Climate change: The carbon trading debacle

By Carter Burke

October 28, 2009 – The next major international summit on climate change will be held in Copenhagen in early December, 2009. The position of the United States in these talks remains ambiguous. The latest climate legislation to move through the US Congress is H.R. 2454, the American Clean Energy and Security Act of 2009. It passed the US House of Representatives in June 2009, mostly along party lines, to the applause of President Obama and house speaker Nancy Pelosi.

It had the support of a wide variety of US environmental organisations, including Defenders of Wildlife, Alliance for Climate Protection, the Environmental Defense Fund, the National Wildlife Federation, the Nature Conservancy, the Audubon Society and the Natural Resources Defense Council, among many others. Needless to say, it also had the blessing of neoliberal environmentalism’s patron saint, Al Gore.

I take the trouble to name these organisations in order to illustrate the mainstream support carbon trading has enjoyed within the environmental movement. To many, it might appear as though the climate bill being passed now that is a long-overdue success after eight years of inaction, institutionalised denial and the sabotage of climate policy by the Bush administration, its industrial handlers, and their shills in Congress. For consumers who “care about” the environment there is the feeling that something is finally being done. And for some well-positioned professional environmentalists, the sort that might work for carbon trading firms or the many organisations that might do business with them, there will finally be the steady growth in private-sector “green” jobs that everyone has been hoping for. It might look like the United States is finally turning a corner in climate policy.

As it turns out, the Kyoto Protocol and the Intergovernmental Panel on Climate Change (IPCC), now seen by many on the bourgeois left as global benchmarks for climate change policy, were themselves crafted by US and European industrial interests to essentially make money from privatising the atmosphere, permitting themselves to pollute it for free, and creating an entire bureaucracy for quantifying and trading various offset “products”, regardless of their ability to actually limit the emission of greenhouse gases.

The IPCC and the Kyoto Protocol are, as we shall see, neoliberal inventions intended primarily to profitably “financialise” global warming, rather than intergovernmental instruments to be used for ending it. In both cases, the United States and some of its European allies essentially absorbed the language of scientists, environmentalists, Third World diplomats, and climate activists, only to regurgitate their efforts as a form of incomprehensible free-market amphigory which might actually be worse than doing nothing about global warming at all. When it comes to climate policy, US private enterprise has been a coprophilic Midas: everything it seems to touch turns to shit.

US legacy

Far from being any kind of victory for the environment or the human communities impacted the most by climate change, the US government’s legacy of involvement is comitragic: it dismembers and plunders global climate policy under Clinton, when the world was willing to do just about anything to get the US involved; it abandons it entirely under Bush, who went so far as to compel US institutions under its control to deny that global warming existed at all; and now it seemingly “comes to its senses” under Obama, except what it is returning to isn’t a climate policy that has recovered or evolved from the nonsensical free-market wreck left for dead during the Clinton era, but instead it is poised to enter a world of corruption, conflicted interests, and green hucksterism already pioneered by companies in the United Kingdom, Japan, the Netherlands, France, Germany, etc., to name a few of the more prominent “investor” nations in the “clean development” boondoggles spawned by Kyoto.

All of this and more is painstakingly laid out in 2006 special issue of Development Dialogue titled Carbon Trading: A Critical Conversion on Climate Change, Privatisation and Power. Available online at no charge, it was produced by the Dag Hammarskjöld Foundation and written by author and researcher Larry Lohmann. It’s a conversational, well-researched, and scathing critique of the bizarre disaster of environmental policy that is carbon trading. This book goes beyond the more common anti-capitalist rhetoric against carbon trading and actually confronts its concepts, its “science”, and the fascinating historical process of how it was railroaded through the UN and IPCC. Throughout the book, Lohmann stays focused on why carbon trading schemes fail, and presents a compelling alternative narrative by interpreting Kyoto/IPCC as a kind of atmospheric colonialism which roughly serves the same functions as territorial colonialism did in centuries past, that is, as a seamless extension of capital by primitive accumulation, and the surreptitious appropriation of public resources for private gain.

So far as I can tell, Lohmann’s book is kind of anomalous. It has some limited currency among minor academics, first-world radicals and wider popularity among grassroots Third World organisations in social justice and environmental policy, but apart from this it seems mostly unheard of. Attempts to find an “establishment” rebuttal to Lohmann have come up empty-handed. Nevertheless, it will no doubt go down as a groundbreaking expose of one of neoliberalism’s most flawed creations, not just because of the straightforward eloquence of the presentation, but because of the sheer amount of research that went into the compilation of Lohmann’s work. With over 900 citations, reading it is sort of like discovering an enormous termite nest, leaving one both amazed and horrified at what’s been going on unseen.

In any case, there is nothing I can really say that hasn’t been said better in Lohmann’s book. If you even remotely care about climate change, read this book. It’s free. The only other thing I can really think to do here, and really the only thing that does Lohmann’s work justice, is to quote parts of it in order to provide some sense of its scope and impact:

Although pollution trading derived from the theories of economists working in universities and think tanks, it was written into the 1990 US Clean Air Act Amendments by Environmental Defence, a corporate-friendly NGO that subsequently pushed for it to be included both in the Kyoto Protocol and in Chinese environmental programmes. The Washington-based NGO World Resources Institute (partly bankrolled by government and UN agencies, international financial institutions and corporations such as Monsanto, TotalFinaElf, Shell, BP, and Cargill Dow) tirelessly lobbied for carbon trading alongside the World Business Council for Sustainable Development and other corporate pressure groups.

The World Wide Fund for Nature (WWF), an organisation with an annual budget 3.5 times that of the World Trade Organisation, meanwhile joined the European Roundtable of Industrialists (UNICE) and the US think-tank inspired Centre for European Policy Studies in support of the EU Emissions Trading Scheme. WWF also helped develop an eco-label for the Kyoto Protocol’s Clean Development Mechanism projects (see Chapter 4). Greenpeace, for its part, has moved from being critical of corporate lobby groups and carbon trading to complete acceptance.

As forest conservation NGOs such as the Nature Conservancy and Conservation International move in to mop up corporate and World Bank finance being offered for ‘carbon sinks’, other NGOs confine themselves to trying to reform or ‘contain the damage’ done by trading programmes such as the Clean Development Mechanism (CDM). Most Northern members of the largest NGO grouping on climate change, the Climate Action Network, have thrown their support behind the carbon market, often demoting themselves to the role of advisers to governments on such matters as national emissions allocations. Critical NGOs, to borrow the words of Daphne Wysham of the Institute for Policy Studies, are being continually urged ‘to unite behind an entirely bizarre, incomprehensible, and totally corruptible system of carbon trading’. Even well-meaning artists such as sculptor Damien Hirst and rock group Coldplay have got into the act as both clients and spokespeople for carbon marketing firms.

Okay, I always knew the Nature Conservancy was shady. But Coldplay?

One example of US influence in the negotiations comes from the Kyoto Protocol talks themselves. In 1997 Brazil proposed a ‘Clean Development Fund’ that would use penalties paid by industrialised countries that had exceeded their emissions targets to finance ‘no regrets’ clean energy initiatives in the South.

The gist of Brazil’s proposal was accepted by the G-77 nations and China. During a few days of intense negotiations, however, the fund was transformed into a trading mechanism allowing industrialised countries to buy rights to pollute from countries with no emissions limits. Fines were transformed into prices; a judicial system was transformed into a market.

A judicial system was “transformed” into a market? It almost sounds like a zombie plague.

In 1995, economists in Working Group III, using data on how much money different groups spent to avoid risk of death, calculated the value of a statistical life of a US citizen at usd 1.5 million and that of a statistical life of a ‘developing country’ citizen at usd 100,000. The economists used these calculations to suggest that climate change would cause twice as much ‘socio-economic’ damage to the industrialised countries as to the rest of the world.

Read that again. This is apparently what bourgeois economists do at the United Nations.

Meditating on Hollywood disaster movies, literary critic Fredric Jameson once observed: ‘It seems to be easier for us today to imagine the thoroughgoing deterioration of the earth and of nature than the breakdown of late capitalism.’ It’s no surprise, in an age when Hollywood scriptwriters are advising the Pentagon on terror scenarios and pulp novelist Michael Crichton appears as an expert witness on climate change before a US Senate committee, that such attitudes are reflected back into politics.

With a soundtrack by Coldplay, evidently…

By the time the second George Bush pulled out of Kyoto in 2001 (much to the consternation of US companies hoping to profit from carbon trading (such as Enron), the approach had become internationally entrenched even though its original political rationale had vanished. Its environmentalist backers, many of whom had by now spent much of their careers in the negotiations, were left in the odd position of having to champion an agreement written largely by the US for US purposes on the basis of US experience and US economic thinking, but which no longer had US support.

So eight years later, the US is finally moving toward a watered-down version of something that didn’t work to begin with. Great.

Shortly before the 1998 climate talks in Buenos Aires, the ICC, together with Shell, Texaco, Mobil and Chevron, sent a 30-person team to Senegal to round up support for the CDM [Clean Development Mechanism] from the energy and environment ministers of more than 20 African countries. In return, the companies offered technology transfer and foreign investment. Similar efforts with forest-rich Latin American nations have helped recruit nearly all their governments to the cause of carbon forestry.

As carbon-trading businesses fused with the UN climate apparatus, revolving doors between the two became jammed with profiteers moving in both directions. In 1991, the UN Conference on Trade and Development (UNCTAD), an agency charged with ‘assisting developing countries’, brushed aside other regulatory or tax alternatives to set up a department on greenhouse gas emissions trading. UNCTAD later helped form the International Emissions Trading Association (IETA), a corporate lobby group dedicated to promoting emissions trading. Frank Joshua, who served as the UN Head of Greenhouse Gas Emissions Trading and led several expert groups including the UNCTAD Earth Council Emissions Trading Policy Forum and the UNCTAD Expert Group on the Clean Development Mechanism, went on to be the first executive director of the IETA, Global Director of Greenhouse Gas Emission Trading Services at Arthur Andersen, and managing director of US-based carbon trader Natsource – all of which are cashing in on the accounting rules Joshua himself helped to enshrine in the UN. James Cameron, a lawyer who helped negotiate the Kyoto Protocol, later became Vice Chairman of Climate Change Capital, a carbon-trading merchant bank.

So we have a few problems here. The first is the development of a policy infrastructure that is essentially designed to allow industry to continue as normal, that allows greenhouse gas pollution to go unchecked, and which creates a set of derivative industries involved in the privatisation, financing, accounting and trading of what amount to pollution rights. The second is the widespread control fraud that necessarily follows from an unregulated industry designed by bureaucrats who can turn around to bilk the policies they wrote. But the third problem, which becomes somewhat of a hypothetical one after the first two, is whether or not carbon trading systems could really reduce emissions if they did work in the way that Utopian free-market economists intended them to.

Can carbon trading reduce emissions?

The answer is a “no” according to Lohmann. For one thing, while it’s relatively easy to estimate industrial carbon emissions and their equivalents on a global and regional level, monitoring and administering the emissions from specific industrial sites is difficult and expensive. Lohmann points out that it would make a lot more sense to place caps on carbon emissions closer to their source (i.e., in the actual extraction of fossil fuel resources in coal mines, oil fields and at natural gas wells). Of course doing so would prevent Northern industries from doing what they had hoped to with carbon trading, which is to keep burning fossil fuels without making any significant adjustments to the way they do business. Instead they would “offset” their emissions and meet their caps by investing in carbon projects conveniently (and cheaply) located in the global South.

Which leads to the main problematic aspect of a carbon market, from a technical point of view: actually quantifying carbon offsets. Offset projects can be broadly placed into two categories: sequestration and Clean Development Mechanism (CDM). An example of the first would be a tree plantation or a CCS (carbon capture and storage) project, like injecting carbon into a depleted natural gas reservoir. CDM projects, which are generally the shadier of the two, revolve around measuring the carbon offset of a “clean” development project (e.g., building a solar plant) against “what would have happened”, or what carbon eggheads call the “baseline” scenario (e.g., building a coal plant) and counting the difference as a marketable credit.

The problems with both of these types of projects is that they’re very difficult to measure. How much carbon does a eucalyptus plantation really sequester? How is it measured? Are the sites actually monitored, or are they based on models? If the latter, who is doing the modeling? It’s important to realise that the Kyoto signatories have plunged ahead largely without waiting for answers to these questions, and that many of those organisations that are now supposedly in a position to answer them are also the ones who stand to benefit most from the projects themselves.

CDM projects are even more difficult to measure. Who determines what a “baseline” scenario is? Who determines how much carbon a “clean” project really offsets? The ability to do any of this rests rather centrally on being able to treat different development activities as being equivalent to carbon. As Lohmann writes:

The credits derived from various ‘baseline-and-credit’ schemes are different both from each other and from the emissions allowances associated with ‘cap and trade’ schemes. Destroying the industrial greenhouse gas HFC-23 is not the same as investing in windmills. Making your chemical plant more efficient is not the same as supplying efficient light bulbs to Jamaica. Planting trees is not the same as refraining from flying to the Maldives for a holiday. Yet all of these things need to be verified to be ‘climatically equivalent’ for credit trading to work.

In fact, the United Nations and other carbon trading advocates go so far as to claim that the carbon projects they are promoting are not only ‘equivalent to’, or ‘compensate for’, emissions reductions, but actually are emissions reductions. They assert that planting eucalyptus trees, building hydroelectric dams, burning methane or instituting efficiency programmes are ‘reducing emissions’ just as much as halting the flow of coal into a boiler, even if no emissions are being reduced.

So the first problem is that none of these things are obviously equivalent to one another. The second problem is that even if they were, there is absolutely no way to verify it against a “baseline”, which is nothing more than a quantified “what-if” story as told by a carbon trader. Estimates of the baseline can vary by orders of magnitude depending on even small differences in accounting assumptions, much less big ones, like figuring out whether or not a project is “non-additional” to what “would have happened anyway”. Firms can (and do) literally pull huge reductions claims from thin air, and it’s difficult to see how this could ever result in actual reductions in carbon emissions.

In 2003, for example, the Asian Development Bank funded the proposed Xiaogushan dam in China, portraying it as the cheapest and most economically robust alternative for expanding electricity generation in Gansu province. Construction went ahead without any mention being made of the need to secure CDM funding beforehand, and was scheduled to be completed in 2006. Yet in a June 2005 application for Xiaogushan to be considered as a CDM project, the World Bank claims that without CDM support, the dam ‘would not have been able to reach financial closure, mitigate the high project risk, and commence the project constructions’.

Similarly, CDM credits are being sought for the Bumbuna hydroelectric project in Sierra Leone on the grounds that the project is unviable without them, although the project was approved for financing by the World Bank in 2005 as the least-cost project for the country’s power sector. In one Latin American country, consultants tippexed out the name of a hydroelectric dam from a copy of a national development plan in an attempt to show that the dam was not already planned or ‘business as usual’ and therefore was deserving of carbon finance.

At an event arranged by the International Emissions Trading Association in Milan in 2003, a representative of the Asian Development Bank confided that his institution’s first reaction to the CDM was to go through its existing portfolio to see which projects’ funding might be topped up with carbon finance. No one was under any illusion that carbon money would be used for anything other than what the bank itself acknowledged to be business as usual.

Once again, it’s difficult to see how these offsets might be reasonably calculated, even after compensating for control fraud. Fraud alone is not the only problem here, and there is little reason to think that carbon markets might be fixed by a little regulation and discipline. Below the fraud is an additional layer of offset quantification problems — from model accuracy to emissions monitoring — which seem intractable given the state of the energy industry we have today, even if we assume we are working within an environment of transparency and good faith — and we are not.

Of course it is conceivable that the energy industry of the future will have the technological and organisational capacity to overcome some of these hurdles, but decades of inaction and denial have left us without the luxury of being able to fight climate change with the energy industry of the future. It must be confronted with the industry we have today. But below this — the problem of quantification — is a third additional layer of difficulty, namely the incommensurable foundations underneath the credits themselves: saying that planting a tree or screwing in an efficient light bulb is the same thing as an “emission reduction” ought to be a non-starter, at least insofar as the state of the atmosphere is concerned.

One either burns more or less fossil fuel than before, and creating a system where we have to simply hope that all these different and dubiously-equivalent “offset” products will coordinate to add up to a reduction seems like a preposterous and circumlocutious way to reduce emissions (ironically, this accusation of uncertainty is what defenders of carbon trading, like Tim Flannery, lob at carbon taxation). Very little about the system makes sense unless one interprets it as not a way to reduce emissions, but rather as a mechanism that allows for corporate industry to continue unchallenged.

Better or worse than doing nothing?

Nevertheless, as we have seen, many prominent environmental organisations have put their weight behind carbon trading as the “default” solution to the climate problem. Whether out of optimism or self-interest, some see it as a genuinely effective way to deal with carbon emissions. Others are simply desperate for some kind of action and are willing to agree to virtually anything, so long as it means leaving the era of US denial.

At this point it might be reasonable to question whether or not doing something bad is better or worse than doing nothing at all. For example, if we imagine that carbon trading were a clunky, convoluted but ultimately effective way of reducing carbon emissions, then it is difficult to interpret it as being worse than nothing. From the US Congress to the “grassroots” organisations like 350.org, many seem to feel this way as we approach the Copenhagen summit. In a recent interview, Tim Flannery, chair of the Copenhagen Climate Council, summarised what I think a lot of mainstream environmentalists feel about cap and trade policy:

Look, cap and trade does work. It does do part of the job we need to do to get to where we need to go. We see that in Europe. They had a similar system of giving away permits. But the five per cent reduction over 1990 levels that that cap-and-trade system was intended to generate have actually happened.

The US — I know the bill isn’t perfect. I know there’s a lot of giveaways in it, and I know a lot of people aren’t happy about provisions for subsidies for nuclear power and so forth. But we just have to get moving on this. We have to empower the president of the most powerful nation on earth to be able to negotiate and lead. And cap and trade is really about that.

First of all, the European cap and trade system did not reduce emissions below 5% of 1990 levels. The first phase of the European Trading System suffered from market volatility, windfall profits for energy companies, and above all it failed to reduce emissions at all  —  that is to say, it did everything skeptics of carbon trading would expect it to do.

Granted, the first phase of the European trading system was intended to be a pilot project from the very beginning, but it is simply inaccurate to point to it as a success story, much less as any kind of proof that “cap and trade does work”; even the trade-friendly Climate Action Network panned the first phase of ETS as a “major disappointment”. It’s also worth noting that Flannery is speaking as though the European example demonstrates that the pollution giveaways aren’t a serious problem. In fact, the pollution permits in the European trading scheme were generous to the point of crashing their carbon market and making their credits virtually worthless. Again, his presentation is very misleading.

But let’s return to this rhetoric of imperfection. It is one thing to support something imperfect but functional. But it is another thing to support something that is imperfect, decidedly non-functional, and that has the potential for additional destruction. The problem Lohmann and other critics of carbon trading recognise isn’t merely that it’s flawed, or that it won’t work, but that it actually introduces a new and uniquely social threat to the atmosphere: the legal right to pollute it. Once these rights are given, and once the interests behind them become entrenched (or more entrenched than they already are), it seems like we will be in a decidedly worse position to do anything about it.

Very few environmentalists, leftists and others seem to be looking to the upcoming Copenhagen Summit with this concern in mind, nor do they appear to be aware of the toxic duplicity of some of the world’s most prominent environmental organisations in supporting policies that are demonstrably bad-faithed in intent and fraudulent in their practice. Most assume that anything is better than nothing, and in this regard one couldn’t be more wrong.

[This article first appeared at Fragments. It is posted at Links International Journal of Socialist Renewal with the author's permission.]