Carbon trading, as long as a frustrating collision of economic elegance and implementation nightmare, is back.
Just two years ago, both popular media and academic publications were full of titles like Putting a price on carbon: It was hot, not now and the more pointed Why carbon prices are not enough to combat climate change. Meanwhile, the Cop27 Climate Summit in Egypt’s Sharm El-Sheikh saw the launch of two new major carbon trading programs, among a host of other initiatives designed to make such trading easier.
According to Shell – an enthusiastic proponent of carbon trading – voluntary carbon markets are expected to grow at least five times by 2030. The consultancy McKinsey will grow even bigger and expect growth of up to 100 times the number of credits currently traded by 2050.
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The list of criticisms of the carbon trade is long – and should not be repeated, except to remind us of the pickle scale we may soon find ourselves in.
First, carbon markets are devilishly complicated. Overlapping jurisdictions, tariffs, bases, prices and verification methods bury good environmental intentions under an unyielding quagmire of details.
According to a review, there were no fewer than 21 regional emissions trading schemes around the world at the end of 2019, with another 24 under consideration at the city, state or regional level. Then there are the major national schemes, of which the EU and Chinese versions are the largest, but also exist in countries such as New Zealand, Korea and Japan.
Second, carbon markets are abstract and hegemonic. They try to convert infinitely complex biophysical processes into a simple ledger amenable to Western science and finance. This sounds like a drastic charge, possibly even disingenuous, but the efforts of Rowan Foley and others at Australia’s Aboriginal Carbon Foundation to escape the constraints of simplistic “carbon in versus carbon out” accounting shows how colonial, fraught, repressive and downright imprecise such hierarchical systems of knowledge can be.
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It is inescapable to obscure or directly subordinate alternative forms of knowledge, value and relationships to the natural world, where environments and the communities that live and work in them must be made readable to carbon traders in London, New York, Singapore or Geneva.
Third, and this is the most critical point, carbon trading doesn’t seem to work. As our graph of annual global greenhouse gas emissions shows, the carbon trading era – which began with the launch of the EU Emissions Trading System (ETS) in 2005 – has been accompanied by a sustained increase in global emissions.
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It is true that emissions may increase more in places not covered by emission trading schemes. It is also impossible to be sure that a world without carbon trading would not be much worse than this one. But it’s worth noting that the only time emissions have actually fallen significantly since 2005 was in 2019-20, when the Covid-19 pandemic ripped through the global economic system.
And herein lies the point. While carbon trading can be a useful concept, or even an effective tool – if we got the metering, economics and implementation right – it is clearly not a systemic solution to a systemic problem.
“Framing the climate challenge as a market failure,” wrote Daniel Rosenbloom and colleagues in 2020“has not seriously grasped its scope and depth… Core societal functions, such as heating or mobility, are met through large and deeply entrenched sociotechnical systems consisting of interconnected technologies, infrastructures, regulations, business models and lifestyles.” .these systems have become increasingly caught up in the burning of fossil fuels and the associated greenhouse gas emissions.”
For these authors, climate change can only be tackled through “fundamental changes to existing systems” – something carbon trading was never intended to do. Indeed, the ability to combine business-as-usual with some form of emissions reduction was just the point Ronald Coast first posited the basic concepts in 1960.
That an efficient allocation of environmental costs and benefits could be achieved by a polluter simply buying the credits needed to continue to pollute was a core implication of the proposal. This is probably the largest in the world Attendees in carbon trading in 2021, including airlines, fossil fuel giants and car companies. The largest by far was a cryptocurrency platform that bought up masses of credits to tokenize them.
Seen in this way, the resurgence of carbon trading at Cop27 makes perfect sense. After all, this was the Russia-Ukrainian agent, the gas agent, the enmity agent; the Cop takes place amid the collapse of the global energy market, macroeconomic pain, crisis fatigue, creaking confidence and the chilling realization of how much would have to change if the climate crisis were taken seriously. For some in attendance – including an unprecedented contingent of fossil fuel lobbyists – a weak, convoluted, financial solution may be just what the doctor ordered.
This is a IC intelligence article, written for African Business.