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Abstract
Human-induced climate change has become a prominent political issue, at both national and international levels, leading to the search for regulatory ‘solutions’. Emissions trading has risen in popularity to become the most broadly favoured government strategy. Carbon permits have then quickly been developed as a serious financial instrument in markets turning over billions of dollars a year. In this article, I show how the reality of permit market operation is far removed from the assumptions of economic theory and the promise of saving resources by efficiently allocating emission reductions. The pervasiveness of Greenhouse Gas emissions, strong uncertainty and complexity combine to prevent economists from substantiating their theoretical claims of cost-effectiveness. Corporate power is shown to be a major force affecting emissions market operation and design. The potential for manipulation to achieve financial gain, while showing little regard for environmental or social consequences, is evident as markets have extended internationally and via trading offsets. At the individual level, there is the potential for emissions trading to have undesirable ethical and psychological impacts and to crowd out voluntary actions. I conclude that the focus on such markets is creating a distraction from the need for changing human behaviour, institutions and infrastructure.
Notes
I wish to pay tribute to my former colleagues at the CSIRO for their support in my efforts to get this paper published without alterations. I also note the contribution towards achieving this made by Senators of the Australian Parliament and in particular Senator Milne. Thanks to Andrew F. Reeson for discussions, reflections and input, especially on section 5. I remain solely responsible for the contents.
This article has no association with the author's former employer the CSIRO. No such affiliation should be associated with the author in regards to this article or its citation.
In 2009, Australia overtook the US as highest per capita carbon dioxide emitter (see http://www.abc.net.au/news/stories/2009/11/18/2745751.htm). Amongst OECD countries Australia is the highest per capita emitter of all GHGs combined (see http://www.garnautreview.org.au/chp7.htm).
Australia only ratified the treaty in 2008 after a change of national government.
The EU ETS covers only major energy and industrial producers and so fails to cover the important transport and aviation sectors; the latter are hoped to be introduced after 2012 (European Commission 2008: 13).
CFCs were the primary concern prior to the Montreal Protocol which attempted their regulation. Since then unregulated substitutes have also arisen and created further problems (e.g. HFCs). Hydrochloroflurocarbons (HCFCs) are covered by Montreal but not Kyoto.
Adds to 101 per cent due to rounding up errors.
Of course countries or regions could take independent action and skip international negotiation. In the US, for example, some states have adopted their own targets and schemes in the absence of leadership at the federal government level.
In September 2009, the European Court of First Instance found in favour of Poland and Estonia, which had challenged the EC over their EU ETS caps for Phase II. Six other countries have launched appeals against national allocation plan decisions: Hungary, Czech Republic, Bulgaria, Romania, Latvia and Lithuania. See http://www.carbon-financeonline.com/index.cfm?section=lead&action=view&id=12416 [accessed 9 December 2009].
That countries are prepared to freely allocate pollution rights, while taxing labour and savings, suggests that economic efficiency is not actually a prime consideration.
http://business.theage.com.au/business/australia-demands-bushfire-exemption-in-carbon-treaty-20090613-c6h4.html [accessed 15 June 2009].
Nuclear power is excluded under Kyoto and so from both the EU and Australian schemes.
http://cdm.unfccc.int/Statistics/index.html [accessed 16 June 2009].
The Marrakesh Accords are the aggregate Decisions (2/CP.7 through to 24/CP.7) of the Conference of the Parties to the UNFCCC set down in its seventh session, held at Marrakesh, Morocco from 29 October to 10 November 2001. Those decisions were adopted in Montreal in November 2005.
IETA is a coalition of private companies including AES, Barclays Capital, Chevron Texaco, Conoco Phillips, DuPont, Ecosecurities, Gaz de France, Goldman Sachs, Gujarat Flurochemicals, J-Power, KPMG, Lafarge, Lahmayer, RWE, Shell, Total, Toyota, TransAlta, and Vattenfall (Lohmann Citation2006a: 146).
These include: agro-forestry in Guatemala and Ecuador for coal fired plants in the US and The Netherlands; tree farms in Uganda and Tanzania for gas-fired plants in Norway; monoculture forestry in Costa Rica; in India refrigeration plant HFC gas destruction, iron production, and failed mango plantings; rural solar replacing kerosene lamps in Sri Lanka to justify a gas-fired plant in Oregon; biomass and gas-fired plants in Thailand supporting coal burning in Japan; landfill methane combustion and natural gas pipelines in South Africa; and pig-iron, plantations and charcoal production in Brazil.
The change from the Montreal Protocol is stark, as there the aim was to ban synthetic gases (such as fluorocarbons) capable of severe environmental harm.
Firms may also undertake voluntary GHG emissions reductions, motivated by corporate social responsibility or a desired ‘Green’ image.
Lohmann (Citation2006a: 191–2) gives an example reported in the London Daily Telegraph. An executive learned from the Carbon Neutral Company that her carbon ‘footprint’ was 24 tonnes of CO2. Initial shock was replaced by relief that all she need do was to pay £156 to Carbon Neutral, which she stated was nothing compared to her expenditure on lipstick and magazines. The sales pitch was to relieve guilt over pollution relating to all those aspects of lifestyle and work which seem ‘essential’. Such marketing avoids the underlying issues, prevents more serious debate and reduces direct behavioural change.
This can of course apply equally to firms.
