What's wrong with carbon trading?
Don't leave it to the market - leave it in the ground!
Carbon trading is the main way in which wealthy industrialized countries and companies are avoiding their emissions reduction targets – by trading carbon credits amongst themselves, either between countries (as happens under the Kyoto Protocol) or between companies (as happens under the EU Emissions Trading Scheme). Essentially, it’s the way that industry can continue as usual, while encouraging the poor and disadvantaged to sell their rights to pollute. This fact sheet is primarily for climate activists and independent journalists. We hope will also provide the basis for discussions, sloganeering & media work.
Carbon trading is aimed at the wrong goal
Carbon trading is aimed at the wrong target. It doesn’t address climate change. Solving climate change means figuring out how to keep remaining fossil fuels in the ground. It means reorganizing industrial societies’ energy, transport and housing systems – starting today – so that they don’t rely on coal, oil and gas. Carbon trading isn’t directed at that goal. Instead, it’s organized around keeping the wheels on the fossil fuel industry as long as possible and making it seem politically excusable to go ahead with new carbon-intensive infrastructure, like the 3rd runway at Heathrow and the proposed new coal-fired power plants, like the one at Kingsnorth. Carbon trading allocates industries a generous short-term numerical emissions budget and then tries – through trading – to make it cheap and easy for them to continue business as usual within those budgets, by buying credits from less economically developed countries and companies. We need climate action, not business schemes.
So far, carbon trading has been one disaster after another
Even if you were to accept that it might be a good idea, carbon trading has been a massive failure so far and doesn’t show any signs of improving. The price of carbon has always been so low that it’s always cheaper for companies to buy permits than to start paying for more expensive infrastructural changes. The allocations of permits have been so generous that a number of Europe’s biggest polluters have made HUGE profits by selling on permits that they didn’t need, or by passing on the cost of the permits to consumers – despite the fact that they have been handed out for free! E.ON is just one example of a company that has made billions in windfall profits so far from carbon trading. We need to learn from these mistakes, not replicate them.
Leaving it to the market is ineffective and undemocratic
Markets themselves aren’t a bad thing, but they are when artificially created and overly-complex, based on an ideological commitment to solving every problem through the market rather than a natural evolution of trading in existing commodities. Important decisions, discussions and demands about climate change are being swept aside in favour of ‘leaving it to the market,’ despite the fact that it’s a market whose parameters and rules have been largely determined by some of the biggest polluters around, teaming up with the same financiers responsible for the ‘structured investment vehicles’ and ‘credit derivative swaps’ that have brought economies crashing down. They say markets, we say democracy.
Carbon trading interferes with positive solutions to climate change
On India’s Bhilangana river, local farmers run a finely-tuned terraced irrigation system that provides them with rice, wheat, mustard, fruits and vegetables. This ingenious, extremely low-carbon system of agriculture is threatened by a new hydro-electric project designed to help power India’s heavy industry. Villagers may have to leave the valley, losing not only their livelihoods but also their knowledge of a uniquely sustainable modern technology. Is carbon trading stepping in to support the villagers’ piece of the solution to climate change? On the contrary. It’s supporting the hydropower company, which has hired consultants to argue that their dam will result in fewer carbon emissions than would have been the case if it had not been built. The firm plans to sell the resulting carbon emission rights to polluting companies in Europe. The example is typical of the way carbon markets are undermining positive approaches to climate change everywhere. The bulk of carbon credit sales under the Kyoto Protocol benefit chemical, iron and steel, oil and gas, electricity and other companies committed to a fossil-fuel intensive future, not communities, organizations or firms working to overcome fossil addiction. We need grass-roots, modern, sustainable solutions, not outdated financial interference.
The financial crisis rings enormous alarm bells about carbon markets
Carbon trading, like the financial system that led to current economic crisis, is characterised by incredibly complicated accounting procedures that very few people really understand. Just like our current financial institutions, it’s formed around a profit-driven motivation to make large numbers of transactions regardless of the ‘sub-prime’ nature of those transactions and fundamental problems in asset valuation. The whole concept of carbon trading is based on taking a ‘real’ need (in this case, the need to reduce carbon emissions) and abstracting that need into increasing complicated financial commodities and derivatives. There is a real parallel with the way a basic human need like housing, was transformed and abstracted through financial markets to ‘sub-prime mortgages’ and eventually ‘Structured Investment Vehicles’. The complexity of this process of creating financial derivatives doesn’t serve any human need other than making huge sums of money for small numbers of people, and in doing so creates enormous instability and turmoil once the house of cards inevitably collapses. We need grass-roots control of our needs and communities, not the disastrous instability of market based ‘solutions’.
Trading carbon doesn't cure our addiction to fossil fuels
Setting a price for carbon isn't even a very good way of stopping people emitting it. We use fossil fuels because we started using them and then it became a habit, this is called lock-in – the way a technology becomes ingrained in society even though it isn't the best available – a good example is the QWERTY keyboard – this arrangement of letters was designed because typewriters jam if you type too fast, on computers this isn't a problem but we still use the same technology that is obviously less good, and even if other keyboards were cheaper people wouldn't use them. This 'lock in' also doesn't respond to gradual changes, it requires a sudden change to break these irrational habits. We need to recover from our fossil fuel addiction, not prolong it.
Measuring emissions isn’t easy
One surprising problem with any numerical system of emissions restrictions is that it's quite difficult to measure them. Additionally, this sensitive and vital task is not done by an independent body: polluters themselves are actually responsible for collecting data on both their current and past emissions, data against which any reductions will be measured! There is evidence that one of the problems with the Emissions Trading Scheme is that the figures on which reductions were based were massively over estimated by the polluters. We need commitment to change, not complication, corruption & stagnation.
Carbon trading represents the total privatization of the planet
...or more accurately, it represents the privatization of the earths carbon cycling capacity. Up until now, this has been a ‘global commons’, something to which everyone has, in theory, enjoyed equal rights. Carbon trading has allowed rights to these commons to be allocated to the biggest polluters. We’ve enshrined the rights of factories and oil companies, but removed entitlements to individuals or marginalized communities. In decades past, many industries and services have been privatized due to an ideological belief that the market is the most effective way of allocating essential human needs. This has caused catastrophic problems in the Global South in the context of water, education and health care. Some things are too important to be ‘left to the market’.
If you were an energy company…
If you were an energy company that relied predominantly on fossil fuels and a worldwide carbon trading system was to be brought in: first, you'd be lobbying to make sure that the scheme suited you, then you'd get as many permits as possible by lobbying and claiming that your past emissions were higher than they really were. You'd find cheap ways to generate credits by buying into schemes that created permits (often in the developing world) and you'd employ a group of hotshot traders to buy and sell your permits to try and increase the number you had. In addition you'd ensue that the people regulating the system were as friendly to you as possible and you'd probably try and make sure that the emissions recorded for your power plants were recorded as low as possible. If all else failed, you'd pass on the increase in costs to your customers, perhaps even with a bit extra because all the energy companies will be doing the same. You could also invest some time in persuading the regulators that this technology was reducing emissions more than it really was. Each year as the government tried to reduce the number of permits, you'd also try and make sure that yours were cut a bit less than everyone else's, while your lawyers argued in the courts that the government can't take away what is essentially your property (your permits to pollute) without compensating you monetarily.
What are the alternatives to carbon trading?
This is a bit of a false question: it presumes that carbon trading has some sort of merit that justifies it being included in the selection of possible options available. Its like asking, what’s the alternative to implementing an ineffective, unjust system to deal with climate change that rewards the biggest polluters and that has very harmful consequences for communities in the Global South? The most obvious and rational alternative is to simply not do it. There are a wide variety of ways to reduce emissions that are appropriate for different individuals, communities, companies and countries. Any of many ways forward should be evaluated (along with important factors like equity and social justice) on the criteria of whether or not it allows us to move away from extracting and consuming large amounts of fossil fuels. Carbon trading does exactly the opposite ofthis – it sanctions further fossil fuel burning. Climate justice now!