Bali climate conference reaffirms carbon trading scam

Issue 

Amid audible gasps of relief, on December 15 the US delegation to the United Nations climate change conference in Bali signalled that Washington would be part of the "Bali Roadmap" for combatting global warming. With the US on board, a two-year process of discussion would begin — hopefully to culminate in the adoption of a new pact to replace the Kyoto Protocol, due to expire in 2012.

But no-one was breaking out the champagne. The US consent had come at an ominous price. Time-frames had been left vague or non-existent. Negotiators for US President George Bush's administration had forced any specific targets for emission cuts to be dropped from the roadmap. The point had been rammed home that any international pact that grew from the Bali conference would depend strictly on Washington's readiness to accept its provisions.

And well before the tense, drawn-out final session at Bali, it had emerged that the shambolic system of international carbon emissions trading set up on the basis of decisions taken at Kyoto in 1997 would remain. Moreover, the system had been given a new reach into the Third World. Carbon trading had been accepted as one of the cornerstones of a new adaptation fund, meant supposedly to help poor countries deal with the effects of global warming.

If these countries wanted help from the fund, it was made plain, they would have to pay for it by surrendering large elements of their national sovereignty. In particular, natural assets such as forests would have to be opened to the operations of the world emissions market.

In the words of an NGO delegate quoted by writer Brian Tokar, the Bali conference had been turned into "a giant shopping extravaganza, marketing the earth, the sky and the rights of the poor".

Cap and trade

The commercial mechanism put in place by the Kyoto Protocol is known as "cap and trade". Setting the goal of reducing developed-country emissions to 5.2% below 1990 levels by 2012, the system assigns an emissions "cap", consisting of a certain number of tonnes per year of "carbon dioxide equivalent", to participating states. If countries manage to keep their emissions below this permitted level, they have the right to sell "carbon credits" corresponding to these savings to other countries that exceed their caps.

Over time, the plan is to reduce the size of the caps, increasing the scarcity and raising the price of carbon credits. In theory, emitters will respond to these cost pressures by changing their practices and cutting their emissions.

As projected by its enthusiasts, carbon trading is to extend far beyond mere country-to-country adjustments to become a worldwide system of emissions-related investment. As well as being rewarded for setting up greenhouse gas-reducing projects elsewhere in the industrialised world, developed-country governments and corporations are to receive credits for undertaking emissions reduction or avoidance projects in underdeveloped countries.

"Win-win" outcomes?

In theory, the scheme promotes "win-win" outcomes for all involved. But the officials who set it up reckoned without the fact that in capitalism, the all-important bottom line measures profits, not environmental benefits. In practice, corporations have regularly found it cheaper to sidestep the new system or to subvert its purpose rather than to join in saving the planet.

The only large-scale carbon trading program yet to be initiated under the Kyoto Protocol is the European Union Emissions Trading Scheme (EU ETS), which began functioning in January 2005. In the program's first phase, emissions licences were "grandfathered" — that is, granted free of charge to established corporations. With little independent information, the people administering the scheme were often forced to rely on emissions estimates prepared by the firms themselves. Needless to say, these figures gave the corporations generous leeway.

Add in corporate lobbying and the result was massive over-allocation of emissions permits, which in some areas of industry exceeded actual emissions by as much as 50%. In May 2006, after the scale of this over-allocation burst into the open, the market in carbon credits collapsed.

For European companies to have sufficient incentives to actually reduce their emissions, estimates hold, the price of carbon credits needs to be in the range of 30 to 50 euros (A$50-85). But in the period since the crash, the market price of these credits has regularly fallen below one euro. When the "right to pollute" can be had so cheaply, investing money in cutting emissions becomes irrational behaviour.

Subsequent emissions trading schemes, pro-market commentators assure us, will avoid such fiascos. Instead of emissions permits being handed out gratis when schemes are launched, these licences will be sold at auction. But the enthusiasts for cap-and-trade systems forget another propensity of the corporate world: for corruption.

Even if carbon credits retail for not much more than a dollar each, they are good business if they can be created for almost nothing. Perhaps the easiest way to create them cheaply is to claim them for changes that were going to be made anyway.

Deciding whether such changes are genuinely "additional" — that is, made primarily in order to reduce emissions — can be extremely difficult. In the Third World, with its weak state bodies and ill-paid officials, the openings for malfeasance are endless. "It's routine practice for Indian project developers to fake documents, for example back-dating board approval, that they considered a project on the basis of the Kyoto Protocol", one former UN adviser acknowledged.

Scandals and rorts

Some of the sharpest practice, technically speaking, has not been illegal at all. British science writer George Monbiot described one such manoeuvre: "Entrepreneurs in India and China have made billions by building factories whose primary purpose is to produce greenhouse gases, so that carbon traders in the rich world will pay to clean them up."

In 2006, according to the World Bank, 64% of the emissions credits traded came from changes in the refrigerant industry — above all, from reduced emissions by Chinese and Indian refrigerant plants of a gas known as HFC-23. This gas has a greenhouse potential no less than 11,700 times that of carbon dioxide.

For the industrialists who have cut back on emitting it, the journal Nature revealed last year, HFC-23 has so far yielded some US$5.9 billion. Meanwhile, the total worldwide cost of installing chemical scrubbers to halt emissions of the gas — something that could readily be compelled by environmental laws — would not be much more than $100 million.

While the opportunities for rorting the Kyoto system have been a boon to Third World elites — or at least, to their more crooked members — the system as a whole does not promise well for underdeveloped countries. The new adaptation fund set up at the Bali conference, it turns out, is to be administered by the Global Environmental Facility of the World Bank. In its lending for development projects, the World Bank is notorious for favouring schemes that lock the economies of poor countries into the priorities of US and European capital.

In practice, the adaptation fund is likely to act as a tool for taking control of important natural assets of poor countries. This applies particularly to these countries' forests — both the old-growth forests now being eyed as "carbon sinks", and new tree plantations.

The forests lie at the heart of a key financial "product" pioneered by the Kyoto system — "carbon offsets". Industrialists who pump carbon into the atmosphere can "offset" their transgressions by buying credits created by the planting of trees, which as they grow will absorb carbon dioxide. Or, emitters can buy credits created on the basis that governments and corporations graciously decide to leave existing forests intact.

Carbon offsets are a questionable proposition for a long list of reasons. How much carbon dioxide a forest will absorb over a given period is at best an educated guess. Forests can burn, releasing their carbon. Old-growth forests absorb much less carbon dioxide than new plantations, which enhances the temptation to clear-fell the former in order to plant the latter.

The problems are multiplied wherever regulation is lax and officials corrupt. Tropical forests, it can be expected, will at times both be logged and claimed as carbon sinks. Where such forests are protected with any vigour, the "protection" is often likely to be aimed at indigenous people who practice a sustainable shifting agriculture. The increased incentives for plantation forestry threaten to cost tenant farmers their land.

So far, the most glaring absurdity to arise from the "carbon offset" provisions of the Kyoto Protocol has not appeared in the Third World, but in Australia. Though refusing to sign the Kyoto Protocol, the former Howard government regularly stressed that Australia was on track to meet its Kyoto targets. Technically, this was true; on the basis of "offsets" earned through restrictions on additional land-clearing, Australia was permitted under Kyoto to increase its emissions by 8%.

The land-clearing, however, had already been encountering fierce criticism from environmentalists, and much of it would have been halted anyway. Meanwhile, fossil-fuel emissions from Australia's coal-fired economy have continued to boom. Supporters of carbon trading argue that potential critics should forgive the youthful fumbling of a previously untried system. But with the Bali Roadmap promising an extension and elaboration of carbon trading, the system's record in actually curbing greenhouse emissions deserves to be looked at.

There is no doubt that huge sums of money are changing hands — probably as much as US$60 billion in 2007. But even in the relatively orderly conditions of Europe, where the trading so far has been concentrated, the results in terms of greenhouse gas abatement have been lacklustre.

As of the end of 2005, emissions by the 15 "core" European Union countries were 2% below the Kyoto base year of 1990, compared to a target of 8% below by 2012. "Emissions have in fact been rising since the year 2000", a November 2005 Skyscrapper City report stated.

The December 5 Australian noted that the vast majority of Kyoto signatories were exceeding their emissions allowances, "in many cases by huge amounts". Most of them, the newspaper observed, have "given up on Kyoto", and are waiting for the Bali parameters to come into force after 2012.

Why go with the market?

If carbon trading has performed so badly, why persist with it? The question has been posed from some unlikely quarters. At the Bali conference, New York Republican Mayor Michael Bloomberg argued that the cap-and-trade system should be replaced by straight carbon taxes.

"It's a very inefficient way to accomplish the same thing that a carbon tax accomplishes", Bloomberg was quoted as saying of the cap-and-trade market. "It leaves itself open to special interests, corruption, inefficiencies."

Why, indeed, not simply make the polluters pay, using a combination of carbon taxes, state regulation and fines to force them to cut their emissions? Since the carbon trading system only covers relatively large emitters, keeping track of their emissions would be well within the capacities of a determined state apparatus, especially in developed countries.

The 1997 decision at Kyoto to go with carbon trading is especially curious since experience at the time pointed in the exact opposite direction. In the 1990s, various approaches had been tried in order to cut the sulphur dioxide pollution that was causing "acid rain". In the US, a cap-and-trade system had been instituted in 1990. By 2001, US levels of sulphur dioxide were down by 31%.

In Europe, a rule-based approach scored much better results. For Western Europe, the reduction was 57%.

As noted by Bloomberg, carbon trading "is attractive to many politicians because it doesn't have that three-letter word 'tax'". A key tenet of modern capitalist thought is the "need" to oust taxation, along with other forms of state intervention, from all possible areas of economic life.

But the real reason why carbon trading was selected at Kyoto goes deeper. It was summed up recently by British researcher Kevin Smith in a September 20 Transnational Institute article: "The problem lies in the fact that carbon trading is designed with the express purpose of providing an opportunity for rich countries to delay making costly structural changes towards low-carbon technologies. This isn't a malfunction of the market or an unexpected byproduct: this is what the market was designed to do."

Once this real function of the carbon market is understood, a great deal else falls into place. The low price of emissions credits ceases to be a mystery. Key features of the carbon trading system — the over-allocation of free emissions permits in the EU, the far-fetched offset credits, and more — take on their true shape as devices for keeping the costs of polluting to a minimum.

That is not to say that a shift to rules and taxes would, of itself, cure the problems. In any battle between polluting corporations and aggrieved populations, capitalist governments stand, to the extent that mass pressures permit, with the polluters.

The problem, in short, is capitalism.

We cannot, however, delay campaigning for greenhouse gas abatement until capitalism has been packed off to the historical graveyard. The demand for the carbon trading system to be dismantled, and for strict regulations, taxes and fines to be set in its place, has a firm place in today's agenda of struggle.