Video: `The Story of Cap and Trade' (aka carbon trading), from the makers of `The Story of Stuff'

[1] The main body working on global climate governance is the United Nations Framework Convention on Climate Change - http://unfccc.int/2860.php . See Alex Kirby, Climate in Peril: A Popular Guide to the Latest IPCC Reports. Arendal, Norway, United Nations, 2009.

[2] Full critiques of carbon markets can be found at http://www.carbontradewatch.org/durban/. In an August 2009 report about Enron alumni in the carbon markets, the Financial Times offers not a hint of irony: “‘People who were attracted to Enron and its desire to open new and cutting-edge businesses are also likely to be attracted to the carbon market,’ says Lynda Clemmons, who started the emissions trading desk at Enron in 1994. It also innovated in the electricity, gas and coal markets, to which carbon is highly correlated, which makes former Enron traders particularly suited to trading carbon. ‘They bring a breadth of cross-product coverage that makes them natural candidates to look at emissions,’ according to one industry insider.”

Uh oh, when the Financial Times offers me ‘natural candidates’ from Houston to help solve the climate crisis, I say, No Thank You! I’m sad because we had all hoped that the retrenched staff from Enron’s bankruptcy would go get a job, not continue playing at those speculative financial casino games that caused so damage to Californians like me, and to the firms’ shareholders. (See Markus Sommerauer, ‘A strange alliance making profits for a cleaner cause’, Financial Times, August 5, 2009; and Solomon Lawrence, ‘Enron’s Other Secret’, Financial Post, May 30, 2009, http://network.nationalpost.com/np/blogs/fpcomment/archive/2009/05/30/lawrence-solomon-enron-s-other-secret.aspx.)

[3] For Goldman’s role in the subprime scandal, see Matt Taibbi, ‘The Great American bubble machine’, Rolling Stone, July 9-23, 2009. Taibbi warns:

“Instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits – a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an ‘environmental plan,’ called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance… This is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion. Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they're the profit-making slice of that paradigm, and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than [Mark] Patterson, now Treasury chief of staff.)… The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes… Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy-futures market? ‘Oh, it'll dwarf it,’ says a former staffer on the House energy committee. Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe – but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected… The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees – while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.”

[4] The $3 trillion doesn’t even include the danger of a bubbling derivatives market, which could boost the figure by a factor of five or more. See Nina Chestney and Michael Szabo, ‘Emissions traders expect U.S. carbon market soon,’ Reuters, May 28, 2009, http://www.reuters.com/article/GCA-GreenBusiness/idUSTRE54R4YP20090528, last accessed October 11, 2009.

[5] http://www.350.org.

[6] Gar Lipow, ‘How soon do we need to cut greenhouse gas emissions?,’ Grist, January 25 2009, http://www.grist.org/article/How-soon-do-we-need-to-cut-greenhouse-gas-emissions/, last accessed October 11, 2009.

[7] Larry Lohmann, Carbon Trading: A Critical Conversation on Climate Change, special issue of Development Dialogue, Uppsala, Dag Hammarskjold Foundation, http://www.dhf.uu.se/pdffiler/DD2006_48_carbon_trading/carbon_trading_web_HQ.pdf. See also Lohmann, ‘Neoliberalism and the calculable world: The rise of carbon trading,’ http://www.thecornerhouse.org.uk/pdf/document/Neolib&Calc.pdf.

[8] The movement for climate justice dates back well before Kyoto, to the 1992 Rio Earth Conference at which equity was emphasized as a global green value. A network specifically critical of carbon trading was initiated in South Africa at an October 2004 workshop which founded ‘The Durban Group for Climate Justice’. By 2007, at the Bali Conference of Parties summit, the Durban Group and many other organizations whose environmental commitments included social equity and economic transformation launched the global network ‘Climate Justice Now!’ But in addition to environmental activists, a great many other experts and practitioners also oppose the use of emissions trading for climate control, including the leading US climate scientist, James Hansen, and financier George Soros, who argue it will be ineffective. The latter was quoted in 2007:

“The cap and trade system of emissions trading is very difficult to control and its effects are diluted. It is pretty much breaking down because there is no penalty for developing countries not to add to their pollution. You count the saving but you don’t count the added pollution going on… [The Clean Development Mechanisms developed under the Kyoto Protocol] are not effective: you buy credits in third world countries that don’t have a cap on emissions and you can get carbon credits whether you can sell them or not… It is precisely because I am a market practitioner that I know the flaws in the system.” (See Hugh Wheelan, ‘Soros slams emissions trading systems: Market solution is “ineffective” in fighting climate change’, Responsible Investor, October 18, 2007, http://www.responsible-investor.com/home/article/soros_slams_emissions_cap_and_trading_systems/)

[9] Jon Hilsenrath, ‘Cap-and-trade's unlikely critics: Its creators - economists behind original concept question the system's large-scale usefulness, and recommend emissions taxes instead,’ Wall Street Journal, August 13, 2009:

”When he was a graduate student in the 1960s working to reduce pollutants, Thomas Crocker devised a cap-and-trade system similar to one being considered in Congress… ‘I'm skeptical that cap-and-trade is the most effective way to go about regulating carbon,’ says Mr. Crocker, 73 years old, a retired economist in Centennial, Wyo. He says he prefers an outright tax on emissions because it would be easier to enforce and provide needed flexibility to deal with the problem… The other, John Dales, who died in 2007, was also a skeptic of using the idea to tame global warning. ‘It isn't a cure-all for everything,’ Mr. Dales said in an interview in 2001. ‘There are lots of situations that don't apply.’ Mr. Crocker sees two modern-day problems in using a cap-and-trade system to address the global greenhouse-gas issue. The first is that carbon emissions are a global problem with myriad sources. Cap-and-trade, he says, is better suited for discrete, local pollution problems. ‘It is not clear to me how you would enforce a permit system internationally,’ he says. ‘There are no institutions right now that have that power.’ The other problem, Mr. Crocker says, is that quantifying the economic damage of climate change – from floods to failing crops – is fraught with uncertainty. One estimate puts it at anywhere between 5% and 20% of global gross domestic product. Without knowing how costly climate change is, nobody knows how tight a grip to put on emissions… Mr. Crocker says cap-and-trade is better suited for problems where the damages are clear – like acid rain in the 1990s – and a hard limit is needed quickly.”

[10] Even pro-corporate lobbies like the American Enterprise Institute admit this is a bad idea. See Alan Viard, ‘The cap-and-trade giveaway,’ The American, June 26, 2009, http://www.american.com/archive/2009/june/the-cap-and-trade-giveaway, last accessed October 11, 2009.

[11] The European Union’s Emissions Trading Scheme failed, according to Grist columnist Gar Lipow: “During the three year period where we have verified emissions, emission among traded entities rose by 1.8%. (During that same period emissions for the EU as a whole fell.) According to preliminary figures emissions fell by 3.06% for 2008. It is widely agreed that much of this was due to economic recession, and warmer weather, and widely argued that a substantial minority was due to the trading system. However just as EU emissions fell a bit while ETS emissions rose, I suspect that once the data is out we will find EU emissions dropped much more steeply that the comparatively small drop in greenhouse gases from traded entities. The overwhelming evidence is that the European Trading Scheme is retarding rather that driving emission drops.” Gar Lipow, ‘Cap-and-trade: filling up the political space that should be used for real solutions,’ Grist, May 31, 2009 http://www.grist.org/article/cap-and-trade-filling-up-the-political-space-that-should-be-used-for-real-s http://tinyurl.com/suckLemon, last accessed October 11, 2009.

[12] Sergey Paltsev, John M. Reilly, Henry D. Jacoby, Angelo C. Gurgel, Gilbert E. Metcalf, Andrei P. Sokolov and Jennifer F. Holak, ‘Assessment of U.S. Cap-and-Trade Proposals’, 2007, Joint Program on the Science and Policy of Global Change, http://web.mit.edu/globalchange/www/ MITJPSPGC_Rpt146.pdf, last accessed October 11, 2009. The authors note that 'If the allocations are distributed on some “grandfathering” principle to firms at the point of regulation [which is the case in the main 2009 legislation], then these firms receive the asset value or scarcity rent,' which to some extent would deflect higher prices for US consumers, depending upon how regulations emerge. But we do actually need to have higher prices on fossil fuels, in order to change behaviour and also raise funding for important ecological investments and ecological debt repayment. It would be a tragedy if the US knew the problems in the EU example and followed the grandfathering of free permits anyhow, which appears to the be likely outcome of the congressional process.

[13] Colby Itkowitz, ‘Cap, trade, bike and carpool,’ CQ Weekly 67:26, June 29 2009: 1501-1501

[14] Peter Barnes, ‘ Cap and dividend, not trade,’ Scientific American Earth 3.0 18:5, December 2008: 20-21

[15] A seminal definition came from ecological economist Joan Martinez-Alier and the NGO Accion Ecologica in Quito, Ecuador: “ecological debt is the debt accumulated by Northern, industrial countries toward Third World countries on account of resource plundering, environmental damages, and the free occupation of environmental space to deposit wastes, such as greenhouse gases, from the industrial countries.” How much is the ecological debt the North owes the South already? Not even including the coming damage from climate change, a team from the University of California at Berkeley estimated partial costs of $18 trillion: Srinivasan, U., S.Carey, E.Hallstein, P.Higgins, A.Ker, L.Koteen, A.Smith, R.Watson, J.Harte and R.Norgaard (2008), ‘The debt of nations and the distribution of ecological impacts from human activities’, Proceedings of the National Academy of Sciences of the United States of America, 105, 5, http://www.pnas.org/content/105/5/1768. The African Union estimates that at least $67 billion per year should be paid as ecological debt by 2020. See J. McLure, ‘Ethiopian Leader chosen to Represent Africa at Climate Summit,’ Addis Ababa, 1 September.

[16] Geoffrey Lean, ‘Rising Seas, Caused by Global Warming, have for the First Time Washed an Inhabited island off the Face of the Earth’, The Independent, June 5, 2009, http://www.independent.co.uk/environment/climate-change/disappearing-world-global-warming-claims-tropical-island-429764.html, last accessed October 11, 2009

[17] R.K. Pachauri, ‘Summary of Testimony provided to the House Select Committee on Energy Independence and Global Warming,’ US Congress, Washington DC, 2008, globalwarming.house.gov/tools/assets/files/0342.pdf. Moreover, the Climate Change Vulnerability Index, calculated in 2009 ‘from dozens of variables measuring the capacity of a country to cope with the consequences of global warming’, listed 22 African countries out of 28 across the world at ‘extreme risk’, whereas the United States is near the bottom of the world rankings of countries at risk even though it is the leading per capita contributor to climate change. Agence France Press, ‘Albania to Zimbabwe: The Climate Change Risk List’, September 2, 2009.

[18] David Fogarty, Reuters, ‘Indonesia Forest Projects Target 13 mln CO2 Offset,’ July 21 2009, http://www.reuters.com/article/latestCrisis/idUSSP436960, last accessed October 11, 2009

[19] Terry Macalister, ‘Britain's big polluters accused of abusing EU's carbon trading scheme’ January 27, 2009, http://www.guardian.co.uk/business/2009/jan/27/industry-abusing-ets-carbon-trading, last accessed October 11, 2009.

[20] See the video by Environmental Protection Agency officials Allan Zabel and Laurie Williams, The Huge Mistake, http://www.youtube.com/watch?v=WLHCvYj0kzk, 2009. The EPA tried to suppress the video in November 2009.

[21] The solutions are, as Climate Justice Action – the group organizing popular protests at Copenhagen – puts it:

• leaving fossil fuels in the ground;

• reasserting peoples' and community control over production;

• relocalising food production;

• massively reducing overconsumption, particularly in the North;

• respecting indigenous and forest peoples' rights; and

• recognising the ecological and climate debt owed to the peoples of the South and making reparations.

[22] For eloquent voices of the Global South, listen to Climate Justice Now!, Third World Network, Focus on the Global South, the Peoples Climate Justice Movement and a wide range of other organizations. The most sophisticated voices believe that petroleum/mineral extraction, cash cropping the land (especially for biofuels), export-led growth and other old-fashioned strategies should be dispensed with in the search for a more thoughtful, ecological, feminist, race-conscious, indigenous-oriented development.

[23] I know that reducing carbon through the Clean Air Act isn’t going to be simple and won’t bring us to a national or global cap by itself; still, it is a useful approach to reducing carbon emissions that is being underutilized, and that could quickly be applied to several thousand emissions point sources to force major cuts right away. Following a lawsuit decided by the US Supreme Court, the Environmental Protection Agency issued an ‘endangerment finding’ in April 2009 which allows the agency to mandate emissions reductions without legislation. The EPA made the finding because as a ‘pollutant’, six greenhouse gases could be shown to be responsible for severe damage, including an increased risk of droughts and floods, sea level rise, more intense storms and heatwaves, and harm to water supplies, agriculture and wildlife. In addition, the EPA drew its mandate from a 2007 report by former US generals and admirals claiming that that climate change was a ‘national security challenge.’ The EPA now can regulate emissions of carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride. EPA Administrator Lisa Jackson began to stand up for strong regulation of the largest greenhouse gas emitters despite opposition from industry, but more pressure is needed. See U.S. Congressional Budget Office, ‘Policy Options for Reducing CO2 Emissions,’ February 2008, online at: www.cbo.gov/ftpdocs/89xx/doc8934/02-12-Carbon.pdf. Richard Black, ‘Obama to regulate “pollutant” CO2’, April 17, 2009, http://news.bbc.co.uk/2/hi/8004975.stm; Jay Austin, ‘Massachusetts v. Environmental Protection Agency: global warming, standing and the US Supreme Court’, Review of European Community & International Environmental Law 16:3 (2007) 368-371.

[24] ClimateSOS is one of the main groups fighting against the kind of legislation – such as sponsored by Waxman-Markey and Kerry-Boxer in 2009 - that sets back the climate justice cause. For an explanation of the broader problems in power relations, see James Hansen, ‘G8 Failure Reflects US Failure on Climate Change’, http://www.commondreams.org/view/2009/07/10-8, last accessed October 11, 2009.

[25] See http://totnes.transitionnetwork.org/ for more information on how communities are beginning to envision a post-carbon-based society.

[26] Tina Seeley, ‘US fossil fuel subsidy twice that of renewables’, Bloomberg News, 18 September, http://www.bloomberg.com/apps/news?pid=20601103&sid=a2ygdsSj.KQI, last accessed October 11 2009.

[27] Citizen action against unreasonable fossil fuel extraction is intensifying. The Nigeria-based network Oilwatch and some of its key members – such as Accion Ecologica and allied indigenous groups in Ecuador, Environmental Rights Action in the Niger Delta (in the tradition of Ken Saro-Wiwa), groundWork and the South Durban Community Environmental Alliance in South Africa, and Native Canadians and environmentalists in Alberta fighting tar sands extraction – have a set of slogans: ‘Keep the oil in the soil, the coal in the hole, the tar sand in the land.’ The sentiment is also endorsed by Rising Tide (especially in Australia and the UK), Climate Camp, and US activists fighting mountaintop coal, coal electricity generators and oil extraction in places as diverse as West Virginia, Washington DC, California and Alaska.

[28] Hank Hayes, ‘Boucher seeks Change in Cap-and-Trade’, Times News, August 29 2009, http://www.timesnews.net/article.php?id=9016458, last accessed October 11, 2009.