IHS Chemical Week


Emissions Trading: When Agendas Clash

5:24 AM MST | December 9, 2009 | By JAMES EMANUEL, CANTORCO2E

During the UN Climate Change Conference (COP 15) in Copenhagen this week we have witnessed climate activists criticising carbon trading as the mechanism of choice for achieving emission reductions.
Such views are not uncommon and only last month Sarah Jayne-Clifton of the NGO Friends of the Earth published a report in which she launched a scathing attack on the carbon market claiming that “Carbon trading is failing dismally at reducing emissions!”
Similarly, Angie Viands of Rainforest Action Network claimed that “Carbon Trading … acts as a dangerous distraction from the real climate solutions we urgently need”.
“The air is not for sale!” declared Abigail Singer of the Mobilization for Climate Justice.  “Cap and trade plans are an unprecedented and opportunistic attempt to privatize the atmosphere!”
According to Kevin Smith from Climate Justice Action, "The carbon markets cannot really be trusted to reduce emissions."
Such disparagement only serves to highlight a fundamental misunderstanding of the cap-and-trade mechanism. The fact of the matter is that carbon trading is NOT designed to reduce emissions. The quantitative reduction of emissions is determined by governments in setting the carbon cap. The trading is the subsequent mechanism designed to afford industry with maximum flexibility in complying with the prescribed carbon caps: hence the name “cap-and–trade”.
Once the cap has been set, the carbon market acts as a very useful barometer of the economy’s achievement in relation to its emission abatement target: the lower the market price, the closer the economy is to attaining the prescribed cap and, all else being equal, the market price will be zero when the cap is finally achieved (It is for this reason that any focus on ascertaining the fair price of carbon is a complete red-herring.)
Environmental NGOs undermine their own climate agenda
If NGOs are not happy with the quantity of emission reductions presently being achieved, then criticism should be directed towards the level at which the caps were set by legislators in the first instance.
Moreover, NGOs ought to know better than to irresponsibly criticise carbon trading without suggesting any better alternative. Destructive criticism from NGOs only serves to undermine the credibility of the best compliance mechanism available to us presently.
Indeed, I would argue that there is no viable alternative to carbon trading. The arguments in favour of the introduction of a carbon tax have imploded and so cap-and-trade is, de-facto, the only game in town [please see my paper entitled “Carbon Taxes to replace Carbon Trading”, 8th December 2009].
Let us not lose sight of the fact that the goal is to achieve an environmental objective while carefully balancing the pervasive political objective of protecting the economy. A priori, emission abatement may only be optimised if the impact on the economy is minimised. Therefore, all of those in favour of maximising the reduction of greenhouse gas emissions ought to welcome the mechanism that best mitigates the consequential cost to the economy: a cap-and-trade solution.
It is this subtlety that is often missed by the NGOs. Many of these ideological groups blindly pursue a joint agenda of environmentalism and anti-capitalism. Since the capitalist cap-and-trade system undeniably presents the best solution to their environmental problem, they seem internally conflicted and unable to cope with the situation.
My message to the NGOs is that the recycling of old arguments will not save the planet.

James Emanuel is the Commercial director/environmental brokerage for CantorCO2e

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