relatively cheaply, and they get paid indirectly for polluting and degrading the environments of the host nations. Elsewhere, companies have been proven to intentionally manufacture a powerful GHG or build a highly polluting facility, and then destroy the gas using cheap methods or later install a piece of equipment that keeps GHGs out of the atmosphere, only to get paid for it because such changes will be regarded as ‘green development’ or a move towards ‘greening’ under the CDM. 

Projects in developing countries sell credits to polluters in the developed countries only for polluters to easily offset their climate responsibilities and to continue polluting (and industrialising) without having to change their polluting ways. Perhaps the highly regarded EU ETS and the CDM need an honest practical review before new Carbon markets based on these systems are further established particularly in developing countries.   
* Victoria Tuwilika Shifidi is a public servant in the Ministry of Agriculture, Water & Forestry. She writes in her independent capacity.

Staff Reporter
2018-12-07 10:36:39 | 1 years ago

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