Carbon Trading Why It Fails

8/8/2019 Carbon Trading Why It Fails

1/104

Carbon Trading

How it worksand why it fails

criticalcurrentsDag Hammarskjld Foundation

Occasional Paper Series

no.7November 2009


2/104

critical currents no.7November 2009

Carbon TradingHow it works and why it ails

Dag Hammarskjld Foundation

Uppsala 2009

Tamra Gilbertson and Oscar Reyes


3/104

Critical Currents is anOccasional Paper Series

published by theDag Hammarskjld Foundation.It is also available online atwww.dh.uu.se.

This issue o Critical Currents is publishedin cooperation with Carbon Trade Watch(www.carbontradewatch.org), the Transna-tional Institute (www.tni.org) and The Cor-

ner House (www.thecornerhouse.org.uk). Itis based on Carbon Trading: a critical conversa-tion on climate change, privatization and power,edited by Larry Lohmann and published asDevelopment Dialogue no. 47in 2006.

Statements o act or opinionare those o the authors anddo not imply endorsementby the Foundation.

Manuscripts or reviewshould be sent [email protected].

Series editor: Henning MelberEditor: Larry LohmannCoordination and

fnal text editing: Wendy DaviesDesign & Production: Mattias Lasson

Printed by X-O Gra Tryckeri ABISSN 1654-4250Copyright on the text is with theauthors and the Foundation.

The Dag Hammarskjld Foundationpays tribute to the memory o the secondSecretary General o the UN by searchingor and examining workable alternativesor a socially and economically just,ecological ly sustainable, peaceul andsecure world.

In the spirit o Dag Hammarskjldsintegrity, his readiness to challenge thedominant powers and his passionate pleaor the sovereignty o small nations andtheir right to shape their own destiny, theFoundation seeks to examine mainstreamunderstanding o development and bring tothe debate alternative perspectives o otenunheard voices.

By making possible the meeting o minds,experiences and perspectives through theorganising o seminars and dialogues,the Foundation plays a catalysing rolein the identifcation o new issues andthe ormulation o new concepts, policyproposals, strategies and work plans towardssolutions. The Foundation seeks to be at thecutting edge o the debates on development,

security and environment, therebycontinuously embarking on new themesin close collaboration with a wide andconstantly expanding international network.


4/104

The Copenhagen process must address the

reality o the larger eco-systems challenge we

ace. Healthy ecosystems are a precondition orstabilising the climate system. But the current

negotiations are not addressing critical issues

related to the resilience o ecosystems and to

ecosystem services and are thus ser iously f awed.1

During the autumn o 2006 the Dag Ham-marskjld Foundation, in collaboration withThe Corner House and the Durban Groupor Climate Justice, published a pioneering

challenge to what had become the core oo cial international eorts to solve the evermore visible crisis concerning climate changeand the urgent need to reduce emissions.2Based to a large extent on the work o LarryLohmann, the publication was at the ore-ront o a necessary intervention to demystiythe dominant exit options on oer whichwere only ending in anothercul de sac.

Since then, public awareness has becomemore sensitised to the problems o treatingcarbon trading as a silver bullet or solvingthe climate crisis. Common sense shouldalready suggest that things are not so simple:setting up a market in a new commodity isbound to be an invitation to traders to ocustheir ingenuity on proft-seeking even i theresults undermine climatic stability.

Our publication soon became a standardreerence book, and we registered record

1 Bo Ekman, Johan Rockstrm and Anders Wijk-man, Grasping the climate crisis: A provocation rom theTllberg Foundation, Stockholm: Tllberg Founda-

tion (undated, 2008/2009), p.17.2 Carbon Trading: A critica l conversation on climate change,privatisation and power(Development Dialogue, no.48), Uppsala: The Dag Hammarskjld Foundation,September 2006. Like all recent publications, thisvolume is accessible or ree download at the Foun-dations website (www.dh.uu.se).

hits on our website.3 The huge demand alsoresulted in a second imprint, ater well over

10,000 hard copies had been distributed. Ona more sel-critical note, however, as nec-essary as the undamental analysis was, thesizeable volume o 350 pages contributed aconsiderable carbon ootprint through thepaper and energy needed or its distribution.In addition, while the book laid out con-vincing arguments, it was not the most e-ective tool or those who needed a conciseintroduction to the problem. The idea o

producing an updated shorter version there-ore emerged quite soon, though the projectrequired some time. Thanks to Oscar Reyesand Tamra Gilbertson and with the supporto Larry Lohmann, we are now able to oerthis brieer, updated input or the discus-sions around Copenhagen.

At a time when carbon trading is still being

strongly promoted as the central solution toclimate change, we continue to stress thatit is, instead, part o the problem. But thisvolume also does not hesitate to look or-ward and thereby complements a paralleleort looking into the challenges beyondCopenhagen.4

Meeting todays climate challenges requiresa paradigm shit in our thinking and ap-

proaches. Market-based strategies haveailed. We need to demystiy the claim thatprice incentives alone will fx matters.

Henning Melber

3 The combined total number o downloads romthe sites o the Corner House and the Foundationamounted to over 820,000 by October 2009, i.e.

within three years.4 Ulr ich Brand, Nicola Bullard, Edgardo Lander

and Tadzio Mller (eds), Contours o Climate Justice:Ideas or shaping new climate and energy politics (CriticalCurrents, no. 6), Uppsala: Dag Hammarskjld Foun-dation, November 2009.

Preace


5/104

4 Critical Currents no. 7

Acknowledgements

Special thanks to everyone who helped withthis project.

Thanks to Joanna Cabello, Ricardo Carrerre,Calyx Clagg, Tom Goldtooth, NiclasHllstrm, Nina Holland, Chris Lang,Marianne Maeckelbergh, Daniela Meirelles,Winried Overbeek, Pavement, KittisakRattanakrajangsri, Pinelopi Sioni, and theDurban Group or Climate Justice.

Review committee: Joanna Cabello, CarbonTrade Watch; Marcelo Calazans, FASE,Brazil; Ricardo Sequeiros Coelho,Universidade do Porto, Portugal; AlmuthErnsting, Biouelwatch, UK; Justin Fong,Moving Mountains, China; Soumitra Ghosh,NESPON/NFFPFW, India; Tom Goldtooth,Indigenous Environment Network;Amaranta Herrero, Universitat Autnomade Barcelona; Jutta Kill, FERN, UK; Ivonne

Yanez, Oilwatch Sudamerica; Joe Zacune,Friends o the Earth International.

Field research and Chapter 4: MarceloCalazans, FASE, Brazil; Nishant Mate

and Soumitra Ghosh, NESPON andNFFPFW, India; Wiwied Widya Astuti andMr. Kaka; Jikalihari, Sumatra, Indonesia;Nantiya Tangwisutijit, and The Nam SongConservation Club, Thailand.


6/104

Carbon Trading How it works and why it fails 5

Chapter summary

Chapter 1

introduces carbon trading, how it worksand some o the actors involved.

Chapter 2

explores the origins and key actors involved

in building the architecture o emissionstrading.

Chapter 3

examines the perormance o the EU ETSand fnds that it has generously rewardedpolluting companies while ailing to reduceemissions. Many o the schemes aws, rom

the overallocation o permits to polluteonwards, are ound to be undamental to thecap and trade approach more generally.

Chapter 4

outlines the perormance o the CDM andlooks at our case studies o CDM projectsin Thailand, India, Indonesia and Brazil; itargues that osets projects, even those that

promote renewable energy, will not be asolution to climate change.

Chapter 5

outlines what could work and waysorward or political organising aroundquestions o climate change.


7/104



8/104


1 Introduction

The headlines tell the story. Billions wastedon UN climate programme.1 Truth about

Kyoto: huge profts, little carbon saved.2UN eort to curtail emissions in turmoil.3The Carbon Folly: Policymakers Favou-rite Global Warming Fix Isnt Working.4European Unions eorts to tackle climatechange a ailure.5 The great carbon creditcon: Why are we paying the Third World topoison its environment?6

Behind these headlines lies a tale o thegrowing ailure o the main tool that gov-ernments, fnancial institutions and cor-porations have adopted to address climatechange. This is carbon trading a multi-billion dollar scheme whose basic premise isthat polluters can pay someone else to cleanup their mess so that they dont have to.

1 John Vidal, Bill ions wasted on UN climateprogramme, The Guardian, 26 May 2008, p.1.2 Nick Davies, Truth about Kyoto: Huge Profts,

Little Carbon Saved, The Guardian, 2 June 2007, p.1.3 Jerey Ball , UN Eort to Curta il Emissions in

Turmoil, Wall Street Journal, 12 April 2008, p. A1.4 Emily Flynn Vencat, The Carbon Folly:

Policymakers Favorite Global Warming Fix IsntWorking, Newsweek, 12 March 2007

5 Channel 4 Evening News, London, lead story, 7March 2007.

6 Nadine Gouri, The great carbon credit con:Why are we paying the Third World to poison

its environment?, Daily Mail, 1 June 2009;http://www.dailymail.co.uk/home/moslive/article-1188937/The-great-carbon-credit-eco-companies-causing-pollution.html

This issue oCritical Currents examines whatcarbon trading is and why it was adopted inthe frst place. It tells the story o how, romits global beginnings as part o the KyotoProtocol in 1997, carbon trading has ailedto change the way we acquire and use ener-gy, while short-circuiting demands or theundamental reorms needed. In the process,it has rewarded polluters or continued pol-

lution while at the same time causing socialand environmental injustice.

Tamra Gilbertson

is a researcher withCarbon Trade Watch /

Transnational Institute

(TNI). She is a co-founder

of the Durban Group for

Climate Justice.

Oscar Reyes is a

researcher withCarbon Trade Watch /

Transnational Institute

(TNI). He was formerly TNI

Communications Offi cer

and co-editor of Red

Pepper magazine.

Photo: Pinelopi Sioni

Photo: Tamra Gilbertson


9/104


Climate change: a genuine crisis

Nowadays, ew people doubt that the climateis changing and that human activity is themajor cause. The evidence is unequivocal,

according to the 2007 Fourth AssessmentReport o the Intergovernmental Panel onClimate Change (IPCC), an assessment thatsynthesises the research o 2,500 scientists.7The period rom 1997 to 2008 includes the10 warmest years since global records beganin 1850, while average sea level rises are ac-celerating.8 The IPCC warns that i presenttrends continue unchecked, temperaturescould rise by over 6 degrees Celsius and sea

levels by up to 60 centimetres globally by2100.9 This is a conservative estimate com-pared to more recent studies, which haveshown that the geological record o ice meltwas non-linear and responded more rap-idly.10 The likely consequences o climatechange vary rom region to region, but in-clude widespread drought, desertifcation,ooding and glacial melt.

This message now seems to be getting across.But global eorts to tackle climate change

7 Intergovernmental Panel on Climate Change,Summary or Policymakers o the Synthesis Report o

the IPCC Fourth Assessment Report, IPCC, Geneva,November 2007, p.1.

8 Goddard Institute or Space Studies, GlobalTemperature Trends: 2008 Annua l Summation,16 December 2008; http://data.giss.nasa.gov/

gistemp/2008/9 Intergovernmental Panel on Climate Change,Climate Change 2007: The Physical Science Basis -Summary or Policymakers, February 2007, p.6; http://www.ipcc.ch/pd/assessment-report/ar4/wg1/ar4-wg1-spm.pd

10 James Hansen, Makiko Sato, Pushker Kharecha,David Beerling, Robert Berner, Valerie Masson-Delmotte, Mark Pagani, Maureen Raymo, Dana L.Royer, James C. Zachos, Target atmospheric CO2:Where should humanity aim?, Open Atmos. Sci.

J., vol. 2, 2008, pp. 217-231. This study shows thatwhen temperatures increased to 2-3 degrees Celciusabove todays level, 3.5 mil lion years ago, sea levelsrose not by the 59 centimetres predicted by theIPCC but by 25 metres.

are ailing badly, with large and accelerat-ing global increases in greenhouse gas emis-sions in the decade since Kyoto, as well as athreeold growth in emissions rom ossil u-els since the 1990s.11 This booklet will argue

that the market-based solutions advocated bymany politicians, celebrities, scientists andlarge NGOs compound the problem.

There has never been a lack o materials oringenuity or dealing with climate change.Like many other social problems, globalwarming is a crisis created by the actions o aminority o the worlds peoples what Ra-machandra Guha and Madhav Gadgil have

called the omnivores, the development-aidedclass o modern consumers.12 For the worldsmajority, global warming remains a problemor which they already have the solution: or-going excessive use o ossil uels. The recentWestern ashion or distancing responsibilityor climate change, both spatially and tem-porally, by attributing it to uture car-hungryChinese or Indians, is a diversion possible

only under the assumption shared by elitesin North and South alike that a society thatmandates over-consumption is the universalhuman destiny.

Current global eorts to address climatechange, however, look absurdly inadequate.In 1997, the Kyoto Protocol saw 38 indus-trialised countries commit themselves to cutgreenhouse gas emissions by 2012 to a level

5.2 per cent lower than those o 1990. At thattime, the IPCC suggested that there wouldneed to be a rapid 50 to 70 per cent emissionsreduction i the world were to stand a chanceo averting devastating climatic change. Ithas since revised its projection upwards.13

11 For example, CO2 emissions rose by an average o3.2 per cent between 2000 and 2005.

12 Ramachandra Guha and Madhav Gadgil, Ecology

and Equity, Penguin, London, 1995.13 Intergovernmental Panel on Climate Change,

IPCC Second Assessment: Climate Change 1995,

IPCC, Geneva, 1995.


10/104


Several more recent studies have argued thateven the latest IPCC fgures are an underesti-mate. For example, James Hansen o NASA haspointed out that the IPCCs earlier calculationailed to take account o slow eedback mech-

anisms that increase temperature rise caused bygreater greenhouse gas concentrations.14 Moregenerally, in their attempts to meet politicaldemands that a single unit be devised throughwhich the climate impact o one greenhousegas can be compared simply with another, andthen bought and sold in the orm o pollutionpermits, scientists have downplayed the unpre-dictable, complex and non-linear impacts oclimate change to render them easier or poli-

cymakers and markets to digest.

Making climate problems

t market solutionsIt was clear rom the outset that the Kyoto Pro-tocol was inadequate. Shortly ater the treatywas signed, a scientifc journal pointed out that30 Kyotos would be needed merely to stabilise

the concentration o carbon dioxide (CO2) inthe atmosphere at twice the level it stood at thetime o the Industrial Revolution.15

But as a prerequisite or agreeing on evensuch an inadequate solution, the UnitedStates delegation then introduced into theKyoto negotiations a series o carbon trad-ing proposals that served to undermine eventhe weak targets under discussion.

The idea was to allow the industrialisedcountries included in the treaty, i they didnot want to make reductions domestically,to trade away these commitments or thepromise o emissions reductions in othercountries. The important point, so the the-ory went, was to achieve an overall balance

14 James Hansen et al., op. cit., supra, note 10.15 David Malako, Thir ty Kyotos Needed to ControlGlobal Warming, Science, 278, no. 2, 19 December1997, p. 2048.

rather than insisting on each country meet-ing its own target. The hidden hand o themarket would guide the process towards thecuts that were the cheapest to make.

This loosened the lid that Kyoto itsel hadplaced on industrialised countries emis-sions. For example, the industrial collapsethat took place in the ormer Soviet coun-tries meant that they were already emittingar less than in 1990. This provided a readysupply o hot air emissions units (as theybecame known), releasing the pressure onthe North to make cuts domestically. Otherloopholes quickly appeared too.16

Carbon trading

Carbon trading is a complex system whichsets itsel a simple goal: to make it cheaper orcompanies and governments to meet emis-sions reduction targets although, as we willshow, emissions trading is designed in sucha way that the targets can generally be met

without actual reductions taking place.

Carbon trading takes two main orms: capand trade and osetting.

What is cap and trade?

Under a scheme called cap and trade, gov-ernments or intergovernmental bodies likethe European Commission hand out licens-

es to pollute (or carbon permits) to major

16 These included the exclusion o internat ional ship-ping and aviation rom emissions reduction targets.O cial UN statist ics show that uels sold or usein international aviation and international marinetransportat ion increased by 65.9 and 18.4 per cent,respectively in the period rom 1990 to 2006. Thesefgures reer only to transport originating rom orarriving in Annex 1 countries (those with emis-sions reductions targets). See UNFCCC, Nationalgreenhouse gas inventory data or the period19902006, November 2008, p.12; http://unccc.int/resource/docs/2008/sbi/eng/12.pd


11/104


industries. Instead o cleaning up its act, onepolluter can then trade these permits with an-other who might make equivalent changesmore cheaply. This is the approach underly-

ing the European Unions Emissions TradingScheme (EU ETS), the worlds largest carbonmarket, which was worth US 63 billion in2008 and continues to expand rapidly.17

The theory is that the availability o carbonpermits will gradually be reduced, ensuringscarcity, so that the market retains its valuewhile at the same time orcing a reduc-tion in the overall level o pollution. The

cap part is supposed to do the work, envi-ronmentally speaking, setting a legal limiton levels o permissible pollution within agiven time period. Each cap reduction is, ineect, a new regulatory measure introducedby governments and/or international bodiesto restrict pollution urther.

The trading (or market-based) component

o such a scheme does not actually reduce anyemissions. It simply gives companies greaterroom to manoeuvre in addressing the emis-sions problem, or which reason carbon trad-ing proposals are sometimes also reerredto as exible mechanisms. Installations ex-ceeding their reduction commitments cansell their surpluses to those who have ailedto clean up their act adequately. Companiesthat want to keep on polluting save money,

while in theory companies that are able toreduce beyond legal requirements will seizethe chance to make money rom selling theirspare credits. But this exibility comes at acost what is cheap in the short term is notthe same as what is eective in the long termor environmentally and socially just.

17 World Bank, State and Trends o the Carbon Market

2009, World Bank, Washing ton DC, 2009, p.7.

In practice, the scheme has ailed to incen-tivise emissions reductions. For example, acombination o industrial lobbying eortsand measurement di culties have ensured

that the pollution rights granted to privatefrms within cap and trade schemes are inmany cases more generous than the pollutersneed to cover their existing level o emissions.This surplus o permits can then be sold toother polluters so that they too might avoidreducing their greenhouse gas emissions.

To date, the vast majority o permits havebeen handed out or ree (a practice known

as grandathering) in the EU ETS, andthe same is true or other cap and tradeschemes.18 The number o permits awardedis calculated according to existing levels opollution, which means that those who havepolluted most in the past are rewarded withthe greatest subsidy. This ree git o pollu-tion rights to some o the worst industrialpolluters amounts to one o the largest proj-

ects or the creation and regressive distribu-tion o property rights in history.19

18 This is the case or the EU ETS until 2012. Al-though the EU and US have both claimed thatauctioning could provide a major revenue streamto fnance other measures to tackle climate change,this has not yet materialised. In the USA, PresidentObama initially budgeted or US$ 646 billion as aresult o auctioning 100 per cent o carbon permits,

but as o September 2009 it is proposed that around85 per cent be allocated or ree. See Jim EstathiouJr. and Kim Chipman, Carbon Market BackersSplit Over Obama Climate Plan, Bloomberg, 19March 2009; http://www.bloomberg.com/apps/news?pid=20601072&sid=aVzbV8Sc35PY.The European Union also signifcantly watereddown its auctioning plans or the third phase o theEU ETS, with EU fnance ministers vetoing callsor the money to be ringenced or climate-riendlypolicies. The largest single public revenue streamthat remains has been designated or the develop-ment o controversial carbon capture and storage

technologies.


12/104


d19

What are carbon osets?

The second type o carbon trading is osetting.Instead o cutting emissions at source, com-

panies, and sometimes international fnancialinstitutions, governments and individuals, f-nance emissions-saving projects outside thecapped area. The UN-administered CleanDevelopment Mechanism (CDM) is the larg-est such scheme, with almost 1,800 registeredprojects as o September 2009, and over 2,600urther projects awaiting approval.20 Based oncurrent prices, the credits produced by ap-proved schemes could generate over US 55

billion by 2012.21

19 There is also a question o North-South distr ibutionat stake here. Cap and trade schemes currently existin Northern countries, where governments awardthe pollution rights to companies that operate withintheir borders. For each year o its scheme, the EU hasawarded ree emissions permits equating to almost2 billion tonnes o emissions between 17 and34 per cent o the worlds carbon dump. Looselytranslated, this means the EU and companies operat-

ing there are in on the act that they over-pollute with a carbon price at 30 per tonne, the equivalentasset value would be approximately 60 billion. Aproposed cap and trade scheme in the USA, whichwould cover around 85 per cent o its emissions,would generate an even larger asset value to besplit, most likely, between ree passes or industryand revenue or the US government.It is worth noting, too, that this undamental inequal-ity in allocations is only marginally improved byauctioning the revenues rather than grandatheringthem. When the EU and US plan to auction carbonrights and pay a proportion, the question remains: arethese their rights to sell? The deence that is typicallyused in response to this charge is that a proportion othe auction revenue will be allocated or developmentunding, which tends to come with conditionalities.This is like owning a house with another person,selling it without their consent, then promising toreturn a smal l part o the money as long as they agreeto spend it according to cr iteria you defne.

20 UNEP Risoe CDM/JI Pipeline Analysis and Da-tabase, 1 September 2009, http://cdmpipeline.org/overview.htm

21 This is based on a UNEP Risoe September 2009

estimate o 279 million Certifed Emissions Reduc-tions (CERs) issued by 2012, and assumes a CER priceo US$ 20. CERs are the oset credits issued by theCDM.

Although osets are oten presented as emis-sions reductions, they do not reduce emis-sions. Even in theory, they at most merelymove reductions to where it is cheapest to

make them, which normally means a shitrom Northern to Southern countries. Pol-lution continues at one location on the as-sumption that an equivalent emissions sav-ing will happen elsewhere. The projectsthat count as emissions savings range rombuilding hydro-electric dams to capturingmethane rom industrial livestock acilities.

The carbon savings are calculated accord-

ing to how much less greenhouse gas is pre-sumed to be entering the atmosphere thanwould have been the case in the absence othe project. But even the World Bank o-fcials, accounting frms, fnancial analysts,brokers and carbon consultants involved indevising these projects oten admit privatelythat no ways exist to demonstrate that it iscarbon fnance that makes the project pos-

sible.22

Researcher Dan Welch sums up thedi culty: Osets are an imaginary com-modity created by deducting what you hopehappens rom what you guess would havehappened.23 Since carbon osets replace arequirement to veriy emissions reductionsin one location with a set o stories aboutwhat would have happened in an imagineduture elsewhere, the net result tends to bean increase in greenhouse gas emissions.

The use o development and povertyrhetoric to describe osets also masks theirundamental injustice: osets hand a newrevenue stream to some o the most highly

22 Larry Lohmann, Marketing and Making CarbonDumps: Commodifcation, Calculation and Coun-teractuals in Climate Change Mitigation, Science asCulture, vol.14, no. 3, September 2005, pp. 203-235.

23 Dan Welch, A Buyers Guide to Osets, EthicalConsumer, no. 106, May/June 2007.


13/104


polluting industries in the South, whilesimultaneously oering companies andgovernments in the North a means to de-lay changing their own industrial practices

and energy usage. As we show in chapter 4,carbon oset projects have resulted in landgrabs and the repression o local communi-ties.

Voluntary osets, which give consumers inthe global North a means to make a pay-ment to assuage their guilt about consump-tion, and companies the chance to presenta green ace to the public, run into similar

problems. Osets on the voluntary mar-ket exist outside UN regulation, but theyhave similarly negative consequences on thecommunities orced to endure them. In ad-dition, these personal osets individualisethe response to climate change, distillingthe complexities o a systemic problem ohow energy is produced and used, and howland is distributed, into a seemingly simple

question o authorising a small paymentwith the click o a computer mouse.24

Putting a price on climate change

These market-based approaches orm akey part o the architecture or how inter-national fnancial institutions and govern-ments propose to address climate change. Inthe words o the UK Governments inuen-

tial Stern Review on the Economics o ClimateChange, climate change is the greatest mar-ket ailure the world has ever seen.25 Defn-

24 Kevin Smith, The Carbon Neutral Myth: osetindulgences or your climate sins, Carbon Trade Watch/Transnational Institute, Amsterdam, 2007.

25 Nicholas Stern et al., Stern Review on the Economicso Climate Change, HM Treasury, London, 2006,p.viii.

ing the problem in this way suggests that itis simply a market problem. New markets,Stern insists, can repair what existing mar-kets broke. It is assumed that climate change

occurred because no price was put on car-bon, with the result that it was not valuedwhen economic decisions were made.

This approach suggests that the earths ca-pacity to regulate its climate can be treatedas a measurable commodity. The problemis that while commodity prices can domany things, one thing that they have neverachieved is to solve problems that require

structural change in so many undamentalareas o industry and agricultural practice. Amarket price or carbon, says Sussex Univer-sitys Energy Groups Jim Watson, is a verypoor weapon in what is supposed to be a warto save humanity.26 In the 1970s, high pricerises did little to wean industrial societies ooil and there is little reason to believe thata carbon price can do so either.

The problem is, frstly, that price signals areuncertain highly so in the case o exist-ing carbon markets. Proponents o carbontrading argue that such markets could aectlong-term inrastructure decisions i only astable price signal could be achieved. Yetcarbon prices are inherently volatile. Thecommodity traded as carbon does not ac-tually exist outside o the numbers ashed

up on trading screens or the registries heldby administrators. But a single tradable unitis needed in order to create a market, andor this purpose a whole set o incommen-surable practices, undertaken at dierent

26 Jeremy Lovell, Carbon Price is Poor Weaponagainst Climate Change, Reuters, 25 September2007.


14/104


places and times rom making industrialprocesses more e cient to capturing coal-mine methane and generating hydro-elec-tric power are treated as though they were

the same.

This makes putting a price on carbon large-ly an arbitrary exercise and uncertain as pre-dicting a price o even the most mundanecommodity is at best guesswork. Currently,traders may attempt to track carbon pricesmerely by looking at energy prices, calcu-lating the dierence between coal and gasprices or by speculating about uture politi-

cal decisions. That is an unlikely recipe orinstituting the deep structural changes thatthe global warming problem demands.

The numbers game

Carbon trading has created a system where-by dierent greenhouse gases are treated asequivalent and quantifable things, opening

them up to the possibility o exchange. Anemissions cut in one place becomes equiva-lent to, and thus exchangeable with, a cutor a compensatory measure elsewhere.At frst glace, this may seem uncontroversial.As the World Bank puts it, greenhouse gas-es mix uniormly in the atmosphere, whichmakes it possible to reduce carbon emissionsat any point on Earth and have the sameeect.27 Climate change is a global problem

rather than a local one, so it should not mat-ter whether these reductions are made inBrussels or Beijing. A moments reectionwill show, however, that, in producing suchequivalences, carbon trading already dritsaway rom tackling climate change.

27 World Bank, Community Development Carbon Fund An-nual Report 2004 World Bank, Washington, 2005, p.5.

That challenge consists mainly o initiat-ing a new historical pathway that leads awayrom dependence on ossil uels, which areby ar the major contributor to human-

caused climate change. Once taken out othe ground and burned, coal, oil and gasadd to the amount o carbon cycling be-tween the atmosphere and the oceans, soil,rock and vegetation. This transer is, or hu-man purposes, irreversible: once mined andburned, ossil carbon cannot be locked awaysaely underground again in the orm o newdeposits o coal, oil or gas, or in the orm ocarbonate rock, or millions o years.28

The transer is also unsustainable: there issimply not enough space in above-groundbiological and geological systems to parkthe huge mass o carbon that is coming outo the ground saely without carbon diox-ide building up catastrophically in the airand the seas. As biologist Tim Flannery putsit: There is so much carbon buried in theworlds coal seams [alone] that, should it fnd

its way back to the surace, it would makethe planet hostile to lie as we know it.29

Most untapped coal, oil and gas, in otherwords, is going to have to stay in the ground.Accordingly, countries currently lockedin to ossil uels need instead to lock into non-ossil energy, transport, agriculturaland consumption regimes within at most a

28 M. Eby, K. Zickeld, A. Montenegro, D. Archer,K. J. Meissner and A. J. Weaver, Lietime oAnthropogenic Climate Change: Millennial TimeScales o Potential CO2 and Surace TemperaturePerturbations,American Meteorological Society, vol.22, no. 10, May 2009.

29 Tim Flannery, Monstrous Carbuncle, LondonReview o Books, vol. 27, no. 1, 6 January 2005.


15/104


ew decades.30 Because this shit is structur-al, the frst steps need to be undertaken im-mediately to minimise uture dangers andcosts.

While carbon trading encourages ingenuityin inventing measurable equivalences be-tween emissions o dierent types in dier-ent places, it does not select or innovationsthat can initiate or sustain a historical trajec-tory away rom ossil uels (the eectivenesso which is less easy to measure).

Business as usualFor both governments and many largecorporations, the appeal o carbon tradingschemes is that they give the appearance oaddressing climate change but do not man-date an immediate start to structural changein existing energy practice, production orconsumption patterns. As The GuardiansNick Davies has pointed out, carbon oset-

ting is an idea which ows not rom en-vironmentalists and climate scientists tryingto design a way to reverse global warmingbut rom politicians and business executivestrying to meet the demands or action whilepreserving the commercial status quo.31

But climate scientists can succumb to a sim-ilar logic. In its Fourth Assessment Report,the IPCC assumes that an international car-

bon market will be a oundation or uturemitigation eorts.32 This is a remarkably

30 Gregory C. Unruh, Understanding Carbon Lock-In, Energy Policy, no.28, 2000, pp. 817-30.

31 Nick Davies, The inconvenient truth about thecarbon oset industry, The Guardian, 16 June 2007,http://www.guardian.co.uk/environment/2007/

jun/16/climatechange.climatechange32 Intergovernmental Panel on Climate Change,

op.cit., supra, note p.7.

short-sighted conclusion or an organisationwhose work recognises the need or urgentaction to reduce greenhouse gas emissions.It is possible to conceive o all manner o

climate disasters, it seems, but not to thinkoutside the box o the economic systemsthat are contributing to their happening inthe frst place.

The message o all this is clear. Industria-lised societies can continue to use up os-sil uels until there are none let worth re-covering. At the same time, they can createnew markets that make it possible to claim

that others can clean up the mess, and that itwill be economically e cient or them todo so. This is a market, politicians and busi-ness leaders assure the public, in which youwil l be able to pay the environmental costso continuing to drill oil by screwing in e -cient light bulbs, or or the costs o openinga new coal mine by burning the methanethat seeps out o the same mine.

Yet as long as oil, coal and gas continues be-ing taken out o the ground, run throughcombustion chambers, and transerred to theactive carbon pool in the air, oceans, veg-etation and soil, the world will remain on apath toward catastrophic climate change. Ittook millions o years or plants to extractthe carbon rom the atmosphere that makesup todays coal, oil and gas deposits. Its tak-

ing only a ew centuries to burn it. Despiteall the schemes selling ways to capture car-bon there is no environmentally sound orquick method to saely restore the ossil u-els and carbon deposits at the rate they havebeen unleashed into the atmosphere.


16/104


Carbon trading is aimed at the wrong target.It is not directed at reorganising industrialsocieties energy, transport and housing sys-tems starting today so that they dont

need coal, oil and gas. It is not contributingto the de-industrialisation o agriculture orthe protection o orests through the recog-nition o local and Indigenous Peoples ten-ure rights or ood sovereignty. Instead, it isorganised around keeping the wheels on theossil uel industry or as long as possible.


17/104



18/104


It is not an exaggeration to brand the mecha-

nisms o the Kyoto Protocol as Made in the

USA. . . . The sensitivity o the Protocol to

the market was largely instigated by the negotiat-

ing positions o the USA.

Michael Zammit Cutajar,ormer executive secretary,

UN Framework Conventionon Climate Change, 2004

Over the past decade, carbon trading hasemerged as the centrepiece o o cial eortsto address global warming. This chaptertells the story o howcorporations, fnancialinstitutions, academics, governments, UnitedNations agencies and some environmentalistscame to promote a neoliberal, market-basedapproach to climate change emanating romthe United States.

The market x

Carbon trading sets up a ramework ordealing with greenhouse gases that securesthe property rights o heavy Northern ossiluel users over the worlds carbon-absorbingcapacity while creating new opportunitiesor corporate proft through trade.

2 A brie history o carbon trading

The system does not set a deadline by whichossil uel use will be mostly phased out. In-

stead it starts by translating existing pollu-tion into a tradable commodity, the rightsto which are allocated in accordance with alimit set by states or intergovernmental agen-cies. The idea o the cap is that these limits aregradually lowered, although no clear time-table is set, and the means by which publicsupport will be mobilised or shrinking capsis let unspecifed. Within whatever overall

constraints imposed, however, companiescan choose either to buy a greater numbero rights to carry on polluting as beore, orto make e ciency savings. Those who makeextra e ciency savings can sell their surpluspollution rights to those who do not meettheir targets.

While this might sound like a neat theory,carbon trading is both ineective and unjust.

Redefning greenhouse gas emissions as a trad-able commodity carbon whose value liesin what it can be swapped or or what price itcan etch, carbon trading signifcantly distortsthe ramework through which we view theproblem o tackling climate change, encour-aging the growth o an elaborate fnancialsystem in which a broad range o industrialand agricultural practices are rendered alsely


19/104


equivalent, while obscuring the social, politi-cal, technological and historical questions ohow rapidly shrinking caps are to be achieved.In addition, all actually- existing carbon trad-

ing schemes grant the largest number o rightsree o charge to those who have been mostresponsible or pollution in the frst place.Instead o considering polluters culpable orcausing a past harm, or imposing a stricterlimit upon them because they have alreadyused up their share o atmospheric space, car-bon trading eectively rewards them or thesepast misdemeanours.

The neoliberal context

This market fx or global warming could nothave become dominant without being part oa longer historical wave o neoliberalism.

Internationally, neoliberalism uses institu-tions such as the World Bank, and the WorldTrade Organization, along with various

treaties, to establish new orms o globally-centralised control over ar-ung resources.Attempting to integrate trading systemsworldwide, neoliberalism reorganises prop-erty rights regimes and fghts national regu-lation in an attempt to reduce the power onational governments, labour unions andlocal communities over corporate activity.

Justiying neoliberalism is an ideology o

e ciency developed over decades, largelyin the think-tanks, academic economics de-partments, international agencies and gov-ernment ministries o the US and EU. Theideology revolves around the claim that so-ciety as a whole will beneft i it makes themost out o whatever stu is available to it.

The economists and the early years

Although it is not possible to pinpoint a sin-gle ounder o carbon trading, many o the

theories rom which it derives can be tracedback to the work o economists RonaldCoase, George Stigler and, later, J. H. Dales

who provided a theoretical ramework onthe basis o which a market-based means totackle pollution could be developed.1

Coases idea was that the right to polluteis a actor o production just like the rightto use land. In both cases, the idea was that

exercising ones right would naturally entailsome losses to be suered elsewhere.2 Thequestion becomes how signifcant thoselosses will be.

To fnd out how best to distribute pollution,Coase argued, you put it on the market to-gether with other commodities youve cre-ated like real estate, water, labour, rice,

silver, orests, jet planes and mobile phones.You measure them all by the same yardstickand treat them all in the same way.

I the market is a perect market with notransaction costs and is inhabited by prop-erly calculating, maximising economicagents with perect inormation, the theorysuggests that pollution will wind up beingused in the way that contributes the most to

societys total product.

3

1 George Stigler, The Theory o Price, McMillan, NewYork, 1987.

2 Ronald Coase, The Firm, the Market and the Law,University o Chicago Press, Chicago, 1988, p.155.

3 Ronald Coase, Looking or Results: NobelLaureate Ronald Coase on Rights, Resources andRegulation, Reason Magazine, January 1997, http://reason.com/9701/int.coase.shtml.


20/104


I that means a lot o pollution, so be it.Theres no need to worry that there will betoo much pollution, because i a societygot too polluted, you wouldnt get the best

value out o other goods your labourersmight die, or example and total productwould decline. The perect market will se-lect against that, automatically optimisingpollution so that theres neither too little nortoo much.

On this basis, Coase concluded that pollutiondumps, as one actor o production amongmany, would automatically be bargained into

the hands o those who could produce themost wealth rom them (or best improvethem, to use 17th century terminology), andthus the greatest good or society. That is, toallocate property rights to public commonswill deliver a socially e cient use o resourc-es, even when externalities are present.4

Coases successors, including the economists

J. H. Dales and Thomas Crocker, modifedpollution trading theory urther. Whilecontinuing to emphasise the importance oallowing polluters ormal rights to pollute,they suggested that states would be betterplaced than an imaginary perect marketto set a cap on overall pollution levels.5 Inthis way, pollution trading became mainly away o fnding the most cost-eective wayor businesses to reach an emissions goal that

had been set beorehand.

4 Ronald Coase, The Problem o Social Cost,Jour-nal o Law and Economics, no. 3, 1960, pp.1-44; R.Coase, op. cit., supra,note 2. See also Deirdre Mc-Closkey, The so-cal led Coase Theorem, EasternEconomic Journal, vol. 24, no. 3, 1998, pp.367-371.

5 J. H. Dales, Land, Water and Ownership, CanadianJournal o Economics, no.1, November 1969, pp.791-804.

A number o these early pioneers turnedtheir back on such theories when aced withthe messy reality o carbon trading. ThomasCrocker stated, as the cap and trade scheme

was passing through the US Congress insummer 2009: Im skeptical that cap-and-trade is the most eective way to go aboutregulating carbon.6 In devising a rationaleor pollution trading, Crocker now says, henever imagined that a complex pollutionproblem with myriad sources could be dealtwith under the one scheme, arguing thatit is not clear... how you would enorce apermit system internationally. J. H. Dales

had previously expressed similar caution,claiming that there were lots o situationsin which the theory o emissions tradingwould not apply.7

Sulphur dioxide trading

There had been some early, clumsy attemptsto implement cap and trade schemes or pol-

lution by the US Environmental ProtectionAgency (EPA), such as a scheme which al-lowed trading o lead credits in gasoline.The most signifcant experience, howev-er, was the sulphur dioxide (SO2) tradingscheme set up as part o US Clean Air ActAmendments in 1990.

The Clean Air Act intended to use tradingto make it cheaper to reduce SO2 emissions

by 10 million tonnes below 1980 levels, thus

6 Jon Hilsenrathm, Cap-and-Trades Unlikely Crit-ics: Its Creators, Wall Street Journal, 13 August 2009.

7 Ibid.


21/104


reducing acid rain.8 That paved the way orlater US trading programmes in water pol-lution, wetlands destruction, biodiversitydepletion and so on.

While Dales and other proponents o pollu-tion trading had expected that permits wouldbe auctioned, almost all o the SO2 allowancesunder the Clean Air Act like those o lateremissions markets were simply distributedree o charge.9 Hence, the rights were, andstill are, gravitating into the hands o thosewho have the most power to appropriatethem and the most fnancial interest in do-

ing so. Systems o pollution trading give newcommercial powers to those with access tolegislation. So just as corporations lobby orexemption rom pollution regulations, theylobby to make sure emissions allowancesamount to secure property rights.

In common with other emissions tradingschemes, the frst phase o SO2 trading gener-

ated a signifcant surplus o pollution permitsover and above what was needed or compli-ance. It covered 263 o the largest coal-fredpower stations in the US, which producedemissions 39 per cent above the level the capat 1995, and on average 23 per cent below the

8 M. Bernstein, M. A. Farrel l et al., The Environ-ment and Economics The Impact o Restrictingthe SO2 Al lowance Market, Energy Policy, vol. 22,no. 9, pp.748-754, 1994; Drury, Bell iveau, Kuhnand Bansal, Pollution Trading and EnvironmentalInjustice: Los Angeles, Failed Experiment in AirQuality Policy, Duke Environmental Law and PolicyForum, no.45, 1999.

9 Ricardo Coelho, Pollution or sale: made in theUSA, Presentat ion at the II Doctora l Meeting,Universit de Montpell ier, 21 August 2009, p.8.Only a small percentage o the allowances (3.1 percent in phase 1 and 2.8 per cent in phase 2) wereauctioned o. Each allowance permitted the releaseo 1 tonne o sulphur dioxide into the a ir ater 1995.The price or each allowance was between US$ 122

and US$ 450, much cheaper than paying or uegas scrubbers to remove sulphur dioxide rom theiremissions.

cap or the subsequent our years.10

Although this over-compliance has beenclaimed as a success, this occurred or sev-

eral reasons that were not closely linked tothe programme itsel. The utilities coveredby the scheme anticipated high compliancecosts in the frst phase as a result o whichthey installed scrubbers, an end-o-pipetechnology to remove SO2 rom power plantexhaust streams. By 1995, however, pro-ductivity improvements in extraction andtransport meant that low-sulphur coal hadbecome ar more cheaply and readily avail-

able in the US. Since this reduced emissionsin its own right, the result was an over-supply o permits.11 A second, major actorwas a substitution provision built into theClean Air Act, which al lowed companies toswitch the actory specifed in the legislationor another o their choice and receive al-locations o allowances based on the historicemissions o those units instead.12

The net result was that a large surplus o pol-lution permits was generated which couldthen be carried over (or banked in the

jargon) to the second phase o the scheme,beginning in 2000, which came to include2,262 electricity-generating units. This sur-plus, in addition to the emissions being setsystematically above the cap between 2000and 2005, helped these other units to delay

meeting their obligations to clean up SO2pollution.

This goes some way towards explaining whythe US Clean Air Act was signifcantly less

10 Lesley McAllister, The Overal location Problemin Cap-and-Trade: Moving Toward Str ingency,Columbia Journal o Environmental Law, 2009, vol 39,no. 2, p.401. Available at SSRN: http://papers.ssrn.

com/sol3/papers.cm?abstract_id=127640511 Ricardo Coelho, op. cit.,supra, note 9.12 Ibid.


22/104


successul at reducing SO2 pollution thanequivalent regulations elsewhere. SO2 emis-sions in the US had been reduced by 43.1 percent by the end o 2007, but over the same

period 25 members o the European Unionsaw a decrease in emissions o 71 per cent.13These reductions were achieved through reg-ulation, rather than a cap and trade scheme.14Beyond this, the lessons o sulphur trading

13 US EPA, data rom Acid Rain Program 2008Progress Report, http://www.epa.gov/airmarkets/progress/interactivemapping.html; European En-vironment Agency, Air pollution rom electricity-generating large combustion plants, EEA Technical

report No 4/2008, p.11. The data includes a ll cur-rent EU members except Romania and Bulgaria.

14 The relevant EU legislat ion the Large Combus-tion Plants Directive (LCPD) sets a non-tradablelimit on the level o SO2, with plants that opt outo the scheme required to close by 2015. This wi lllead to the closures o numerous oil and coal-fred power stations a more eective measure,in terms o reduced carbon emissions, than anyclimate-specifc policy to date. On the LCPD plantclosures, see Pete Harr ison, UK And Poland TopDirty Coal List, Closures Loom, Reuters, 12 Febru-

ary 2009: http://planetark.org/wen/51627. Thesecond piece o directly relevant EU legislation isthe International Pollution Prevention and Control(IPPC) Directive, which also sets energy e ciencyrequirements and pollution limits. Unortunately,the application o the EU ETS has directly under-mined the co-benefts o this legislation or tacklingcarbon emissions. As the European EnvironmentAgency points out, the IPPC requires the defni-tion o both energy e ciency requirements andemission or concentration limits... These require-ments could restrict emissions trading. For exam-ple, operators o large sources might be obliged to

reduce their emissions (in order to comply with theIPPC Direct ive) when it could be more economi-cally e cient to increase emissions urther and buyadditional allowances instead. Article 26 o theEmissions Trading Directive thereore amends theIPPC Directive so that permits shall not includeCO2 emission limits or installations which arecovered by the EU ETS. European EnvironmentAgency (2008) Application o the Emissions Trad-ing Directive by EU Member States reporting

year 2007, EEA Technical Report no. 3/2008,p.27. The EU is currently consulting on whether to

revised the IPPC through the development o newnitrous oxide and sulphur dioxide trading schemes a urther example o how the EU ETS is servingto undermine existing environmental regulations.

were ar rom simply applicable to the arlarger and more complex array o gases andindustrial processes covered by carbon trad-ing. SO2 emissions emanating rom a rela-

tively small number o large fxed sourcesare ar simpler to monitor than the complexmix o gases and processes involved in emis-sions trading today. As Phil Clapp o the USNational Environmental Trust points out:Acid rain dealt with a specifc number oacilities in one industry that was alreadyregulated Global warming is not an issuethat will be resolved by the passage o onestatute.15 Another important dierence be-

tween the two schemes is that SO2 tradingdid not allow or the use o osets.

In addition, as Ruth Greenspan Bell pointsout, pollution trading is at most only a toolto make more cost-eective an already ex-isting commitment to cut pollution. Wherethe basic commitment and regulatory pow-er doesnt exist, the tool can do little.16 In

the US, this commitment and regulatorypower did exist. Sulur dioxide trading wasnot introduced to try to get polluting com-panies interested in controlling acid rain;they were already required to. The situationis dierent with global warming. Althoughthe countries engaged in the UN processhave ormally agreed to control carbon, thisis not a strong or enorceable commitmentin either North or South.

15 Michael Shellenburger and Ted Nordhaus, BreakThrough: The Death o Environmentalism: GlobalWarming Politics in a Post-Environmental World,2004, p.15, available at http://thebreakthrough.org/images/Death_o_Environementalism.pd.

16 Ruth Greenspan Bell, Transorming The Dynam-ic, Environmenta l Forum (US), May/June 2009.


23/104


Climate trading

Despite these problems and signifcant di-erences, the sulphur trading example was,perhaps disingenuously, heralded as a suc-

cessul model or the tackling o greenhousegas emissions rom the early 1990s onwards.

The Organisation or Economic Co-operationand Development (OECD) and the United Na-tions Conerence on Trade and Development(UNCTAD) set out the terrain or interna-tional negotiations.17 The OECD investigatedthe US SO2 emissions trading experience andconsidered the scope or international emissions

trading.18 UNCTAD, meanwhile, engaged inan extensive work programme to promote aglobal CO2 trading system.

At the same time, the US-based NGO En-vironmental Deense Fund (which is nowcalled Environmental Deense) was an earlypromoter o emissions trading, and publisheda 1991 study advocating emissions trading to

protect the rainorest a notion whose a-terlie can be seen in current market-basedproposals or Reducing Emissions rom De-orestation and Degradation (REDD).19 (Seechapter 4). The authors o this paper wereUNCTAD consultants at the time, and hadrecent experience advising the US EPA onsulphur trading.20

17 Sebastian Oberthr and Hermann Ott, The KyotoProtocol: international climate policy or the 21st century,Springer, New York, 1999, p.188.

18 OECD, Climate Change: Designing a TradeablePermit System, OECD Observer, Paris, 1992.

19 Daniel Dudek and Alice LeBlanc, Preserv ing Bra-zils Tropical Forests Through Emissions Trading,Environmental Deense Fund report, 1991.

20 For short biographies, see Alice LeBlanc at http://www.prlog.org/10290563-alice-leblanc-ormer-director-o-o ce-o-environment-and-climate-change-at-aig-joins-karbone.html and Daniel JDudek at http://www.ed.org/page.cm?tagID=909

Revolving doorsThe case o the United Nations Conerenceon Trade and Development (UNCTAD)starkly illustrates how many o the key ac-

tors involved in the promotion o globalcarbon trading later drew signifcant mate-rial benefts rom it.21

Frank Joshua, head o greenhouse gas emis-sions trading at UNCTAD rom 1991 to 2000,went on to become global director or emis-sions trading services at Arthur Andersen,the accountancy frm at the centre o theEnron scandal, beore joining NatSource, an

environmental services frm specialising inemissions trading.22 In the early 1990s, Josh-ua collaborated on an UNCTAD initiativeentitled Building a Global CO2 EmissionsTrading System with Richard Sandor, aormer head o the Chicago Board o Trade,and one o the originators o the interestrate derivatives which were a precursor othe complex derivatives that contributed

to the fnancial crash o 2008. Sandor wenton to head UNCTADs working group oncarbon market design.23 He later set up theChicago Climate Exchange (CCX), whichtoday commands a small but growing seg-ment o the carbon markets.

Alice LeBlanc, another key fgure in theUNCTAD initiative, was an employee oEnvironmental Deense at the time. She

later joined Sandor at the Chicago ClimateExchange, beore becoming head o the cli-mate change o ce o insurance frm AIG,

21 UNCTAD, Global Greenhouse Emissions Trader, 3December 1997: r0.unctad.org/ghg/download/news-letters/newsltr3.pd

22 Frank Joshua: http://www.eib.org/inocentre/orum/archives/dublin-2003/speakers/rank-joshua.htm

23 Larry Lohmann, Uncertainty Markets and Carbon

Markets: Variations on Polanyian Themes, NewPolitical Economy, orthcoming, 2009, pp.10-11.


24/104


where she devised the frms carbon marketinvestment strategy.24

Two more undamental trends lie beneath

these connections. First, they reect the ex-tent to which the notion o conicts o in-terest has allen into obsolescence. Second,the interconnections hint at broader linksbetween the rule-setting process or carbonmarkets and the agencies that established thederivatives markets that contributed to thefnancial crisis o 2008.25

From Rio to KyotoAlthough emissions trading did not di-rectly fnd its way into the text o the UNFramework Convention on Climate Change(UNFCCC), which was agreed at the RioEarth Summit in 1992, some o the neolib-eral assumptions underlying it were reect-ed in both the Conventions deence o anopen economic system based on economic

growth, and in the Summits overall recuper-ation o multinational corporations as posi-tive agents o ecological change promotingsustainable development through trade liber-alisation, in the words o Agenda 21, anothero the Declarations agreed at Rio.26

In addition, the UNFCCC noted that thelargest share o historical and current globalemissions o greenhouse gases has originated

in developed countries. As a result, countrieswere elt to have common but dierentiated

24 Carbon Control News, Insurance Giant AIGPoised To Issue Climate Change Strategy, 5 April2006. http://carboncontrolnews.com/index.php/igb/show/494

25 For a more detailed analysis on this theme, seeLarry Lohmann, op. cit., supra, note 23.

26 Pratap Chatter jee and Matth ias Finger, The EarthBrokers: Power, Politics and World Development,

Routledge, New York, 1995. See Agenda 21, ch.2,section 1: http://www.un.org/esa/dsd/agenda21/

responsibilities in tackling climate change,with the industrialised countries (identifedas Annex 1) obliged to shoulder the burdeno cleaning up a problem they had been dis-

proportionately responsible or creating.

In 1994 developed countries made volun-tary commitments to reduce their green-house gas emissions to 1990 levels by 2000.It quickly became clear that there was littlechance that these targets would be adheredto, however, and negotiations on legallybinding targets began at the frst Coner-ence o the Parties (COP) to the UNFCCC

in Berlin in 1995.

A UNFCCC Annex 1 Expert Group,guided by the International Energy Agency(IEA) and OECD, developed proposals orindustrialised nations within the UN pro-cess and became an important orum or theelaboration o an emissions trading systemwithin the Kyoto Protocol.27

As negotiations gathered pace or a ollow-on agreement to the Convention, the USgovernment began to design a carbon trad-ing proposal, announcing in 1996 that thiskind o exibility would be the key re-quirement or accepting binding targets.28

In December 1997, the third COP was heldin Kyoto, Japan, resulting in a Protocol

that was to become the major pillar o in-ternational climate policy. Although most

27 Sebastian Oberthr and Hermann Ott, The KyotoProtocol: international climate policy or the 21st century,Springer, 1999, p.188 The Annex I Expert Group stillexists, and is promoting proposals or new sectoralcarbon markets in advance o the COP15 global cli-mate negotiations at Copenhagen in December 2009.

28 Deborah Stowell, Climate Trading: Development o

Greenhouse Gas Markets, Palgrave, Basingstoke,2005, pp.15-16.


25/104


governments insisted that emissions reduc-tions should be made domestically by partiesto the agreement, the US delegation, led byVice President Al Gore, again insisted upon

exibility. As journalist George Monbiotrecalls:

Gore demanded a series o loopholes bigenough to drive a Hummer through. Therich nations, he said, should be allowed tobuy their cuts rom other countries. Whenhe won, the protocol created an exuberantglobal market in ake emissions cuts... Healso insisted that rich nations could buy

nominal cuts rom poor ones. Entrepre-neurs in India and China have made bil-lions by building actories whose primarypurpose is to produce greenhouse gases, sothat carbon traders in the rich world willpay to clean them up.29

The most signifcant o these loopholes wasthe Clean Development Mechanism, a car-

bon oset mechanism which was includedat a late stage in the Kyoto negotiations.30A second osetting scheme, called JointImplementation, was also included in theProtocol.

29 George Monbiot. Weve been suckered again bythe US. So ar the Bal i deal is worse than Kyoto,The Guardian, 17 December 2007: http://www.guard ian.co.uk/commentis ree/2007/dec/17/com-ment.world

30 The CDM is not the only hole in the Kyoto Proto-col, however. As noted in chapter 1, the ability totrade emissions between countries has resulted ina signifcant quantity o hot air emissions in thesystem in particular, ollowing the collapse o theSoviet Union. Another signifcant hole is the exclu-sion o international aviation and shipping rom thecalculations underlying the Kyoto Protocol.

Joint Implementation

Joint Implementation (JI) is a UN osettingscheme that is similar to the Clean Develop-

ment Mechanism the key dierence beingthat it involves projects hosted in countriesthat already have binding targets or the re-duction o their greenhouse gas emissions.

Most o the projects are in transitioneconomies (Russia, Ukraine and Centraland Eastern Europe), which tend to be thecheapest places to host them, although theyhave also emerged in Germany, France and

New Zealand.

By September 2009, the UN had registered214 JI projects. These tend to be larger inscale than CDM projects, with the largestproportion (34 per cent) accounted or bymethane gas reduction projects, which aremostly associated with coal mines.

The origin o osetsThe idea o osetting did not begin withthe Kyoto Protocol or with carbon trading.Early in the history o pollution trading,governments and private frms sought wayso injecting extra, inexpensive pollutionpermits into the market, to make meetingtargets even easier than it would be undersimple cap and trade schemes.31 In 1976,

the US EPA promulgated a policy allowingmajor new pollution sources to be sited inlocations where standards were not beingattained as long as they obtained oset pol-lution credits generated rom other projectsthat saved or reduced emissions.

31 Richard A. Liro, Reorming Air Pollution Regulation:The Toil and Trouble o EPAs Bubble, ConservationFoundation, Washington, 1986, p.100.


26/104


In order to become tradable or emissionsallowances, oset credits had to be madeequivalent to emissions reductions. In the1970s and 1980s, various US authorities and

regulated corporations eager to build a pollu-tion oset market tried to commensurate re-ducing pollution rom industrial installationswith buying up and scrapping old cars or bymaking material process substitutions else-where.32 Environmentally, the experimentailed. For example, entrepreneurs sold cred-its or destroying cars that in act had alreadybeen abandoned, while states lured industryby providing it with osets created through

substitution processes that were already oc-curring or non-environmental reasons.33

Under one Caliornia smog trading pro-gramme, the Sacramento Metropolitan AirQuality Management District issued 5 tonnesper year o volatile organic compound pollu-tion credits created by the decommissioningo B-52 bombers that had been based in the

region. The credits were bought by com-panies such as Intel, Campbells Soup andAerojet, who were able to avoid installingpollution control equipment as a result. Thecredits arguably unctioned to increase pol-lution above what it would have been oth-erwise, because the bombers had been slatedor destruction anyway under the terms othe START treaty. Because companies car-ried on polluting, the B-52s in eect contin-

ued to pollute rom the grave.34 Such creditsquickly earned the sobriquet anyway tonnes,meaning that they represented actions thatwould have happened anyway.

32 Drury et al. op. cit., supra, note 8; Liro, op. cit.,supra, note31.

33 Drury et al., ibid; Liro, ibid., pp.16, 117.34 Drury et. al. op. cit.,supra, note 8; Liro, op, cit.,

supra,note 31, pp.16, 117.

Environmental Services and

Land Use Osets35

Costa Rica pioneered the development o

Payments or Environmental Services (PSAorpagos por servicios ambiamental) in the 1990s,establishing a national plan to compensatelandowners to preserve orests and reorestdegraded lands, including tree plantations.Landowners were given the opportunity tosell the carbon storage capacity o orests ontheir territory to the national government,which then sold these on to voluntary mar-kets. The scheme was paid or by a 15 per

cent consumer tax on ossil uels which waslater reduced. Carbon trading was expectedto provide signifcant unding through saleso certifed tradable osets. However, nosignifcant market or carbon abatement hasemerged. The only sale has been to Norway,which consisted o US 2 million in 1997 or200 million tonnes o carbon sequestration. 36Further unding came through a World Bank

loan and a Global Environmental Facility(GEF) grant. Costa Rica went on to createCertifed Tradable Osets (CTOs) in 1998 togrow carbon rom 500,000 hectares o orest,setting in motion an unfnished debate on thevalue and legitimacy o carbon sinks.37

35 See Larry Lohmann, Democracy or Carbocracy?Intellectual Corruption and the Future o the

Climate Debate, The Corner House briefng 24,October 2001.36 G. Arturo Sanchez-Azoeia, Alexander Pa,

Juan Andres Robal ino, and Judson P. Boom-hower, Costa Ricas Payment or EnvironmentalServices Program: Intention, Implementation, andImpact, Conservation Biology, DOI: 10.1111/j.1523-1739.2007.00751, 2007. The notion o carbonsequestration (or sinks) was already establishedas part o the UNFCCC. See United NationsFramework Convention on Climate Change, 1992,article 4.d.

37 http://projects.wri.org/book/export/html/11


27/104


These early experiences o osetting in CostaRica resulted in a push or the inclusion otradable carbon sequestration osets or car-bon sinks in UNFCCC legislation.38 Dur-

ing the Kyoto negotiating years in the 1990sNorthern countries like the US, Canadaand Australia had a vested interest in gettingsinks included in any climate deal as a meansto make their emissions targets cheaper andeasier to attain. The Intergovernmental Panelon Climate Change responded to the pres-sure with a 377-page review on land use andland use change, released in May 2000 asLand Use and Land Use Change and Forest-

ry (LULUCF).39 Many NGOs and govern-ments cautioned against using the biosphereto create an international osets market.40

The earlier pressure had paid o or theNorthern elites. The LULUCF report out-lined how credits could be generated romsinks.41 At the contentious COP 6 in TheHague in November 2000, one o the major

controversies concerned the technical possi-bility o countries claiming carbon credits oradditional land and orest activities withintheir borders as part o their Kyoto Protocolreduction commitments. The concept ocarbon sequestration was accepted, but theability to trade credits rom the environmen-tal service o avoided deorestation was not.

38 G. Arturo Sanchez-Azoeia, et. al. op cit.,supra,note 36.

39 R. T. Watson, I.,Noble, B. Bolin et al. (eds), LandUse, Land Use Change andForestry (a Special Reporto the IPCC), Cambridge University Press, Cam-bridge, 2000.

40 The German Advisory Council on Global Change,The accounting o Biological Sinks and Sourcesunder the Kyoto Protocol A step Forward orBackwards or Global Environmental Protection?,Bremerhaven, EBGU, 1998, p.39.

41 R. T. Watson et al., op. cit.,supra, note 39, p.181.

Two-thirds o the LULUCF documentauthors and editors were rom the North.Many o these authors assumed that therewere wide open degraded lands in the

South (but not in the North) which had nobetter unction than to be converted intoplant growth to absorb CO2.42 Beyond theobvious lack o evidence that short-cycletree or plant growth locks in CO2 perma-nently, this displays a shocking lack o anal-

ysis regarding social mechanisms o deores-tation, commons regimes, social resistance,development systems and local history. Tell-ingly, there were no Indigenous Peoples

Organisations (IPOs) on the panel.

Osetting proposals went global in the1990s as traders, economists, consultants,non-government organisations and UNtechnocrats began to set up institutionsthrough which oset credits could be mixedwith the permits on which cap and tradewould be based. Whereas earlier projects

had sought mainly to replace one type opollution reduction with an emissions sav-

42 In this context, the term degraded lands is adescendant o the colonial-era administrative termwaste, used to signi y what were in act commonlands under intense and varied use. For the deploy-ment o this term in the British Raj, see, or ex-ample, R. A Houghton,et al., Current Land Coverin the Tropics and its Potential or SequesteringCarbon, GlobalBiogeochemical Cycles, vol.7, no. 2,

1993, pp.305-320; R. Dixon et al. (eds)Assessment oPromising Forest Management Practices andTechnolo-gies or Enhancing the Conservationand Sequestrationo Atmospheric Carbonand their Costs at Site Level,EnvironmentalProtection Agency, Washington, 1991;A. Grainger, Modelling the Impact o AlternativeAorestation Strategies to Reduce Carbon DioxideEmissions, in Proceedingso the Conerence on TropicalForestry ResponseOptions to Global Climate Change,1990; and M. Trexler and C. Haugen, KeepingitGreen: Tropical Forestry Opportunitiesor MitigatingClimate Change, World Resources Institute, Wash-ington, 1995.


28/104


ing made elsewhere, these new schemes ex-tended the logic o osetting to include thedisplacement o claimed reductions romone country to another.

The basic economic idea was to fnd thecheapest location to tackle the climatechange problem, irrespective o where it hadbeen caused. Larry Summers, the currentpresident o the White House EconomicCouncil, inamously elaborated upon this ina 1991 memo sent while he was chie econ-omist o the World Bank. The economiclogic o dumping a load o toxic waste in

the lowest wage country is impeccable, andwe should ace up to it, Summers said. Un-derpopulated countries in Arica are vastlyunderpolluted.43

In 1992, the World Bank and the govern-ment o Norway began to co-fnance a se-ries o Joint Implementation arrangementsinvolving carbon oset generation. The

Global Environment Facility, which wasinitiated by the Bank in 1991 and subse-quently adopted as the fnancial mechanismor the UNFCCC, also began to researchmethodologies or certiying carbon o-sets.44 These JI proposals elaborated on arelatively obscure piece o wording in theConvention agreed at the Rio Earth Sum-mit, which stated that measures taken bydeveloped countries to cut their greenhouse

gas emissions to 1990 levels could be takenindividual ly or jointly.45

43 Patrick Bond, The World Bank in the Time o Chol-era, Z NetCommentary, 13 April 2001. http://www.zmag.org/sustainers/content/2001-04/13bond.htm

44 World Bank, The World Bank and the Environment,Washington, IBRD/World Bank, Washington,1993, p.118.

45 United Nations, United Nations Framework Conven-tion on Climate Change, 1992, Article 4.2(b).

The G-77 and China grouping o develop-ing countries initially contested this inter-pretation, with many countries expressingconcern at what they saw as a neocolonialist

measure that would allow developed coun-tries to avoid their domestic and historicresponsibilities to tackle climate change.46Nevertheless, pressure rom Northerncountries and the openness o a ew CentralAmerican countries to such schemes led toan agreement at the 1995 Berlin COP tostart piloting activities implemented joint-ly between industrialised and developingcountries.

The Kyoto surprise

The Brazilian government claimed thatthese new schemes amounted to a reinter-pretation o the concept o Joint Imple-mentation by developed countries as ameans to avoid the strict ulflment o theirtargets.47 As a parallel proposal, it put or-

ward the idea o a Clean Development Fund(CDF) which would penalise developedcountries that exceeded their targets in or-der to fnance clean energy in the South orclimate change mitigation (90 per cent) andadaptation projects (10 per cent).

However, at the initiative o the US andamid internal disagreements within theG-77 and China group, this was transormed

late into the Kyoto negotiations into theClean Development Mechanism. The newscheme laid the groundwork or projects indeveloping countries to create credits thatcan be purchased and utilised by developed

46 Joyeeta Gupta, Our Simmering Planet: What to doabout global warming? Zed Books, 2001, p.65.

47 Brazil ian position on Activities ImplementedJointly (1996-7), cited in Gupta, ibid., p.66.


29/104


countries to meet their emission reduc-tion obligations. The und was transormedinto a trading mechanism, fnes were trans-ormed into prices, and a judicial system was

transormed into a market.

The EU, trying to maintain some legitima-cy, cautioned that exibility must never be-come a backdoor through which rich coun-tries can get away by paying other countriesinstead o doing their homework.48

However, the US later claimed during ne-gotiations in The Hague in 2000 that any

limit on the use o exible mechanisms as the G-77 and China group and the EUwere requesting would lead to unaccept-ably high domestic costs.49 Later in 2001 theBush administration, shortly ater cominginto power, confrmed a unilateral decisionto abandon its Kyoto targets altogether.50

The origins o the EU

Emissions Trading SchemeIn response to the US walking away romKyoto, the EU strengthened its support oremissions trading and went about designingan EU-wide scheme that became the EUETS, now being used as a model or othertrading systems (see chapter 3).

48 Statement by Ritt Bjerregaard ater a September1998 inormal meeting in Japan, quoted in LorenCass, Norm Entrapment and Preerence Change:The Evolution o the European Union Position onInternational Emissions Trading, Global Environ-mental Politics, May 2005, Vol. 5, No. 2, p.52.

49 Norman J. Vig and Michael G. Faure, Green Gi-ants? Environmental Policies o the United Statesand the European Union, Massachusetts Institute orTechnology, 2004, p.349.

50 Vig and Faure, ibid.

The European Commission, which has re-sponsibility or proposing European Unionlegislation, frst discussed the emissions trad-ing scheme as part o its post-Kyoto strategy

in 1998. Consultations on the scheme beganin March 2000.51

While many corporate and corporate-backedgroups were still pouring millions o dollarsinto disinormation campaigns to cast doubton whether climate change was happening,a sel-proclaimed progressive wing o bigbusiness was positioning itsel to inuencethe rules o this new trading regime.52

In 1999, a number o UK companies ormedan Emissions Trading Group to developa voluntary scheme as an alternative to car-bon tax proposals. The point was to developnon-tax alternative to save industry money.In Denmark, power companies ran a proto-type or a small national emissions scheme in1999, which proved a ailure.53 Undeterred,

Norwegian business adopted a similar schemewhile, elsewhere, some companies began toexperiment internally with emissions trading.BP and Shell were among the leading actors,with BP in particular using its experiences toset the policy agenda or emissions trading frst in the UK, and then at an EU level.54

51 Marcel Braun, The evolution o emissions tradingin the European Union The role o policy net-works, knowledge and policy entrepreneurs, Rup-precht Consult, Forschung und Beratung GmbH,Cologne, Germany, 2008, p.2.

52 On corporate lobbying as a orm o climate changedenial, see Larry Lohmann, Carbon Trading: a critica lconversation on climate change, privatization and power,

Development Dialogue, No. 48, Dag HammarskjldCentre, Uppsala, 2006, pp.41-42.

53 Braun, op.cit.,supra, note 51.54 Ibid.


30/104


Environmental Deense was involved onceagain, this time orming a partnership withBP. Instead o indulging in pure climatechange denial, BP acted on the assumption

that its long-term interests would be betterserved by a trading scheme as a cheap policyalternative to regulation and one which didnot impinge too heavily on its core fnancialinterests. With the aid o EnvironmentalDeense, and with the vocal endorsement oBP CEO John Browne, the company set upan internal trading system or its non-ex-tractive emissions that is, emissions otherthan those resulting rom either extracting

oil rom the ground or burning that oil.55A pilot scheme began in autumn 1998, withthe ull system in operation rom 2000. BPsgoal o a 1 per cent emissions reduction waseasily met, since an over-optimistic calcula-tion o the growth o BPs business meantthat allowances were over-allocated.56 Atighter cap o 10 per cent was made or 2001,which was achieved largely through reduc-

tions in natural-gas venting and aring. Thecompany heralded the scheme as a success with the previously ared gas now availableor sale, and generating an additional US650 million in revenue.57

55 John Browne has subsequently revised his judgmento emissions trading. In March 2009, he told TheObservernewspaper: My view has shited over time.

Pinning all your hopes on the European UnionETS and carbon trading is wrong. See Tim Webband Terry Macalister, Carbon trading wrong, saysLord Browne, The Observer, 8 March 2009. http://www.guardian.co.uk/business/2009/mar/08/oilandgascompanies-carbon-emissions

56 D. Mackenzie, Making Things the Same: Gases,Emission Rights and the Politics o Carbon Mar-kets, February. Available at: http://www.sps.ed.ac.uk/sta/sociology/mackenzie_donald ; accessed 5

June 2008.57 D. Victor and J. House, BPs Emissions Trading

Scheme, Energy Policy, no. 34, 2006, pp.2100-2112.

This corporate inuence had a signifcantimpact on how the rules o the EU ETSwere ultimately set with European indus-try associations successully lobbying in a-

vour o a ree handout o credits (or grand-athering) at the outset o the scheme.58 Italso resulted in certain sectors, including thechemical industry and aluminium, beingexcluded rom the schemes frst phase.59

By October 2003 the European EmissionsTrading Directive was passed into law, withthe scheme coming into eect on 1 Janu-ary 2005.60 Since then, the EU ETS has be-

come the largest carbon trading scheme inthe world.

58 See P. Markussen and G. T. Svendsen, Industrylobbying and the polit ical economy o GHG tradein the European Union Energy Policy, no. 33, 2005,pp.245255.

59 Ibid.60 Braun, op. cit.,supra, note 51.


31/104


32/104


The European Union Emissions TradingScheme (EU ETS) is the worlds largest

carbon trading scheme, and the longest es-tablished cap and trade carbon market.1 Italso serves as a model or similar cap andtrade schemes that are proposed in the USA,Australia and other industrialised nations.2For these reasons, it is the main ocus othis chapter, the aim o which is to demys-tiy claims that emissions trading is work-ing now or will improve with age. The EU

ETS also has a considerable bearing on howthe global carbon trade works and is shapingup or the decades ahead. For each year oits operation, the EU ETS has continued toenclose and privatise the global atmosphericcommons awarding property rights to pol-luting companies based in the industrialisednations at the expense o the South.

1 World Bank Report, State and Trends o the CarbonMarket 2009, World Bank, Washington DC, 2009.2 The exact number was 11,359 in 2008, 213 ewer

than in 2007 as a result o some smaller installationsbeing withdrawn rom the scheme. Norway, Lich-tenstein and Iceland (which are not EU members)

joined the EU ETS in 2008, but no installations inNorway yet report as part o the scheme. See Euro-pean Commission (DG Environment), Emissionstrading: EU ETS emissions a ll 3% in 2008, 15 May2009, http://europa.eu/rapid/pressReleasesAction.do?reerence=IP/09/794&ormat=HTML&aged=0&language=EN&guiLanguage=en

3 When the cap does not ft Cap and trade and the ailure o the

EU Emissions Trading Scheme

The EU ETS has contributed signifcantlyto a process o shiting responsibility out-

side o Europes borders or the historicallegacy o creating climate change. Cap andtrade presents itsel as a system designed tomake it cheaper or corporations to reducetheir carbon emissions, the idea being thatgovernments give out a limited number opermits to pollute; the scarcity o such per-mits should encourage their price to rise;and the resulting additional cost to industry

and power producers should then encouragethem to pollute less. The empirical evidencepresented here, however, suggests that theincentives created by the scheme work verydierently awarding profts to pollutersand encouraging continued investment inossil uel-based technologies while disad-vantaging industry ocused on transitionaway rom ossil uels. This is not an arbi-trary product o misapplied rules, we will

show, but a product o how these marketsreinorce existing power relations and hia-tuses in economic decision-making.

Shiting the burden

The basic commodity traded within the EUETS carbon permits known as EuropeanUnion Allowances (EUAs) are allocated


33/104


through political intervention. The EUETS covers approximately 11,500 power sta-tions, actories and refneries in 30 countrieswhich include the 27 EU member states,

plus Norway, Iceland and Lichtenstein.These account or almost hal o the EUsCO2 emissions, covering most o the largestsingle, static emissions sources, but exclud-ing direct emissions rom road transport,aviation, shipping, agriculture and orestry.3

The starting point or this allocation pro-cess was an agreement within the EU toratiy the Kyoto Protocol, which set 1990

as the baseline against which emissions arecompared. The original 15 EU members, inWestern Europe, were expected to reducetheir greenhouse gas emissions by 8 per centcompared to 1990 levels by 2012.

At the outset, the expectation or each EUcountry was re-adjusted according to a Bur-den Sharing Agreement, which allowed some

countries to continue increasing their emis-sions by up to 27 per cent in the case o Por-tugal while others were given stricter limits,most notably the UK and Germany, which arethe two largest economies within the EU.

Burden sharing is usually presented by theEU as a redistribution o obligations to helppoorer countries grow their GDP, while thericher states bear the brunt o reduction re-

quirements. The tough obligations on theUK and Germany take advantage o consid-erable reductions that were achieved beorethe start o the EU ETS, however. In thecase o the UK, the power sector saw a sig-

3 EU Commission (DG Environment),Questions& Answers on Emissions Trading and NationalAllocation Plans, 8 March 2005, http://europa.eu/rapid/pressReleasesAction.do?reerence=MEMO/0

5/84&ormat=HTML&aged=1&language=EN&guiLanguage=en

nifcant shit in capacity rom coal to gas inthe early 1990s ater most o the countryscoal mines were closed, while in the caseo Germany, the most signifcant drop in

emissions came about through the closure oindustry in the ormer East Germany aterthe countrys unifcation in 1990.4

Moreover, the inclusion o the 12 Central andEastern Europe countries that have joined theEU since the original Burden Sharing Agree-ment was made have considerably eased thecommitments required o Western Europeanstates under the EU ETS. This bloc o coun-

tries has considerably overachieved on itsKyoto targets (which take 1990 as a baseline

year) as a result o the economic collapse andindustrial restructuring that took place aterthe all o the Berlin Wall in late 1989. TheEU ETS serves to re-distribute this surplus(commonly called hot air, since it does notrepresent a reduction on the basis o pro-active policy adjustments to tackle climate

change), making it easier or countries inWestern Europe, which have increased their

4 The claims made in UN statistics on carbon emis-sions do not accurately reect the ull impact o acountrys emissions. Setting aside the considerableoutsourcing o emissions achieved by productionelsewhere (e.g. in China or a UK consumer mar-ket), there are numbers o other holes. In 2005, orexample, the UK government reported emissions o656 million tonnes o CO2 to the UN. However, itsown national environmental accounts showed emis-

sions or that year o 733 million tonnes o CO2. Themain dierence lies in the act that UN data excludesaviation and shipping, which have been amongst theastest growing sources o UK CO2 emissions. See

John Vidal, Government fgures hide scale o CO2emissions, says report, The Guardian, 17 March 2008.A secondary actor in the German case has been amore proactive renewable energy policy, in particu-lar through the use o eed in taris. See EuropeanEnvironment Agency, Greenhouse Gas EmissionTrends and Projections 2008, EEA, Copenhagen, 2008;Gwyn Prins and Steve RaynerThe Wrong Trousers:

Radically Rethinking Climate Policy, London Schoolo Economics, London, 2007, p.16.


34/104


emissions, to make the on-paper reductionsrequired o them.

Baseline bingo

The overall cap is only the start o the EUETS allocation process. It sets the scale o thecommitments to be made, but says little abouthow that will be achieved in practice. Thenext, and most signifcant, step o the processis or each country to agree on a NationalAllocation Plan (NAP). These Plans allocatetargets or all o the individual

Documents

Carbon Trading Why It Fails