In an entry I wrote last week, I argued that ethanol doesn’t do much to solve the root problem, which is to wean America off of its addiction to oil. On the heels of an environmental conference held in California between the state and Great Britain, it seems that there may be an agreement in place for program for trading carbon credits – essentially, a capitalist solution to the problem of excessive pollution.
Mr Schwarzenegger wants California to cut its emissions to 2000 levels by 2010, and has mooted a “cap-and-trade” system to achieve this.
The European Union already operates such a system, issuing companies in energy-intensive industries with permits to produce a set amount of carbon dioxide.
Those wanting greater emissions must then purchase permits from other businesses in the scheme.
It sounds like a great idea at first – if companies feel like they need looser restrictions on their pollution levels, they can pay for it by purchasing credits from another company. Those that pollute less get rewarded by selling off their extra credits to companies that are dirtier, who are essentially paying a fine for their increased amount of pollution. But does this really align the goals of businesses with the real task at hand – making the environment markedly cleaner? While there are caps that are set on the amount of pollution, that merely sets a ceiling that can be easily surpassed by wealthier companies who have the money to buy extra credits. To me, it’s an extension of the laissez-faire/libertarian ideal that the free market can solve any problem – and in this case, it’s wrong to make such a declaration.
The main problem with such an idea is that it doesn’t do enough to move the world away from carbon-based emissions, which is one of the main sources of global warming. From the International Emissions Trading Association, here’s a brief overview of the current instances where carbon trading currently exists:
In January 2005 the European Union established the European Emissions Trading Scheme. This scheme is mandatory for all 25 EU member states. National governments allocate EU allowances in national allocation plans (NAPs) to energy-intensive plants and installations according to fixed reduction targets.
As part of its overall Kyoto climate change obligations Canada plans an emissions trading programme that will cover greenhouse gases from large final emitters (LFEs). In addition, Canada is developing a domestic offsets system that in principle could generate offsets from any emitting activity in Canada that is not covered by the LFE trading system.
Much of the basis for industrialized areas such as the European Union and Canada creating such programs is to gain compliance with the Kyoto Protocol, which took effect in February 2005, despite the United States’ adamant refusal to ratify the agreement. However, I would argue that the Kyoto protocol was not meant as a strict floor that should have to be attained merely because countries feel compelled to. Indeed, it should only be a start, with more countries looking towards using clean, alternative, renewable sources of energy. It doesn’t even seem clear that the program that the EU has set up will even even get off the ground:
The EU’s ambitious greenhouse gas emissions trading scheme (ETS) is in further disarray as 11 of its 25 governments, including Britain, face warnings of legal action from the European commission for failing to meet last Friday’s deadline for submitting their plans to cut carbon dioxide between 2008 and 2012.
Last Thursday, a day before the deadline, David Miliband, the environment secretary, proposed UK targets for the second phase of the ETS that would cut emissions by 8m tonnes a year and allow industry to emit 238m tonnes annually. The government, which dropped legal action against Brussels last year over revised plans to raise allowances to industry, hopes to escape punishment by submitting its “challenging” plan “as soon as possible”. The EU expects this in mid-August.
Britain also hopes for lenient treatment by cutting more emissions than Germany, the EU’s biggest polluter, which is cutting just 15m tonnes a year from its targets, and France, which is due to propose a 4.2% cut but would still have an emission total 20m tonnes higher than actual output in 2005. Both missed the Friday deadline but may be exempted from a formal warning.
What good is an agreement if the biggest players in the EU are allowed exemptions and leniency? It’s one thing to exempt developing countries such as China and India from the requirements of Kyoto (that’s a whole different discussion in and of itself), but what this shows is that there is a clear lack of cohesive agreement between the countries to clean up their acts quickly. To me, it’s almost the equivalent of campaign finance reform – there was popular support for such an issue, but when it actually came down to it, both sides bemoaned the new rules for their own reasons. You have environmentalists who don’t support this program because it injects an economic component into something they feel is morally based. On the other side, you have industrialists who complain about the costs of regulation – which is something to consider, since the regulation is going to be spent not only on ensuring that emissions are capped, but that the carbon credits are valid:
In one, the regulators measure facilities, and fine or sanction those that lack the licenses for their emissions. This scheme is quite expensive to enforce, and the burden falls on the agency, which then may need to collect special taxes. Another risk is that facilities may find it far less expensive to corrupt the inspectors than purchase emissions licenses. The net effect of a poorly financed or corrupt regulatory agency is a discount on the emissions licenses, and greater pollution.
In another, some different agency, usually a commercial agency licensed by the government, verifies that polluting facilities have licenses equal or greater than their emissions. Inspection of the certificates is performed in some automated fashion by the regulators, perhaps over the Internet, or as part of tax collection. The regulators then audit licensed facilities chosen at random to verify that certifying agencies are acting correctly. This scheme is far less expensive, placing most regulation in the private sector. In addition, auditing can be performed on well-paid contracts by persons, such as university professors or anti-pollution activists, whose reputation is more valuable to them than any practical amount of graft.
It is questionable whether carbon emissions trading will bring a certifiable reduction. As now embodied in the EU emissions trading scheme, fossil- fuel-burning companies such as power utilities, steelworks or cement factories are granted substantial carbon credits that they can sell – on the basis that they have emitted less than expected. That may provide some incentive to look to more efficient technologies, but the assumption is that someone elsewhere, even in another country, is going to buy that credit in order to pollute.
In addition, the use of tradeable carbon units combined with the Clean Development Mechanism (CDM) – whereby the Kyoto signatories from industrialised nations can invest in emission-reduction projects in developing countries – has huge potential for environmental damage and fraud.
How relevant are such schemes when deforestation, particularly in the tropics, results in tens of times more carbon emissions than putatively captured by all CDM schemes put together? Perhaps a carbon tax that could be ploughed back into carbon-reducing schemes, even by the original emitter, would be much fairer and less prone to abuse.
One can apply similar thinking to other suggested solutions to reducing carbon emissions, such as carbon sinks – storing carbon dioxide underground. What this allows for is for fossil fuels to continued to be burned. Additionally, when one reads of the problems that deforestation and afforestation may bring, it may not be the best idea to store our carbon emissions underground when it could lead to deadly consequences for our planet. These problems seek to slow the rate at which we emit pollution – but they don’t attack the source, which is our dependence on fossil fuels, our inability to slow the rapid deforestation of forests that support the delicate balance in the biosphere, and the inability to allocate proper money towards developing clean energy sources.
The Democratic Leadership Council, in the tradition of its cautious, pro-business spirit, has endorsed carbon emissions trading. The Bush administration and the Republican Party, which doesn’t even believe that global warming exists, won’t consider a program because of the limits it puts on a company’s pollution, believing that will increase the cost of regulation. Indeed, no one except for Al Gore has been pushing the issue of climate change. With California’s and Britain’s nonbinding agreement, there may be increased momentum put behind the idea of trading carbon credits as a way to promote environmentally friendly behavior. The fact is, it doesn’t promote the positive aspects so much as it merely serves to enable the negative behavior. With reducing carbon emissions, we need to summon the moral fortitude to address the problem for what it is – a moral issue, not just another economic policy.