critical
currents
Dag Hammarskjöld Foundation
Occasional Paper Series
Carbon Trading
How it works
and why it fails
no.7
November 2009
critical currents no.7
November 2009
Carbon Trading
How it works and why it fails
Tamra Gilbertson and Oscar Reyes
Dag Hammarskjöld Foundation
Uppsala 2009
The Dag Hammarskjöld Foundation
pays tribute to the memory of the second
Secretary General of the UN by searching
for and examining workable alternatives
for a socially and economically just,
ecologically sustainable, peaceful and
secure world.
In the spirit of Dag Hammarskjöld’s
integrity, his readiness to challenge the
dominant powers and his passionate plea
for the sovereignty of small nations and
their right to shape their own destiny, the
Foundation seeks to examine mainstream
understanding of development and bring to
the debate alternative perspectives of often
unheard voices.
By making possible the meeting of minds,
experiences and perspectives through the
organising of seminars and dialogues,
the Foundation plays a catalysing role
in the identification of new issues and
the formulation of new concepts, policy
proposals, strategies and work plans towards
solutions. The Foundation seeks to be at the
cutting edge of the debates on development,
security and environment, thereby
continuously embarking on new themes
in close collaboration with a wide and
constantly expanding international network.
Critical Currents is an
Occasional Paper Series
published by the
Dag Hammarskjöld Foundation.
It is also available online at
www.dhf.uu.se.
This issue of Critical Currents is published
in cooperation with Carbon Trade Watch
(www.carbontradewatch.org), the Transnational Institute (www.tni.org) and The Corner House (www.thecornerhouse.org.uk). It
is based on Carbon Trading: a critical conversation on climate change, privatization and power,
edited by Larry Lohmann and published as
Development Dialogue no. 47 in 2006.
Statements of fact or opinion
are those of the authors and
do not imply endorsement
by the Foundation.
Manuscripts for review
should be sent to
secretariat@dhf.uu.se.
Series editor: Henning Melber
Editor: Larry Lohmann
Coordination and
final text editing: Wendy Davies
Design & Production: Mattias Lasson
Printed by X-O Graf Tryckeri AB
ISSN 1654-4250
Copyright on the text is with the
authors and the Foundation.
Preface
The Copenhagen process must address the
reality of the larger eco-systems challenge we
face. Healthy ecosystems are a precondition for
stabilising the climate system. But the current
negotiations are not addressing critical issues
related to the resilience of ecosystems and to
ecosystem services and are thus seriously flawed.1
During the autumn of 2006 the Dag Hammarskjöld Foundation, in collaboration with
The Corner House and the Durban Group
for Climate Justice, published a pioneering
challenge to what had become the core of
official international efforts to solve the ever
more visible crisis concerning climate change
and the urgent need to reduce emissions.2
Based to a large extent on the work of Larry
Lohmann, the publication was at the forefront of a necessary intervention to demystify
the dominant exit options on offer – which
were only ending in another cul de sac.
Since then, public awareness has become
more sensitised to the problems of treating
carbon trading as a ‘silver bullet’ for solving
the climate crisis. Common sense should
already suggest that things are not so simple:
setting up a market in a new commodity is
bound to be an invitation to traders to focus
their ingenuity on profit-seeking even if the
results undermine climatic stability.
Our publication soon became a standard
reference book, and we registered record
hits on our website.3 The huge demand also
resulted in a second imprint, after well over
10,000 hard copies had been distributed. On
a more self-critical note, however, as necessary as the fundamental analysis was, the
sizeable volume of 350 pages contributed a
considerable carbon footprint through the
paper and energy needed for its distribution.
In addition, while the book laid out convincing arguments, it was not the most effective tool for those who needed a concise
introduction to the problem. The idea of
producing an updated shorter version therefore emerged quite soon, though the project
required some time. Thanks to Oscar Reyes
and Tamra Gilbertson and with the support
of Larry Lohmann, we are now able to offer
this briefer, updated input for the discussions around Copenhagen.
At a time when carbon trading is still being
strongly promoted as the central solution to
climate change, we continue to stress that
it is, instead, part of the problem. But this
volume also does not hesitate to look forward and thereby complements a parallel
effort looking into the challenges beyond
Copenhagen.4
Meeting today’s climate challenges requires
a paradigm shift in our thinking and approaches. Market-based strategies have
failed. We need to demystify the claim that
price incentives alone will fi x matters.
Henning Melber
1
2
Bo Ekman, Johan Rockström and Anders Wijkman, Grasping the climate crisis: A provocation from the
Tällberg Foundation, Stockholm: Tällberg Foundation (undated, 2008/2009), p.17.
Carbon Trading: A critical conversation on climate change,
privatisation and power (Development Dialogue, no.
48), Uppsala: The Dag Hammarskjöld Foundation,
September 2006. Like all recent publications, this
volume is accessible for free download at the Foundation’s website (www.dhf.uu.se).
3
4
The combined total number of downloads from
the sites of the Corner House and the Foundation
amounted to over 820,000 by October 2009, i.e.
within three years.
Ulrich Brand, Nicola Bullard, Edgardo Lander
and Tadzio Müller (eds), Contours of Climate Justice:
Ideas for shaping new climate and energy politics (Critical
Currents, no. 6), Uppsala: Dag Hammarskjöld Foundation, November 2009.
Acknowledgements
Special thanks to everyone who helped with
this project.
Thanks to Joanna Cabello, Ricardo Carrerre,
Calyx Clagg, Tom Goldtooth, Niclas
Hällström, Nina Holland, Chris Lang,
Marianne Maeckelbergh, Daniela Meirelles,
Winfried Overbeek, Pavement, Kittisak
Rattanakrajangsri, Pinelopi Sioni, and the
Durban Group for Climate Justice.
Review committee: Joanna Cabello, Carbon
Trade Watch; Marcelo Calazans, FASE,
Brazil; Ricardo Sequeiros Coelho,
Universidade do Porto, Portugal; Almuth
Ernsting, Biofuelwatch, UK; Justin Fong,
Moving Mountains, China; Soumitra Ghosh,
NESPON/NFFPFW, India; Tom Goldtooth,
Indigenous Environment Network;
Amaranta Herrero, Universitat Autònoma
de Barcelona; Jutta Kill, FERN, UK; Ivonne
Yanez, Oilwatch Sudamerica; Joe Zacune,
Friends of the Earth International.
Critical Currents no.
Field research and Chapter 4: Marcelo
Calazans, FASE, Brazil; Nishant Mate
and Soumitra Ghosh, NESPON and
NFFPFW, India; Wiwied Widya Astuti and
Mr. Kaka; Jikalihari, Sumatra, Indonesia;
Nantiya Tangwisutijit, and The Nam Song
Conservation Club, Thailand.
Chapter summary
Chapter 1 »
introduces carbon trading, how it works
and some of the actors involved.
Chapter 2 »
explores the origins and key actors involved
in building the architecture of emissions
trading.
Chapter 3 »
examines the performance of the EU ETS
and finds that it has generously rewarded
polluting companies while failing to reduce
emissions. Many of the scheme’s flaws, from
the overallocation of permits to pollute
onwards, are found to be fundamental to the
cap and trade approach more generally.
Chapter 4 »
outlines the performance of the CDM and
looks at four case studies of CDM projects
in Thailand, India, Indonesia and Brazil; it
argues that offsets projects, even those that
promote renewable energy, will not be a
solution to climate change.
Chapter 5 »
outlines what could work and ways
forward for political organising around
questions of climate change.
Carbon Trading – How it works and why it fails
Critical Currents no.
1 » Introduction
The headlines tell the story. ‘Billions wasted
on UN climate programme’.1 ‘Truth about
Kyoto: huge profits, little carbon saved’.2
‘UN effort to curtail emissions in turmoil’.3
‘The Carbon Folly: Policymakers’ Favourite Global Warming Fix Isn’t Working’.4
‘European Union’s efforts to tackle climate
change a failure’.5 ‘The great carbon credit
con: Why are we paying the Third World to
poison its environment?’6
Behind these headlines lies a tale of the
growing failure of the main tool that governments, fi nancial institutions and corporations have adopted to address climate
change. This is carbon trading – a multibillion dollar scheme whose basic premise is
that polluters can pay someone else to clean
up their mess so that they don’t have to.
1
2
3
4
5
6
John Vidal, ‘Billions wasted on UN climate
programme’, The Guardian, 26 May 2008, p.1.
Nick Davies, ‘Truth about Kyoto: Huge Profits,
Little Carbon Saved’, The Guardian, 2 June 2007, p.1.
Jeff rey Ball, ‘UN Effort to Curtail Emissions in
Turmoil’, Wall Street Journal, 12 April 2008, p. A1.
Emily Flynn Vencat, ‘The Carbon Folly:
Policymakers’ Favorite Global Warming Fix Isn’t
Working’, Newsweek, 12 March 2007
Channel 4 Evening News, London, lead story, 7
March 2007.
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-ecocompanies-causing-pollution.html
Tamra Gilbertson
is a researcher with
Carbon Trade Watch /
Transnational Institute
(TNI). She is a co-founder
of the Durban Group for
Climate Justice.
Photo: Pinelopi Sioni
Oscar Reyes is a
researcher with
Carbon Trade Watch /
Transnational Institute
(TNI). He was formerly TNI
Communications Officer
and co-editor of Red
Pepper magazine.
Photo: Tamra Gilbertson
This issue of Critical Currents examines what
carbon trading is and why it was adopted in
the fi rst place. It tells the story of how, from
its global beginnings as part of the Kyoto
Protocol in 1997, carbon trading has failed
to change the way we acquire and use energy, while short-circuiting demands for the
fundamental reforms needed. In the process,
it has rewarded polluters for continued pollution while at the same time causing social
and environmental injustice.
Carbon Trading – How it works and why it fails
Climate change: a genuine crisis
Nowadays, few people doubt that the climate
is changing and that human activity is the
major cause. The evidence is ‘unequivocal’,
according to the 2007 Fourth Assessment
Report of the Intergovernmental Panel on
Climate Change (IPCC), an assessment that
synthesises the research of 2,500 scientists.7
The period from 1997 to 2008 includes the
10 warmest years since global records began
in 1850, while average sea level rises are accelerating.8 The IPCC warns that if present
trends continue unchecked, temperatures
could rise by over 6 degrees Celsius and sea
levels by up to 60 centimetres globally by
2100.9 This is a conservative estimate compared to more recent studies, which have
shown that the geological record of ice melt
was non-linear and responded more rapidly.10 The likely consequences of climate
change vary from region to region, but include widespread drought, desertification,
flooding and glacial melt.
This message now seems to be getting across.
But global efforts to tackle climate change
7
Intergovernmental Panel on Climate Change,
Summary for Policymakers of the Synthesis Report of
the IPCC Fourth Assessment Report, IPCC, Geneva,
November 2007, p.1.
8 Goddard Institute for Space Studies, ‘Global
Temperature Trends: 2008 Annual 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 for Policymakers, February 2007, p.6; http://
www.ipcc.ch/pdf/assessment-report/ar4/wg1/ar4wg1-spm.pdf
10 James Hansen, Makiko Sato, Pushker Kharecha,
David Beerling, Robert Berner, Valerie MassonDelmotte, 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 that
when temperatures increased to 2-3 degrees Celcius
above today’s level, 3.5 million years ago, sea levels
rose not by the 59 centimetres predicted by the
IPCC but by 25 metres.
Critical Currents no.
are failing badly, with large and accelerating global increases in greenhouse gas emissions in the decade since Kyoto, as well as a
threefold growth in emissions from fossil fuels since the 1990s.11 This booklet will argue
that the market-based solutions advocated by
many politicians, celebrities, scientists and
large NGOs compound the problem.
There has never been a lack of materials or
ingenuity for dealing with climate change.
Like many other social problems, global
warming is a crisis created by the actions of a
minority of the world’s peoples – what Ramachandra Guha and Madhav Gadgil have
called the omnivores, the development-aided
class of modern consumers.12 For the world’s
majority, global warming remains a problem
for which they already have the solution: forgoing excessive use of fossil fuels. The recent
Western fashion for distancing responsibility
for climate change, both spatially and temporally, by attributing it to future car-hungry
Chinese or Indians, is a diversion possible
only under the assumption – shared by elites
in North and South alike – that a society that
mandates over-consumption is the universal
human destiny.
Current global efforts to address climate
change, however, look absurdly inadequate.
In 1997, the Kyoto Protocol saw 38 industrialised countries commit themselves to cut
greenhouse gas emissions by 2012 to a level
5.2 per cent lower than those of 1990. At that
time, the IPCC suggested that there would
need to be a rapid 50 to 70 per cent emissions
reduction if the world were to stand a chance
of averting devastating climatic change. It
has since revised its projection upwards.13
11 For example, CO2 emissions rose by an average of
3.2 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.
Several more recent studies have argued that
even the latest IPCC figures are an underestimate. For example, James Hansen of NASA has
pointed out that the IPCC’s earlier calculation
failed to take account of ‘slow feedback’ mechanisms that increase temperature rise caused by
greater greenhouse gas concentrations.14 More
generally, in their attempts to meet political
demands that a single unit be devised through
which the climate impact of one greenhouse
gas can be compared simply with another, and
then bought and sold in the form of pollution
permits, scientists have downplayed the unpredictable, complex and non-linear impacts of
climate change to render them easier for policymakers and markets to digest.
Making climate problems
fit market solutions
It was clear from the outset that the Kyoto Protocol was inadequate. Shortly after the treaty
was signed, a scientific journal pointed out that
30 Kyotos would be needed merely to stabilise
the concentration of carbon dioxide (CO2) in
the atmosphere at twice the level it stood at the
time of the Industrial Revolution.15
But as a prerequisite for agreeing on even
such an inadequate ‘solution’, the United
States delegation then introduced into the
Kyoto negotiations a series of carbon trading proposals that served to undermine even
the weak targets under discussion.
The idea was to allow the industrialised
countries included in the treaty, if they did
not want to make reductions domestically,
to trade away these commitments for the
promise of emissions reductions in other
countries. The important point, so the theory went, was to achieve an overall balance
14 James Hansen et al., op. cit., supra, note 10.
15 David Malakoff, ‘Thirty Kyotos Needed to Control
Global Warming’, Science, 278, no. 2, 19 December
1997, p. 2048.
rather than insisting on each country meeting its own target. The ‘hidden hand’ of the
market would guide the process towards the
cuts that were the cheapest to make.
This loosened the lid that Kyoto itself had
placed on industrialised countries’ emissions. For example, the industrial collapse
that took place in the former Soviet countries meant that they were already emitting
far less than in 1990. This provided a ready
supply of ‘hot air’ emissions units (as they
became known), releasing the pressure on
the North to make cuts domestically. Other
loopholes quickly appeared too.16
Carbon trading
Carbon trading is a complex system which
sets itself a simple goal: to make it cheaper for
companies and governments to meet emissions reduction targets – although, as we will
show, emissions trading is designed in such
a way that the targets can generally be met
without actual reductions taking place.
Carbon trading takes two main forms: ‘cap
and trade’ and ‘offsetting’.
What is cap and trade?
Under a scheme called ‘cap and trade’, governments or intergovernmental bodies like
the European Commission hand out licenses to pollute (or ‘carbon permits’) to major
16 These included the exclusion of international shipping and aviation from emissions reduction targets.
Official UN statistics show that fuels sold for use
in international aviation and international marine
transportation increased by 65.9 and 18.4 per cent,
respectively in the period from 1990 to 2006. These
figures refer only to transport originating from or
arriving in Annex 1 countries (those with emissions reductions targets). See UNFCCC, ‘National
greenhouse gas inventory data for the period
1990–2006’, November 2008, p.12; http://unfccc.
int/resource/docs/2008/sbi/eng/12.pdf
Carbon Trading – How it works and why it fails
industries. Instead of cleaning up its act, one
polluter can then trade these permits with another who might make ‘equivalent’ changes
more cheaply. This is the approach underlying the European Union’s Emissions Trading
Scheme (EU ETS), the world’s largest carbon
market, which was worth US$ 63 billion in
2008 and continues to expand rapidly.17
The theory is that the availability of carbon
permits will gradually be reduced, ensuring
scarcity, so that the market retains its value
while at the same time forcing a reduction in the overall level of pollution. The
cap part is supposed to do the work, environmentally speaking, setting a legal limit
on levels of permissible pollution within a
given time period. Each cap reduction is, in
effect, a new regulatory measure introduced
by governments and/or international bodies
to restrict pollution further.
The ‘trading’ (or ‘market-based’) component
of such a scheme does not actually reduce any
emissions. It simply gives companies greater
room to manoeuvre in addressing the emissions problem, for which reason carbon trading proposals are sometimes also referred
to as ‘flexible mechanisms’. Installations exceeding their reduction commitments can
sell their surpluses to those who have failed
to clean up their act adequately. Companies
that want to keep on polluting save money,
while in theory companies that are able to
reduce beyond legal requirements will seize
the chance to make money from selling their
spare credits. But this flexibility comes at a
cost – what is cheap in the short term is not
the same as what is effective in the long term
or environmentally and socially just.
17 World Bank, State and Trends of the Carbon Market
2009, World Bank, Washington DC, 2009, p.7.
Critical Currents no.
In practice, the scheme has failed to incentivise emissions reductions. For example, a
combination of industrial lobbying efforts
and measurement difficulties have ensured
that the pollution rights granted to private
firms within cap and trade schemes are in
many cases more generous than the polluters
need to cover their existing level of emissions.
This surplus of permits can then be sold to
other polluters so that they too might avoid
reducing their greenhouse gas emissions.
To date, the vast majority of permits have
been handed out for free (a practice known
as ‘grandfathering’) in the EU ETS, and
the same is true for other cap and trade
schemes.18 The number of permits awarded
is calculated according to existing levels of
pollution, which means that those who have
polluted most in the past are rewarded with
the greatest subsidy. This free gift of pollution rights to some of the worst industrial
polluters amounts to one of the largest projects for the creation and regressive distribution of property rights in history.19
18 This is the case for the EU ETS until 2012. Although the EU and US have both claimed that
auctioning could provide a major revenue stream
to fi nance other measures to tackle climate change,
this has not yet materialised. In the USA, President
Obama initially budgeted for US$ 646 billion as a
result of auctioning 100 per cent of carbon permits,
but as of September 2009 it is proposed that around
85 per cent be allocated for free. See Jim Efstathiou
Jr. and Kim Chipman, ‘Carbon Market Backers
Split Over Obama Climate Plan’, Bloomberg, 19
March 2009; http://www.bloomberg.com/apps/ne
ws?pid=20601072&sid=aVzbV8Sc35PY.
The European Union also significantly watered
down its auctioning plans for the third phase of the
EU ETS, with EU fi nance ministers vetoing calls
for the money to be ringfenced for climate-friendly
policies. The largest single public revenue stream
that remains has been designated for the development of controversial ‘carbon capture and storage’
technologies.
d19
What are carbon offsets?
The second type of carbon trading is offsetting.
Instead of cutting emissions at source, companies, and sometimes international financial
institutions, governments and individuals, finance ‘emissions-saving projects’ outside the
capped area. The UN-administered Clean
Development Mechanism (CDM) is the largest such scheme, with almost 1,800 registered
projects as of September 2009, and over 2,600
further projects awaiting approval.20 Based on
current prices, the credits produced by approved schemes could generate over US$ 55
billion by 2012.21
19 There is also a question of North-South distribution
at stake here. Cap and trade schemes currently exist
in Northern countries, where governments award
the pollution rights to companies that operate within
their borders. For each year of its scheme, the EU has
awarded free emissions permits equating to almost
2 billion tonnes of emissions – between 17 and
34 per cent of the world’s ‘carbon dump’. Loosely
translated, this means the EU and companies operating there are in on the fact that they over-pollute –
with a carbon price at €30 per tonne, the equivalent
asset value would be approximately €60 billion. A
proposed cap and trade scheme in the USA, which
would cover around 85 per cent of its emissions,
would generate an even larger asset value – to be
split, most likely, between free passes for industry
and revenue for the US government.
It is worth noting, too, that this fundamental inequality in allocations is only marginally improved by
auctioning the revenues rather than ‘grandfathering’
them. When the EU and US plan to auction carbon
rights and pay a proportion, the question remains: are
these their rights to sell? The defence that is typically
used in response to this charge is that a proportion of
the auction revenue will be allocated for development
funding, which tends to come with ‘conditionalities’.
This is like owning a house with another person,
selling it without their consent, then promising to
return a small part of the money as long as they agree
to spend it according to criteria you define.
20 UNEP Risoe CDM/JI Pipeline Analysis and Database, 1 September 2009, http://cdmpipeline.org/
overview.htm
21 This is based on a UNEP Risoe September 2009
estimate of 279 million Certified Emissions Reductions (CERs) issued by 2012, and assumes a CER price
of US$ 20. CERs are the offset credits issued by the
CDM.
Although offsets are often presented as emissions reductions, they do not reduce emissions. Even in theory, they at most merely
move ‘reductions’ to where it is cheapest to
make them, which normally means a shift
from Northern to Southern countries. Pollution continues at one location on the assumption that an equivalent emissions saving will happen elsewhere. The projects
that count as ‘emissions savings’ range from
building hydro-electric dams to capturing
methane from industrial livestock facilities.
The carbon ‘savings’ are calculated according to how much less greenhouse gas is presumed to be entering the atmosphere than
would have been the case in the absence of
the project. But even the World Bank officials, accounting fi rms, fi nancial analysts,
brokers and carbon consultants involved in
devising these projects often admit privately
that no ways exist to demonstrate that it is
carbon fi nance that makes the project possible.22 Researcher Dan Welch sums up the
difficulty: ‘Offsets are an imaginary commodity created by deducting what you hope
happens from what you guess would have
happened.’23 Since carbon offsets replace a
requirement to verify emissions reductions
in one location with a set of stories about
what would have happened in an imagined
future elsewhere, the net result tends to be
an increase in greenhouse gas emissions.
The use of ‘development’ and ‘poverty’
rhetoric to describe offsets also masks their
fundamental injustice: offsets hand a new
revenue stream to some of the most highly
22 Larry Lohmann, ‘Marketing and Making Carbon
Dumps: Commodification, Calculation and Counterfactuals in Climate Change Mitigation’, Science as
Culture, vol. 14, no. 3, September 2005, pp. 203-235.
23 Dan Welch, ‘A Buyer’s Guide to Off sets’, Ethical
Consumer, no. 106, May/June 2007.
Carbon Trading – How it works and why it fails
polluting industries in the South, while
simultaneously offering companies and
governments in the North a means to delay changing their own industrial practices
and energy usage. As we show in chapter 4,
carbon offset projects have resulted in land
grabs and the repression of local communities.
Voluntary offsets, which give consumers in
the global North a means to make a payment to assuage their guilt about consumption, and companies the chance to present
a green face to the public, run into similar
problems. Offsets on the voluntary market exist outside UN regulation, but they
have similarly negative consequences on the
communities forced to endure them. In addition, these personal offsets individualise
the response to climate change, distilling
the complexities of a systemic problem of
how energy is produced and used, and how
land is distributed, into a seemingly simple
question of authorising a small payment
with the click of a computer mouse.24
Putting a price on climate change
These market-based approaches form a
key part of the architecture for how international fi nancial institutions and governments propose to address climate change. In
the words of the UK Government’s influential Stern Review on the Economics of Climate
Change, climate change is ‘the greatest market failure the world has ever seen’.25 Defi n24 Kevin Smith, The Carbon Neutral Myth: offset
indulgences for your climate sins, Carbon Trade Watch/
Transnational Institute, Amsterdam, 2007.
25 Nicholas Stern et al., Stern Review on the Economics
of Climate Change, HM Treasury, London, 2006,
p.viii.
Critical Currents no.
ing the problem in this way suggests that it
is simply a market problem. New markets,
Stern insists, can repair what existing markets broke. It is assumed that climate change
occurred because no price was put on carbon, with the result that it was not valued
when economic decisions were made.
This approach suggests that the earth’s capacity to regulate its climate can be treated
as a measurable commodity. The problem
is that while commodity prices can do
many things, one thing that they have never
achieved is to solve problems that require
structural change in so many fundamental
areas of industry and agricultural practice. A
market price for carbon, says Sussex University’s Energy Group’s Jim Watson, ‘is a very
poor weapon in what is supposed to be a war
to save humanity’.26 In the 1970s, high price
rises did little to wean industrial societies off
oil – and there is little reason to believe that
a carbon price can do so either.
The problem is, firstly, that price signals are
uncertain – highly so in the case of existing carbon markets. Proponents of carbon
trading argue that such markets could affect
long-term infrastructure decisions if only a
stable price signal could be achieved. Yet
carbon prices are inherently volatile. The
commodity traded as ‘carbon’ does not actually exist outside of the numbers flashed
up on trading screens or the registries held
by administrators. But a single tradable unit
is needed in order to create a market, and
for this purpose a whole set of incommensurable practices, undertaken at different
26 Jeremy Lovell, ‘Carbon Price is Poor Weapon
against Climate Change’, Reuters, 25 September
2007.
places and times – from making industrial
processes more efficient to capturing coalmine methane and generating hydro-electric power – are treated as though they were
the same.
This makes putting a price on carbon largely an arbitrary exercise and uncertain as predicting a price of even the most mundane
commodity is at best guesswork. Currently,
traders may attempt to track carbon prices
merely by looking at energy prices, calculating the difference between coal and gas
prices or by speculating about future political decisions. That is an unlikely recipe for
instituting the deep structural changes that
the global warming problem demands.
The numbers game
Carbon trading has created a system whereby different greenhouse gases are treated as
equivalent and quantifiable ‘things,’ opening
them up to the possibility of exchange. An
emissions cut in one place becomes ‘equivalent’ to, and thus exchangeable with, a cut
or a compensatory measure elsewhere.
At fi rst glace, this may seem uncontroversial.
As the World Bank puts it, ‘greenhouse gases mix uniformly in the atmosphere, which
makes it possible to reduce carbon emissions
at any point on Earth and have the same
effect’.27 Climate change is a global problem
rather than a local one, so it should not matter whether these reductions are made in
Brussels or Beijing. A moment’s reflection
will show, however, that, in producing such
equivalences, carbon trading already drifts
away from tackling climate change.
27 World Bank, Community Development Carbon Fund Annual Report 2004 World Bank, Washington, 2005, p.5.
That challenge consists mainly of initiating a new historical pathway that leads away
from dependence on fossil fuels, which are
by far the major contributor to humancaused climate change. Once taken out of
the ground and burned, coal, oil and gas
add to the amount of carbon cycling between the atmosphere and the oceans, soil,
rock and vegetation. This transfer is, for human purposes, irreversible: once mined and
burned, fossil carbon cannot be locked away
safely underground again in the form of new
deposits of coal, oil or gas, or in the form of
carbonate rock, for millions of years.28
The transfer is also unsustainable: there is
simply not enough ‘space’’ in above-ground
biological and geological systems to park
the huge mass of carbon that is coming out
of the ground safely without carbon dioxide building up catastrophically in the air
and the seas. As biologist Tim Flannery puts
it: ‘There is so much carbon buried in the
world’s coal seams [alone] that, should it fi nd
its way back to the surface, it would make
the planet hostile to life as we know it.’29
Most untapped coal, oil and gas, in other
words, is going to have to stay in the ground.
Accordingly, countries currently ‘locked
in’ to fossil fuels need instead to ‘lock in’
to non-fossil energy, transport, agricultural
and consumption regimes within at most a
28 M. Eby, K. Zickfeld, A. Montenegro, D. Archer,
K. J. Meissner and A. J. Weaver, ‘Lifetime of
Anthropogenic Climate Change: Millennial Time
Scales of Potential CO2 and Surface Temperature
Perturbations’, American Meteorological Society, vol.
22, no. 10, May 2009.
29 Tim Flannery, ‘Monstrous Carbuncle’, London
Review of Books, vol. 27, no. 1, 6 January 2005.
Carbon Trading – How it works and why it fails
few decades.30 Because this shift is structural, the fi rst steps need to be undertaken immediately to minimise future dangers and
costs.
While carbon trading encourages ingenuity
in inventing measurable ‘equivalences’ between emissions of different types in different places, it does not select for innovations
that can initiate or sustain a historical trajectory away from fossil fuels (the effectiveness
of which is less easy to measure).
Business as usual
For both governments and many large
corporations, the appeal of carbon trading
schemes is that they give the appearance of
addressing climate change but do not mandate an immediate start to structural change
in existing energy practice, production or
consumption patterns. As The Guardian’s
Nick Davies has pointed out, carbon offsetting is ‘an idea which flows not from environmentalists and climate scientists trying
to design a way to reverse global warming
but from politicians and business executives
trying to meet the demands for action while
preserving the commercial status quo’.31
But climate scientists can succumb to a similar logic. In its Fourth Assessment Report,
the IPCC assumes that an international carbon market will be a ‘foundation for future
mitigation efforts’.32 This is a remarkably
30 Gregory C. Unruh, ‘Understanding Carbon LockIn’, Energy Policy, no. 28, 2000, pp. 817-30.
31 Nick Davies, ‘The inconvenient truth about the
carbon off set industry’, The Guardian, 16 June 2007,
http://www.guardian.co.uk/environment/2007/
jun/16/climatechange.climatechange
32 Intergovernmental Panel on Climate Change,
op.cit., supra, note p.7.
Critical Currents no.
short-sighted conclusion for an organisation
whose work recognises the need for urgent
action to reduce greenhouse gas emissions.
It is possible to conceive of all manner of
climate disasters, it seems, but not to think
outside the box of the economic systems
that are contributing to their happening in
the fi rst place.
The message of all this is clear. Industrialised societies can continue to use up fossil fuels until there are none left worth recovering. At the same time, they can create
new markets that make it possible to claim
that others can clean up the mess, and that it
will be economically ‘efficient’ for them to
do so. This is a market, politicians and business leaders assure the public, in which you
will be able to ‘pay’ the environmental costs
of continuing to drill oil by screwing in efficient light bulbs, or for the costs of opening
a new coal mine by burning the methane
that seeps out of the same mine.
Yet as long as oil, coal and gas continues being taken out of the ground, run through
combustion chambers, and transferred to the
active carbon pool in the air, oceans, vegetation and soil, the world will remain on a
path toward catastrophic climate change. It
took millions of years for plants to extract
the carbon from the atmosphere that makes
up today’s coal, oil and gas deposits. It’s taking only a few centuries to burn it. Despite
all the schemes selling ways to capture carbon there is no environmentally sound or
quick method to safely restore the fossil fuels and carbon deposits at the rate they have
been unleashed into the atmosphere.
Carbon trading is aimed at the wrong target.
It is not directed at reorganising industrial
societies’ energy, transport and housing systems – starting today – so that they don’t
need coal, oil and gas. It is not contributing
to the de-industrialisation of agriculture or
the protection of forests through the recognition of local and Indigenous Peoples’ tenure rights or food sovereignty. Instead, it is
organised around keeping the wheels on the
fossil fuel industry for as long as possible.
Carbon Trading – How it works and why it fails
Critical Currents no.
2 » A brief history of carbon trading
It is not an exaggeration to brand the mechanisms of the Kyoto Protocol as ‘Made in the
USA.’ . . . The sensitivity of the Protocol to
the market was largely instigated by the negotiating positions of the USA.
Michael Zammit Cutajar,
former executive secretary,
UN Framework Convention
on Climate Change, 2004
Over the past decade, carbon trading has
emerged as the centrepiece of official efforts
to address global warming. This chapter
tells the story of how corporations, financial
institutions, academics, governments, United
Nations agencies and some environmentalists
came to promote a neoliberal, market-based
approach to climate change emanating from
the United States.
The market fix
Carbon trading sets up a framework for
dealing with greenhouse gases that secures
the property rights of heavy Northern fossil
fuel users over the world’s carbon-absorbing
capacity while creating new opportunities
for corporate profit through trade.
The system does not set a deadline by which
fossil fuel use will be mostly phased out. Instead it starts by translating existing pollution into a tradable commodity, the rights
to which are allocated in accordance with a
limit set by states or intergovernmental agencies. The idea of the cap is that these limits are
gradually lowered, although no clear timetable is set, and the means by which public
support will be mobilised for shrinking caps
is left unspecified. Within whatever overall
constraints imposed, however, companies
can choose either to buy a greater number
of rights to carry on polluting as before, or
to make efficiency savings. Those who make
extra efficiency savings can sell their surplus
pollution rights to those who do not meet
their targets.
While this might sound like a neat theory,
carbon trading is both ineffective and unjust.
Redefining greenhouse gas emissions as a tradable commodity – ‘carbon’ – whose value lies
in what it can be swapped for or what price it
can fetch, carbon trading significantly distorts
the framework through which we view the
problem of tackling climate change, encouraging the growth of an elaborate financial
system in which a broad range of industrial
and agricultural practices are rendered falsely
Carbon Trading – How it works and why it fails
equivalent, while obscuring the social, political, technological and historical questions of
how rapidly shrinking caps are to be achieved.
In addition, all actually-existing carbon trading schemes grant the largest number of rights
free of charge to those who have been most
responsible for pollution in the first place.
Instead of considering polluters culpable for
causing a past harm, or imposing a stricter
limit upon them because they have already
used up their share of ‘atmospheric space’, carbon trading effectively rewards them for these
past misdemeanours.
The neoliberal context
This market fix for global warming could not
have become dominant without being part of
a longer historical wave of neoliberalism.
Internationally, neoliberalism uses institutions such as the World Bank, and the World
Trade Organization, along with various
treaties, to establish new forms of globallycentralised control over far-flung resources.
Attempting to integrate trading systems
worldwide, neoliberalism reorganises property rights regimes and fights national regulation in an attempt to reduce the power of
national governments, labour unions and
local communities over corporate activity.
Justifying neoliberalism is an ideology of
‘efficiency’ developed over decades, largely
in the think-tanks, academic economics departments, international agencies and government ministries of the US and EU. The
ideology revolves around the claim that society as a whole will benefit if it ‘makes the
most’ out of whatever stuff is available to it.
Critical Currents no.
The economists and the early years
Although it is not possible to pinpoint a single founder of carbon trading, many of the
theories from which it derives can be traced
back to the work of economists Ronald
Coase, George Stigler and, later, J. H. Dales
– who provided a theoretical framework on
the basis of which a market-based means to
tackle pollution could be developed.1
Coase’s idea was that the right to pollute
is a factor of production just like the right
to use land. In both cases, the idea was that
exercising one’s right would naturally entail
some losses to be suffered elsewhere.2 The
question becomes how significant those
losses will be.
To fi nd out how best to distribute pollution,
Coase argued, you put it on the market together with other commodities you’ve created – like real estate, water, labour, rice,
silver, forests, jet planes and mobile phones.
You measure them all by the same yardstick
and treat them all in the same way.
If the market is a perfect market with no
‘transaction costs’ and is inhabited by properly calculating, maximising economic
agents with perfect information, the theory
suggests that pollution will wind up being
used in the way that contributes
the most to
3
society’s ‘total product’.
1
2
3
George Stigler, The Theory of Price, McMillan, New
York, 1987.
Ronald Coase, The Firm, the Market and the Law,
University of Chicago Press, Chicago, 1988, p.155.
Ronald Coase, ‘Looking for Results: Nobel
Laureate Ronald Coase on Rights, Resources and
Regulation’, Reason Magazine, January 1997, http://
reason.com/9701/int.coase.shtml.
If that means a lot of pollution, so be it.
There’s no need to worry that there will be
‘too much’ pollution, because if a society
got too polluted, you wouldn’t get the best
value out of other goods – your labourers
might die, for example – and ‘total product’
would decline. The perfect market will select against that, automatically ‘optimising’
pollution so that there’s neither too little nor
too much.
On this basis, Coase concluded that pollution
dumps, as one ‘factor of production’ among
many, would automatically be bargained into
the hands of those who could produce the
most wealth from them (or best ‘improve’
them, to use 17th century terminology), and
thus the greatest good for society. That is, to
allocate property rights to public commons
will deliver a socially efficient use of resources, even when externalities are present.4
Coase’s successors, including the economists
J. H. Dales and Thomas Crocker, modified
pollution trading theory further. While
continuing to emphasise the importance of
allowing polluters formal rights to pollute,
they suggested that states would be better
placed than an imaginary ‘perfect market’
to set a cap on overall pollution levels.5 In
this way, pollution trading became mainly a
way of fi nding the most cost-effective way
for businesses to reach an emissions goal that
had been set beforehand.
4
5
Ronald Coase, ‘The Problem of Social Cost’, Journal of Law and Economics, no. 3, 1960, pp.1-44; R.
Coase, op. cit., supra, note 2. See also Deirdre McCloskey, ‘The so-called Coase Theorem’, Eastern
Economic Journal, vol. 24, no. 3, 1998, pp.367-371.
J. H. Dales, ‘Land, Water and Ownership’, Canadian
Journal of Economics, no. 1, November 1969, pp.791804.
A number of these early pioneers turned
their back on such theories when faced with
the messy reality of carbon trading. Thomas
Crocker stated, as the cap and trade scheme
was passing through the US Congress in
summer 2009: ‘I’m skeptical that cap-andtrade is the most effective way to go about
regulating carbon.’6 In devising a rationale
for pollution trading, Crocker now says, he
never imagined that a complex pollution
problem with myriad sources could be dealt
with under the one scheme, arguing that
‘it is not clear... how you would enforce a
permit system internationally.’ J. H. Dales
had previously expressed similar caution,
claiming that there were ‘lots of situations’
in which the theory of emissions trading
would not apply.7
Sulphur dioxide trading
There had been some early, clumsy attempts
to implement cap and trade schemes for pollution by the US Environmental Protection
Agency (EPA), such as a scheme which allowed trading of lead credits in gasoline.
The most significant experience, however, was the sulphur dioxide (SO2) trading
scheme set up as part of US Clean Air Act
Amendments in 1990.
The Clean Air Act intended to use trading
to make it cheaper to reduce SO2 emissions
by 10 million tonnes below 1980 levels, thus
6
7
Jon Hilsenrathm, ‘Cap-and-Trade’s Unlikely Critics: Its Creators’, Wall Street Journal, 13 August 2009.
Ibid.
Carbon Trading – How it works and why it fails
reducing acid rain.8 That paved the way for
later US trading programmes in water pollution, wetlands destruction, biodiversity
depletion and so on.
While Dales and other proponents of pollution trading had expected that permits would
be auctioned, almost all of the SO2 allowances
under the Clean Air Act – like those of later
emissions markets – were simply distributed
free of charge.9 Hence, the rights were, and
still are, gravitating into the hands of those
who have the most power to appropriate
them and the most financial interest in doing so. Systems of pollution trading give new
commercial powers to those with access to
legislation. So just as corporations lobby for
exemption from pollution regulations, they
lobby to make sure emissions allowances
amount to secure property rights.
In common with other emissions trading
schemes, the first phase of SO2 trading generated a significant surplus of pollution permits
over and above what was needed for compliance. It covered 263 of the largest coal-fired
power stations in the US, which produced
emissions 39 per cent above the level the cap
at 1995, and on average 23 per cent below the
8
9
M. Bernstein, M. A. Farrell et al., ‘The Environment and Economics – The Impact of Restricting
the SO2 Allowance Market’, Energy Policy, vol. 22,
no. 9, pp.748-754, 1994; Drury, Belliveau, Kuhn
and Bansal, ‘Pollution Trading and Environmental
Injustice: Los Angeles, Failed Experiment in Air
Quality Policy’, Duke Environmental Law and Policy
Forum, no. 45, 1999.
Ricardo Coelho, ‘Pollution for sale: made in the
USA’, Presentation at the II Doctoral Meeting,
Université de Montpellier, 21 August 2009, p.8.
Only a small percentage of the allowances (3.1 per
cent in phase 1 and 2.8 per cent in phase 2) were
auctioned off. Each allowance permitted the release
of 1 tonne of sulphur dioxide into the air after 1995.
The price for each allowance was between US$ 122
and US$ 450, much cheaper than paying for flue
gas scrubbers to remove sulphur dioxide from their
emissions.
Critical Currents no.
cap for the subsequent four years.10
Although this ‘over-compliance’ has been
claimed as a success, this occurred for several reasons that were not closely linked to
the programme itself. The utilities covered
by the scheme anticipated high compliance
costs in the fi rst phase as a result of which
they installed scrubbers, an end-of-pipe
technology to remove SO2 from power plant
exhaust streams. By 1995, however, productivity improvements in extraction and
transport meant that low-sulphur coal had
become far more cheaply and readily available in the US. Since this reduced emissions
in its own right, the result was an oversupply of permits.11 A second, major factor
was a ‘substitution’ provision built into the
Clean Air Act, which allowed companies to
switch the factory specified in the legislation
for another of their choice ‘and receive allocations of allowances based on the historic
emissions of those units instead’.12
The net result was that a large surplus of pollution permits was generated which could
then be carried over (or ‘banked’ in the
jargon) to the second phase of the scheme,
beginning in 2000, which came to include
2,262 electricity-generating units. This surplus, in addition to the emissions being set
systematically above the cap between 2000
and 2005, helped these other units to delay
meeting their obligations to clean up SO2
pollution.
This goes some way towards explaining why
the US Clean Air Act was significantly less
10 Lesley McAllister, ‘The Overallocation Problem
in Cap-and-Trade: Moving Toward Stringency’,
Columbia Journal of Environmental Law, 2009, vol 39,
no. 2, p.401. Available at SSRN: http://papers.ssrn.
com/sol3/papers.cfm?abstract_id=1276405
11 Ricardo Coelho, op. cit., supra, note 9.
12 Ibid.
successful at reducing SO2 pollution than
equivalent regulations elsewhere. SO2 emissions in the US had been reduced by 43.1 per
cent by the end of 2007, but over the same
period 25 members of the European Union
saw a decrease in emissions of 71 per cent.13
These reductions were achieved through regulation, rather than a cap and trade scheme.14
Beyond this, the lessons of sulphur trading
13 US EPA, data from ‘Acid Rain Program 2008
Progress Report’, http://www.epa.gov/airmarkets/
progress/interactivemapping.html; European Environment Agency, ‘Air pollution from electricitygenerating large combustion plants’, EEA Technical
report No 4/2008, p.11. The data includes all current EU members except Romania and Bulgaria.
14 The relevant EU legislation – the Large Combustion Plants Directive (LCPD) – sets a non-tradable
limit on the level of SO2, with plants that ‘opt out’
of the scheme required to close by 2015. This will
lead to the closures of numerous oil and coalfi red power stations – a more effective measure,
in terms of reduced carbon emissions, than any
climate-specific policy to date. On the LCPD plant
closures, see Pete Harrison, ‘UK And Poland Top
Dirty Coal List, Closures Loom’, Reuters, 12 February 2009: http://planetark.org/wen/51627. The
second piece of directly relevant EU legislation is
the International Pollution Prevention and Control
(IPPC) Directive, which also sets energy efficiency
requirements and pollution limits. Unfortunately,
the application of the EU ETS has directly undermined the co-benefits of this legislation for tackling
carbon emissions. As the European Environment
Agency points out, the IPPC ‘requires the defi nition of both energy efficiency requirements and
emission or concentration limits... These requirements could restrict emissions trading. For example, operators of large sources might be obliged to
reduce their emissions (in order to comply with the
IPPC Directive) when it could be more economically efficient to increase emissions further and buy
additional allowances instead. Article 26 of the
Emissions Trading Directive therefore amends the
IPPC Directive so that permits shall not include
CO2 emission limits for installations which are
covered by the EU ETS.’ European Environment
Agency (2008) ‘Application of the Emissions Trading 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 of new
nitrous oxide and sulphur dioxide trading schemes
– a further example of how the EU ETS is serving
to undermine existing environmental regulations.
were far from simply applicable to the far
larger and more complex array of gases and
industrial processes covered by carbon trading. SO2 emissions emanating from a relatively small number of large fi xed sources
are far simpler to monitor than the complex
mix of gases and processes involved in emissions trading today. As Phil Clapp of the US
National Environmental Trust points out:
‘Acid rain dealt with a specific number of
facilities in one industry that was already
regulated… Global warming is not an issue
that will be resolved by the passage of one
statute.’15 Another important difference between the two schemes is that SO2 trading
did not allow for the use of offsets.
In addition, as Ruth Greenspan Bell points
out, pollution trading is at most only a tool
to make more cost-effective an already existing commitment to cut pollution. Where
the basic commitment and regulatory power doesn’t exist, the tool can do little.16 In
the US, this commitment and regulatory
power did exist. Sulfur dioxide trading was
not introduced to try to get polluting companies interested in controlling acid rain;
they were already required to. The situation
is different with global warming. Although
the countries engaged in the UN process
have formally agreed to control carbon, this
is not a strong or enforceable commitment
in either North or South.
15 Michael Shellenburger and Ted Nordhaus, ‘Break
Through: The Death of Environmentalism: Global
Warming Politics in a Post-Environmental World’,
2004, p.15, available at http://thebreakthrough.org/
images/Death_of_Environementalism.pdf.
16 Ruth Greenspan Bell, ‘Transforming The Dynamic’, Environmental Forum (US), May/June 2009.
Carbon Trading – How it works and why it fails
Climate trading
Revolving doors
Despite these problems and significant differences, the sulphur trading example was,
perhaps disingenuously, heralded as a successful model for the tackling of greenhouse
gas emissions from the early 1990s onwards.
The case of the United Nations Conference
on Trade and Development (UNCTAD)
starkly illustrates how many of the key actors involved in the promotion of global
carbon trading later drew significant material benefits from it.21
The Organisation for Economic Co-operation
and Development (OECD) and the United Nations Conference on Trade and Development
(UNCTAD) set out the terrain for international negotiations.17 The OECD investigated
the US SO2 emissions trading experience and
considered the scope for international emissions
trading.18 UNCTAD, meanwhile, engaged in
an extensive work programme to promote a
global CO2 trading system.
At the same time, the US-based NGO Environmental Defense Fund (which is now
called Environmental Defense) was an early
promoter of emissions trading, and published
a 1991 study advocating emissions trading to
protect the rainforest – a notion whose afterlife can be seen in current market-based
proposals for Reducing Emissions from Deforestation and Degradation (REDD).19 (See
chapter 4). The authors of this paper were
UNCTAD consultants at the time, and had
recent experience advising the US EPA on
sulphur trading.20
17 Sebastian Oberthür and Hermann Ott, The Kyoto
Protocol: international climate policy for the 21st century,
Springer, New York, 1999, p.188.
18 OECD, ‘Climate Change: Designing a Tradeable
Permit System’, OECD Observer, Paris, 1992.
19 Daniel Dudek and Alice LeBlanc, ‘Preserving Brazil’s Tropical Forests Through Emissions Trading’,
Environmental Defense Fund report, 1991.
20 For short biographies, see ‘Alice LeBlanc’ at http://
www.prlog.org/10290563-alice-leblanc-formerdirector-of-office-of-environment-and-climatechange-at-aig-joins-karbone.html and ‘Daniel J
Dudek’ at http://www.edf.org/page.cfm?tagID=909
Critical Currents no.
Frank Joshua, head of greenhouse gas emissions trading at UNCTAD from 1991 to 2000,
went on to become global director for emissions trading services at Arthur Andersen,
the accountancy fi rm at the centre of the
Enron scandal, before joining NatSource, an
environmental services fi rm specialising in
emissions trading.22 In the early 1990s, Joshua collaborated on an UNCTAD initiative
entitled ‘Building a Global CO2 Emissions
Trading System’ with Richard Sandor, a
former head of the Chicago Board of Trade,
and one of the originators of the interest
rate derivatives which were a precursor of
the complex derivatives that contributed
to the fi nancial crash of 2008. Sandor went
on to head UNCTAD’s working group on
carbon market design.23 He later set up the
Chicago Climate Exchange (CCX), which
today commands a small but growing segment of the carbon markets.
Alice LeBlanc, another key figure in the
UNCTAD initiative, was an employee of
Environmental Defense at the time. She
later joined Sandor at the Chicago Climate
Exchange, before becoming head of the climate change office of insurance fi rm AIG,
21 UNCTAD, ‘Global Greenhouse Emissions Trader’, 3
December 1997: r0.unctad.org/ghg/download/newsletters/newsltr3.pdf
22 Frank Joshua: http://www.eib.org/infocentre/forum/
archives/dublin-2003/speakers/frank-joshua.htm
23 Larry Lohmann, ‘Uncertainty Markets and Carbon
Markets: Variations on Polanyian Themes’, New
Political Economy, forthcoming, 2009, pp.10-11.
where she devised the fi rm’s carbon market
investment strategy.24
Two more fundamental trends lie beneath
these connections. First, they reflect the extent to which the notion of ‘confl icts of interest’ has fallen into obsolescence. Second,
the interconnections hint at broader links
between the rule-setting process for carbon
markets and the agencies that established the
derivatives markets that contributed to the
financial crisis of 2008.25
From Rio to Kyoto
Although emissions trading did not directly find its way into the text of the UN
Framework Convention on Climate Change
(UNFCCC), which was agreed at the Rio
Earth Summit in 1992, some of the neoliberal assumptions underlying it were reflected in both the Convention’s defence of an
‘open economic system’ based on economic
growth, and in the Summit’s overall recuperation of multinational corporations as positive agents of ecological change – ‘promoting
sustainable development through trade liberalisation’, in the words of Agenda 21, another
of the Declarations agreed at Rio.26
responsibilities’ in tackling climate change,
with the industrialised countries (identified
as Annex 1) obliged to shoulder the burden
of cleaning up a problem they had been disproportionately responsible for creating.
In 1994 developed countries made voluntary commitments to reduce their greenhouse gas emissions to 1990 levels by 2000.
It quickly became clear that there was little
chance that these targets would be adhered
to, however, and negotiations on legally
binding targets began at the fi rst Conference of 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 for
industrialised nations within the UN process and became an important forum for the
elaboration of an emissions trading system
within the Kyoto Protocol.27
As negotiations gathered pace for a followon agreement to the Convention, the US
government began to design a carbon trading proposal, announcing in 1996 that this
kind of ‘flexibility’ would be ‘the key requirement for accepting binding targets’.28
In addition, the UNFCCC noted that ‘the
largest share of historical and current global
emissions of greenhouse gases has originated
in developed countries’. As a result, countries
were felt to have ‘common but differentiated
In December 1997, the third COP was held
in Kyoto, Japan, resulting in a Protocol
that was to become the major pillar of international climate policy. Although most
24 Carbon Control News, ‘Insurance Giant AIG
Poised To Issue Climate Change Strategy, ’ 5 April
2006. http://carboncontrolnews.com/index.php/
igb/show/494
25 For a more detailed analysis on this theme, see
Larry Lohmann, op. cit., supra, note 23.
26 Pratap Chatterjee and Matthias Finger, The Earth
Brokers: Power, Politics and World Development,
Routledge, New York, 1995. See Agenda 21, ch.2,
section 1: http://www.un.org/esa/dsd/agenda21/
27 Sebastian Oberthür and Hermann Ott, The Kyoto
Protocol: international climate policy for the 21st century,
Springer, 1999, p.188 The Annex I Expert Group still
exists, and is promoting proposals for new ‘sectoral’
carbon markets in advance of the COP15 global climate negotiations at Copenhagen in December 2009.
28 Deborah Stowell, Climate Trading: Development of
Greenhouse Gas Markets, Palgrave, Basingstoke,
2005, pp.15-16.
Carbon Trading – How it works and why it fails
governments insisted that emissions reductions should be made domestically by parties
to the agreement, the US delegation, led by
Vice President Al Gore, again insisted upon
‘flexibility’. As journalist George Monbiot
recalls:
Gore demanded a series of loopholes big
enough to drive a Hummer through. The
rich nations, he said, should be allowed to
buy their cuts from other countries. When
he won, the protocol created an exuberant
global market in fake emissions cuts... He
also insisted that rich nations could buy
nominal cuts from poor ones. Entrepreneurs in India and China have made billions by building factories whose primary
purpose is to produce greenhouse gases, so
that carbon traders in the rich world will
pay to clean them up.29
The most significant of these loopholes was
the Clean Development Mechanism, a carbon offset mechanism which was included
at a late stage in the Kyoto negotiations.30
A second offsetting scheme, called Joint
Implementation, was also included in the
Protocol.
29 George Monbiot. ‘We’ve been suckered again by
the US. So far the Bali deal is worse than Kyoto’,
The Guardian, 17 December 2007: http://www.
guardian.co.uk/commentisfree/2007/dec/17/comment.world
30 The CDM is not the only hole in the Kyoto Protocol, however. As noted in chapter 1, the ability to
trade emissions between countries has resulted in
a significant quantity of ‘hot air’ emissions in the
system – in particular, following the collapse of the
Soviet Union. Another significant hole is the exclusion of international aviation and shipping from the
calculations underlying the Kyoto Protocol.
Critical Currents no.
Joint Implementation
Joint Implementation ( JI) is a UN offsetting
scheme that is similar to the Clean Development Mechanism – the key difference being
that it involves projects hosted in countries
that already have binding targets for the reduction of their greenhouse gas emissions.
Most of the projects are in ‘transition
economies’ (Russia, Ukraine and Central
and Eastern Europe), which tend to be the
cheapest places to host them, although they
have also emerged in Germany, France and
New Zealand.
By September 2009, the UN had registered
214 JI projects. These tend to be larger in
scale than CDM projects, with the largest
proportion (34 per cent) accounted for by
methane gas reduction projects, which are
mostly associated with coal mines.
The origin of offsets
The idea of offsetting did not begin with
the Kyoto Protocol or with carbon trading.
Early in the history of pollution trading,
governments and private fi rms sought ways
of injecting extra, inexpensive pollution
permits into the market, to make meeting
targets even easier than it would be under
simple cap and trade schemes.31 In 1976,
the US EPA promulgated a policy allowing
major new pollution sources to be sited in
locations where standards were not being
attained as long as they obtained ‘offset’ pollution credits generated from other projects
that saved or reduced emissions.
31 Richard A. Liroff, Reforming Air Pollution Regulation:
The Toil and Trouble of EPA’s Bubble, Conservation
Foundation, Washington, 1986, p.100.
In order to become tradable for emissions
allowances, offset credits had to be made
‘equivalent’ to emissions reductions. In the
1970s and 1980s, various US authorities and
regulated corporations eager to build a pollution offset market tried to commensurate reducing pollution from industrial installations
with buying up and scrapping old cars or by
making material process substitutions elsewhere.32 Environmentally, the experiment
failed. For example, entrepreneurs sold credits for destroying cars that in fact had already
been abandoned, while states lured industry
by providing it with offsets created through
substitution processes that were already occurring for non-environmental reasons.33
Under one California smog trading programme, the Sacramento Metropolitan Air
Quality Management District issued 5 tonnes
per year of volatile organic compound pollution credits created by the decommissioning
of B-52 bombers that had been based in the
region. The credits were bought by companies such as Intel, Campbell’s Soup and
Aerojet, who were able to avoid installing
pollution control equipment as a result. The
credits arguably functioned to increase pollution above what it would have been otherwise, because the bombers had been slated
for destruction anyway under the terms of
the START treaty. Because companies carried on polluting, the B-52s in effect continued to ‘pollute from the grave’.34 Such credits
quickly earned the sobriquet ‘anyway tonnes’,
meaning that they represented actions that
would have happened anyway.
32
Drury et al. op. cit., supra, note 8; Liroff, op. cit., supra, note
31.
33 Drury et al., ibid; Liroff, ibid., pp.16, 117.
34 Drury et. al. op. cit., supra, note 8; Liroff, op, cit.,
supra, note 31, pp.16, 117.
Environmental Services and
Land Use Offsets 35
Costa Rica pioneered the development of
Payments for Environmental Services (PSA
or pagos por servicios ambiamental) in the 1990s,
establishing a national plan to compensate
landowners to preserve forests and reforest
‘degraded’ lands, including tree plantations.
Landowners were given the opportunity to
sell the carbon storage capacity of forests on
their territory to the national government,
which then sold these on to voluntary markets. The scheme was paid for by a 15 per
cent consumer tax on fossil fuels which was
later reduced. Carbon trading ‘was expected
to provide significant funding through sales
of certified tradable offsets. However, no
significant market for carbon abatement has
emerged. The only sale has been to Norway,
which consisted of US$ 2 million in 1997 for
200 million tonnes of carbon sequestration.’ 36
Further funding came through a World Bank
loan and a Global Environmental Facility
(GEF) grant. Costa Rica went on to create
Certified Tradable Offsets (CTOs) in 1998 to
‘grow’ carbon from 500,000 hectares of forest,
setting in motion an unfinished debate on the
value and legitimacy of ‘carbon sinks’.37
35 See Larry Lohmann, ‘Democracy or Carbocracy?
Intellectual Corruption and the Future of the
Climate Debate’, The Corner House briefi ng 24,
October 2001.
36 G. Arturo Sanchez-Azofeifa, Alexander Pfaff,
Juan Andres Robalino, and Judson P. Boomhower, ‘Costa Rica’s Payment for Environmental
Services Program: Intention, Implementation, and
Impact’, Conservation Biology, DOI: 10.1111/j.15231739.2007.00751, 2007. The notion of ‘carbon
sequestration’ (or ‘sinks’) was already established
as part of the UNFCCC. See ‘United Nations
Framework Convention on Climate Change’, 1992,
article 4.d.
37 http://projects.wri.org/book/export/html/11
Carbon Trading – How it works and why it fails
These early experiences of offsetting in Costa
Rica resulted in a push for the inclusion of
tradable carbon sequestration offsets or carbon ‘sinks’ in UNFCCC legislation.38 During the Kyoto negotiating years in the 1990s
Northern countries like the US, Canada
and Australia had a vested interest in getting
‘sinks’ included in any climate deal as a means
to make their emissions targets cheaper and
easier to attain. The Intergovernmental Panel
on Climate Change responded to the pressure with a 377-page review on land use and
land use change, released in May 2000 as
‘Land Use and Land Use Change and Forestry’ (LULUCF).39 Many NGOs and governments cautioned against using the biosphere
to create an international offsets market.40
The earlier pressure had paid off for the
Northern elites. The LULUCF report outlined how credits could be generated from
‘sinks’.41 At the contentious COP 6 in The
Hague in November 2000, one of the major
controversies concerned the technical possibility of countries claiming carbon credits for
‘additional land and forest activities’ within
their borders as part of their Kyoto Protocol
‘reduction’ commitments. The concept of
carbon sequestration was accepted, but the
ability to trade credits from the environmental service of ‘avoided deforestation’ was not.
38 G. Arturo Sanchez-Azofeifa, et. al. op cit., supra,
note 36.
39 R. T. Watson, I.,Noble, B. Bolin et al. (eds), Land
Use, Land Use Change and Forestry (a Special Report
of the IPCC), Cambridge University Press, Cambridge, 2000.
40 The German Advisory Council on Global Change,
‘The accounting of Biological Sinks and Sources
under the Kyoto Protocol – A step Forward or
Backwards for Global Environmental Protection?’,
Bremerhaven, EBGU, 1998, p.39.
41 R. T. Watson et al., op. cit., supra, note 39, p.181.
Critical Currents no.
Two-thirds of the LULUCF document
authors and editors were from the North.
Many of these authors assumed that there
were wide open ‘degraded’ lands in the
South (but not in the North) which had no
better function than to be converted into
plant growth to absorb CO2.42 Beyond the
obvious lack of evidence that short-cycle
tree or plant growth locks in CO2 permanently, this displays a shocking lack of analysis regarding social mechanisms of deforestation, commons regimes, social resistance,
development systems and local history. Tellingly, there were no Indigenous Peoples’
Organisations (IPOs) on the panel.
Offsetting proposals went global in the
1990s as traders, economists, consultants,
non-government organisations and UN
technocrats began to set up institutions
through which offset credits could be mixed
with the permits on which cap and trade
would be based. Whereas earlier projects
had sought mainly to replace one type of
pollution reduction with an ‘emissions sav42 In this context, the term ‘degraded lands’ is a
descendant of the colonial-era administrative term
‘waste’, used to signify what were in fact common
lands under intense and varied use. For the deployment of this term in the British Raj, see, for example, R. A Houghton,et al., ‘Current Land Cover
in the Tropics and its Potential for Sequestering
Carbon’, Global Biogeochemical Cycles, vol. 7, no. 2,
1993, pp.305-320; R. Dixon et al. (eds) Assessment of
Promising Forest Management Practices and Technologies for Enhancing the Conservation and Sequestration
of Atmospheric Carbon and their Costs at Site Level,
Environmental Protection Agency, Washington, 1991;
A. Grainger, ‘Modelling the Impact of Alternative
Afforestation Strategies to Reduce Carbon Dioxide
Emissions’, in Proceedings of the Conference on Tropical
Forestry Response Options to Global Climate Change,
1990; and M. Trexler and C. Haugen, Keeping it
Green: Tropical Forestry Opportunities for Mitigating
Climate Change, World Resources Institute, Washington, 1995.
ing’ made elsewhere, these new schemes extended the logic of offsetting to include the
displacement of claimed reductions from
one country to another.
The basic economic idea was to find the
cheapest location to tackle the climate
change problem, irrespective of where it had
been caused. Larry Summers, the current
president of the White House Economic
Council, infamously elaborated upon this in
a 1991 memo sent while he was chief economist of the World Bank. ‘The economic
logic of dumping a load of toxic waste in
the lowest wage country is impeccable, and
we should face up to it,’ Summers said. ‘Underpopulated countries in Africa are vastly
underpolluted.’43
In 1992, the World Bank and the government of Norway began to co-fi nance a series of Joint Implementation arrangements
involving ‘carbon offset generation’. The
Global Environment Facility, which was
initiated by the Bank in 1991 and subsequently adopted as the financial mechanism
for the UNFCCC, also began to research
methodologies for certifying carbon offsets.44 These JI proposals elaborated on a
relatively obscure piece of wording in the
Convention agreed at the Rio Earth Summit, which stated that measures taken by
developed countries to cut their greenhouse
gas emissions to 1990 levels could be taken
‘individually or jointly’.45
43
Patrick Bond, ‘The World Bank in the Time of Cholera’, Z Net Commentary, 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 Convention on Climate Change, 1992, Article 4.2(b).
The G-77 and China grouping of developing countries initially contested this interpretation, with many countries expressing
concern at what they saw as a neocolonialist
measure that would allow developed countries to avoid their domestic and historic
responsibilities to tackle climate change.46
Nevertheless, pressure from Northern
countries and the openness of a few Central
American countries to such schemes led to
an agreement at the 1995 Berlin COP to
start piloting ‘activities implemented jointly’ between industrialised and developing
countries.
The Kyoto surprise
The Brazilian government claimed that
these new schemes amounted to ‘a reinterpretation of the concept of “Joint Implementation” by developed countries as a
means to avoid “the strict fulfi lment of their
targets”’.47 As a parallel proposal, it put forward the idea of a Clean Development Fund
(CDF) which would penalise developed
countries that exceeded their targets in order to finance clean energy in the South for
climate change mitigation (90 per cent) and
adaptation projects (10 per cent).
However, at the initiative of the US and
amid internal disagreements within the
G-77 and China group, this was transformed
late into the Kyoto negotiations into the
Clean Development Mechanism. The new
scheme laid the groundwork for projects in
developing countries to create credits that
can be purchased and utilised by developed
46 Joyeeta Gupta, Our Simmering Planet: What to do
about global warming? Zed Books, 2001, p.65.
47 Brazilian position on Activities Implemented
Jointly (1996-7), cited in Gupta, ibid., p.66.
Carbon Trading – How it works and why it fails
countries to meet their emission reduction obligations. The fund was transformed
into a trading mechanism, fi nes were transformed into prices, and a judicial system was
transformed into a market.
The EU, trying to maintain some legitimacy, cautioned that ‘flexibility must never become a backdoor through which rich countries can get away by paying other countries
instead of doing their homework’.48
However, the US later claimed during negotiations in The Hague in 2000 that any
limit on the use of flexible mechanisms –
as the G-77 and China group and the EU
were requesting – would lead to unacceptably high domestic costs.49 Later in 2001 the
Bush administration, shortly after coming
into power, confi rmed a unilateral decision
to abandon its Kyoto targets altogether.50
The origins of the EU
Emissions Trading Scheme
In response to the US walking away from
Kyoto, the EU strengthened its support for
emissions trading and went about designing
an EU-wide scheme that became the EU
ETS, now being used as a model for other
trading systems (see chapter 3).
48 Statement by Ritt Bjerregaard after a September
1998 informal meeting in Japan, quoted in Loren
Cass, ‘Norm Entrapment and Preference Change:
The Evolution of the European Union Position on
International Emissions Trading’, Global Environmental Politics, May 2005, Vol. 5, No. 2, p.52.
49 Norman J. Vig and Michael G. Faure, ‘Green Giants? Environmental Policies of the United States
and the European Union’, Massachusetts Institute for
Technology, 2004, p.349.
50 Vig and Faure, ibid.
Critical Currents no.
The European Commission, which has responsibility for proposing European Union
legislation, fi rst discussed the emissions trading scheme as part of its post-Kyoto strategy
in 1998. Consultations on the scheme began
in March 2000.51
While many corporate and corporate-backed
groups were still pouring millions of dollars
into disinformation campaigns to cast doubt
on whether climate change was happening,
a self-proclaimed ‘progressive’ wing of big
business was positioning itself to influence
the rules of this new trading regime.52
In 1999, a number of UK companies formed
an ‘Emissions Trading Group’ to develop
a voluntary scheme as an alternative to carbon tax proposals. The point was to develop
non-tax alternative to save industry money.
In Denmark, power companies ran a prototype for a small national emissions scheme in
1999, which proved a failure.53 Undeterred,
Norwegian business adopted a similar scheme
while, elsewhere, some companies began to
experiment internally with emissions trading.
BP and Shell were among the leading actors,
with BP in particular using its experiences to
set the policy agenda for emissions trading –
first in the UK, and then at an EU level.54
51 Marcel Braun, ‘The evolution of emissions trading
in the European Union – The role of policy networks, knowledge and policy entrepreneurs’, Rupprecht Consult, Forschung und Beratung GmbH,
Cologne, Germany, 2008, p.2.
52 On corporate lobbying as a form of climate change
denial, see Larry Lohmann, Carbon Trading: a critical
conversation on climate change, privatization and power,
Development Dialogue, No. 48, Dag Hammarskjöld
Centre, Uppsala, 2006, pp.41-42.
53 Braun, op.cit., supra, note 51.
54 Ibid.
Environmental Defense was involved once
again, this time forming a partnership with
BP. Instead of indulging in pure climate
change ‘denial’, BP acted on the assumption
that its long-term interests would be better
served by a trading scheme as a cheap policy
alternative to regulation – and one which did
not impinge too heavily on its core fi nancial
interests. With the aid of Environmental
Defense, and with the vocal endorsement of
BP CEO John Browne, the company set up
an internal trading system for its ‘non-extractive emissions’ – that is, emissions other
than those resulting from either extracting
oil from the ground or burning that oil.55
A pilot scheme began in autumn 1998, with
the full system in operation from 2000. BP’s
goal of a 1 per cent emissions reduction was
easily met, since an over-optimistic calculation of the growth of BP’s business meant
that allowances were over-allocated.56 A
tighter cap of 10 per cent was made for 2001,
which was achieved largely through reductions in natural-gas venting and flaring. The
company heralded the scheme as a success –
with the previously flared gas now available
for sale, and generating an additional US$
650 million in revenue.57
55 John Browne has subsequently revised his judgment
of emissions trading. In March 2009, he told The
Observer newspaper: ‘My view has shifted over time.
Pinning all your hopes on the European Union
ETS and carbon trading is wrong.’ See Tim Webb
and Terry Macalister, ‘Carbon trading wrong, says
Lord 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 of Carbon Markets’, February. Available at: http://www.sps.ed.ac.
uk/staff /sociology/mackenzie_donald ; accessed 5
June 2008.
57 D. Victor and J. House, ‘BP’s Emissions Trading
Scheme’, Energy Policy, no. 34, 2006, pp.2100-2112.
This corporate influence had a significant
impact on how the rules of the EU ETS
were ultimately set – with European industry associations successfully lobbying in favour of a free handout of credits (or ‘grandfathering’) at the outset of the scheme.58 It
also resulted in certain sectors, including the
chemical industry and aluminium, being
excluded from the scheme’s fi rst phase.59
By October 2003 the European Emissions
Trading Directive was passed into law, with
the scheme coming into effect on 1 January 2005.60 Since then, the EU ETS has become the largest carbon trading scheme in
the world.
58
See P. Markussen and G. T. Svendsen, ‘Industry
lobbying and the political economy of GHG trade
in the European Union’ Energy Policy, no. 33, 2005,
pp.245–255.
59 Ibid.
60 Braun, op. cit., supra, note 51.
Carbon Trading – How it works and why it fails
3 » When the cap does not fit
– Cap and trade and the failure of the
EU Emissions Trading Scheme
The European Union Emissions Trading
Scheme (EU ETS) is the world’s largest
carbon trading scheme, and the longest established cap and trade carbon market.1 It
also serves as a model for similar cap and
trade schemes that are proposed in the USA,
Australia and other industrialised nations.2
For these reasons, it is the main focus of
this chapter, the aim of which is to demystify claims that emissions trading is working now or will improve with age. The EU
ETS also has a considerable bearing on how
the global carbon trade works and is shaping
up for the decades ahead. For each year of
its operation, the EU ETS has continued to
enclose and privatise the global atmospheric
commons – awarding property rights to polluting companies based in the industrialised
nations at the expense of the South.
1
2
World Bank Report, ‘State and Trends of the Carbon
Market 2009’, World Bank, Washington DC, 2009.
The exact number was 11,359 in 2008, 213 fewer
than in 2007 as a result of some smaller installations
being withdrawn from the scheme. Norway, Lichtenstein and Iceland (which are not EU members)
joined the EU ETS in 2008, but no installations in
Norway yet report as part of the scheme. See European Commission (DG Environment), ‘Emissions
trading: EU ETS emissions fall 3% in 2008’, 15 May
2009, http://europa.eu/rapid/pressReleasesAction.
do?reference=IP/09/794&format=HTML&aged=0
&language=EN&guiLanguage=en
The EU ETS has contributed significantly
to a process of shifting responsibility outside of Europe’s borders for the historical
legacy of creating climate change. Cap and
trade presents itself as a system designed to
make it cheaper for corporations to reduce
their carbon emissions, the idea being that
governments give out a limited number of
permits to pollute; the scarcity of such permits should encourage their price to rise;
and the resulting additional cost to industry
and power producers should then encourage
them to pollute less. The empirical evidence
presented here, however, suggests that the
incentives created by the scheme work very
differently – awarding profits to polluters
and encouraging continued investment in
fossil fuel-based technologies while disadvantaging industry focused on transition
away from fossil fuels. This is not an arbitrary product of misapplied rules, we will
show, but a product of how these markets
reinforce existing power relations and hiatuses in economic decision-making.
Shifting the burden
The basic commodity traded within the EU
ETS – carbon permits known as European
Union Allowances (EUAs) – are allocated
Carbon Trading – How it works and why it fails
through political intervention. The EU
ETS covers approximately 11,500 power stations, factories and refi neries in 30 countries
which include the 27 EU member states,
plus Norway, Iceland and Lichtenstein.
These account for almost half of the EU’s
CO2 emissions, covering most of the largest
single, static emissions sources, but excluding direct emissions from road transport,
aviation, shipping, agriculture and forestry.3
The starting point for this allocation process was an agreement within the EU to
ratify the Kyoto Protocol, which set 1990
as the ‘baseline’ against which emissions are
compared. The original 15 EU members, in
Western Europe, were expected to reduce
their greenhouse gas emissions by 8 per cent
compared to 1990 levels by 2012.
At the outset, the expectation for each EU
country was re-adjusted according to a Burden Sharing Agreement, which allowed some
countries to continue increasing their emissions – by up to 27 per cent in the case of Portugal – while others were given stricter limits,
most notably the UK and Germany, which are
the two largest economies within the EU.
Burden sharing is usually presented by the
EU as a redistribution of obligations to help
poorer countries grow their GDP, while the
richer states bear the brunt of reduction requirements. The ‘tough’ obligations on the
UK and Germany take advantage of considerable reductions that were achieved before
the start of the EU ETS, however. In the
case of the UK, the power sector saw a sig3
EU Commission (DG Environment),‘Questions
& Answers on Emissions Trading and National
Allocation Plans’, 8 March 2005, http://europa.eu/
rapid/pressReleasesAction.do?reference=MEMO/0
5/84&format=HTML&aged=1&language=EN&gu
iLanguage=en
Critical Currents no.
nificant shift in capacity from coal to gas in
the early 1990s after most of the country’s
coal mines were closed, while in the case
of Germany, the most significant drop in
emissions came about through the closure of
industry in the former East Germany after
the country’s unification in 1990.4
Moreover, the inclusion of the 12 Central and
Eastern Europe countries that have joined the
EU since the original Burden Sharing Agreement was made have considerably eased the
commitments required of Western European
states under the EU ETS. This bloc of countries has considerably overachieved on its
Kyoto targets (which take 1990 as a baseline
year) as a result of the economic collapse and
industrial restructuring that took place after
the fall of the Berlin Wall in late 1989. The
EU ETS serves to re-distribute this surplus
(commonly called ‘hot air’, since it does not
represent a reduction on the basis of proactive policy adjustments to tackle climate
change), making it easier for countries in
Western Europe, which have increased their
4
The claims made in UN statistics on carbon emissions do not accurately reflect the full impact of a
country’s emissions. Setting aside the considerable
‘outsourcing’ of emissions achieved by production
elsewhere (e.g. in China for a UK consumer market), there are numbers of other holes. In 2005, for
example, the UK government reported emissions of
656 million tonnes of CO2 to the UN. However, its
own national environmental accounts showed emissions for that year of 733 million tonnes of CO2. The
main difference lies in the fact that UN data excludes
aviation and shipping, which have been amongst the
fastest growing sources of UK CO2 emissions. See
John Vidal, ‘Government figures hide scale of CO2
emissions, says report’, The Guardian, 17 March 2008.
A secondary factor in the German case has been a
more proactive renewable energy policy, in particular through the use of ‘feed in’ tariff s. See European
Environment Agency, Greenhouse Gas Emission
Trends and Projections 2008, EEA, Copenhagen, 2008;
Gwyn Prins and Steve Rayner The Wrong Trousers:
Radically Rethinking Climate Policy, London School
of Economics, London, 2007, p.16.
emissions, to make the on-paper ‘reductions’
required of them.
Baseline bingo
The overall cap is only the start of the EU
ETS allocation process. It sets the scale of the
commitments to be made, but says little about
how that will be achieved in practice. The
next, and most significant, step of the process
is for each country to agree on a National
Allocation Plan (NAP). These Plans allocate
targets for all of the individual power plants,
factories and other industrial sites included in
the scheme, which add up to an overall ‘cap’
for heavy polluters in each country.
The method chosen for allocating emissions varies considerably between countries,
and is currently agreed through a complex
negotiation among the European Commission, the executive branch of the European Union, and its member governments.5
However, in the third phase of the scheme,
which runs from 2013 to 2020, this will
be replaced by an overall EU-wide allocation. Proponents argue that this makes the
5
The Commission applies the rules governing the EU
ETS, but these rules themselves are agreed through a
legislative process involving the European Parliament and Council (the latter being the representative
of national governments within the EU system).
Once these are agreed, they need to be passed into
European legislation. The Burden Sharing Agreement that saw the EU agree, collectively, to ratify
the Kyoto Protocol was signed in 2002. The Directive that established the EU ETS was agreed in 2003.
A further Linking Directive was passed in 2004.
This was subsequently revised, with a new Directive
agreed in December 2008 as part of a broader EU
Climate and Energy Package. See European Union,
‘Directive of the European Parliament and of the
Council amending Directive 2003/87/EC so as to
improve and extend the greenhouse gas emission
allowance trading scheme of the Community’, 26
March 2009, http://register.consilium.europa.eu/
pdf/en/08/st03/st03737.en08.pdf
scheme more coherent, which should make
it more effective. However, greater consistency is not necessarily a marker of greater
environmental effectiveness.6
Despite the variations, a few trends in how
emissions allowances are allocated have been
clear from the outset. As Jos Debelke, deputy director general of the EU’s Directorate
General for Environment, which has overall
responsibility for administering the scheme,
puts it, ‘the basic principle has...been to allocate free allowances based on historical emissions, with the negative effect of favoring less
efficient facilities.’7 In other words, the largest
allocations have gone to what have historically been the worst polluters.
A second key trend has been a more stringent
allocation of allowances in the power generation sector than for the other industries
covered by the scheme. The rationale for this
is that energy companies can pass any cost incurred for the scheme on to their consumers,
whereas other industries may face increased
international competition from outside the
EU if it imposes greater costs upon them.
This cost ‘pass-through,’ as we shall see, has
actually proven to be highly profitable for the
power companies. The flip side of the coin is
that the allocations for other industries have
been far more lax – awarding them more
permits than they need to cover their actual emissions, and the ability to profit from
selling this surplus. This is symptomatic of a
6
7
See Belen Balanya Ann,Doherty,, Olivier Hoedemann, Adam Ma’anit and Erik Wesselius, Europe
INC: Regional and Global Restructuring and the Rise of
Corporate Power, Pluto Press, London, 2004.
Jos Debelke, ‘Written statement to Hearing by the
Senate Committee on Finance on “Auctioning
under Cap and Trade: Design, Participation and
Distribution of Revenues”’, 7 May 2009, p.6.
Carbon Trading – How it works and why it fails
third key trend – an overall surplus of permits
within the scheme, exacerbated by the ability
to use large numbers of carbon offsets, which
has further inflated its ‘cap’ on emissions.
Throwing their caps over the mills
There is clear evidence in the fi rst phase of
the EU ETS that too many emissions permits were handed out across the five sectors covered by the scheme: power and heat
generation, oil refi neries, metals, pulp and
paper, and energy-intensive industry (including cement and lime sectors).
When the fi rst emissions data for the scheme
was released in April 2006, it showed an
overallocation of 4 per cent.8 The price of
carbon permits collapsed as a result and never recovered. From a peak of around €30,
the price slid below €10 in April 2006, and
below €1 in the spring of 2007.9
As the UK Parliament’s Environmental Audit Committee reported in October 2007:
‘[M]ost observers believe that too many allowances to emit carbon have been allocated
in phase 1, meaning there is overall little or
no incentive for fi rms to cut back on their
emissions, and thus that the entirety of this
phase is likely to be ineffective in driving
down emissions.’10
Nor was it just the first year of the scheme
that was overallocated. The following table
uses EU data to compare the caps (alloca8
European Environment Agency, Application of the
Emissions Trading Directive by EU Member States – reporting year 2008, EEA, Copenhagen, January 2009, p.14.
9 Ibid.
10 Environmental Audit Committee, ‘Eighth Report:
Impacts of Phase I on UK emissions’, 16 October
2007, http://www.publications.parliament.uk/pa/
cm200607/cmselect/cmenvaud/1072/107205.htm
Critical Currents no.
tions) and the actual (verified) emissions for
the fi rst phase of the EU ETS.11
Overallocation in EU Emissions Trading phase
2005
2006
2007
Total
Allocation
2096.4 2071.8 2153.1 6333
Verified emissions 2014
2035.6 2164.7 6121.9
Over allocation
82.4
36.1
11.6
130.1
% Over allocation 4.1
1.8
0.5
2.1
Source: EU Community Independent Transaction Log. Emissions figures in s MtCO e
The table clearly shows that the EU ETS
consistently allocated more permits to pollute than the actual level of pollution taking
place in its fi rst phase. At the end of phase
1, emitters had been permitted to emit 130
million tonnes more CO2 than they actually
did, a surplus of 2.1 per cent.
The EU’s own explanation of the fi rst phase
of the scheme seeks to present failure as success, claiming: ‘The first trading period successfully established the free trading of emission allowances across the EU, put in place
the necessary infrastructure and developed a
dynamic carbon market.’12 But even the EU
acknowledges, understatedly, the failure to
reduce emissions, which it explains away in
the following terms:
The environmental benefit of the first
phase may be limited due to excessive allocation of allowances in some Member
States and some sectors, due mainly to a
11 Community Independent Transactions Log, http://
ec.europa.eu/environment/climat/emission/citl_
en.htm. Each number is calculated on the basis of the
exact figure, but the table displays rounded figures.
12 EU Commission (DG Environment), ‘Questions
and Answers on the revised EU Emissions Trading
System’, 18 December 2008, http://europa.eu/rapid/
pressReleasesAction.do?reference=MEMO/08/796
reliance on emission projections before
verified emissions data became available
under the EU ETS. When the publication
of verified emissions data for 2005 highlighted this ‘overallocation’, the market
reacted as would be expected by lowering
the market price of allowances.13
Was the initial overallocation in the EU
ETS merely a technical hiccup resulting
from a lack of available data? A comparison
with other emissions trading schemes casts
serious doubt on this view, with the experience of the United States Acid Rain Program, the Los Angeles Region Clean Air
Market (RECLAIM), the Chicago Emissions Reduction Market System (ERMS)
and the Regional Greenhouse Gas Initiative
all showing a similar level of generosity to
polluters at the outset.14
A more plausible explanation of the generous allocation of permits to polluters over
and above their actual levels of pollution can
be found when the corporate influence on
the allocation process is factored in. As the
economist John Kay, writing in the Financial Times, put it, ‘when a market is created
through political action rather than emerging spontaneously from the needs of buyers
and sellers, business will seek to influence
market design for commercial advantage’.15
The record of the fi rst phase of the EU ETS
13 Ibid.
14 Lesley McAllister, ‘The Overallocation Problem
in Cap-and-Trade: Moving Toward Stringency’,
Columbia Journal of Environmental Law, San Diego
Legal Studies Paper No. 08-076, 2008, http://ssrn.
com/abstract=1276405; Michael Grubb, ‘Reinforcing carbon markets under uncertainty’, Climate
Strategies, Cambridge, 4 March 2009, p.1.
15 John Kay, ‘Why the key to carbon trading is to
keep it simple’, Financial Times, 9 May 2006, http://
www.johnkay.com/in_action/441
shows how this interaction played out – with
companies affected by the scheme claiming
that it would adversely affect their ‘competitiveness’ – an argument that had a receptive
audience at the ministries responsible for allocating permits.16
What’s wrong with banking?
Various advocates of emissions trading have
claimed that the price volatility within the
fi rst phase of the EU ETS was exacerbated by the fact that the credits could not be
banked for use in the second phase.17 True,
EUAs’ limited shelf life reduced their value,
yet had banking been allowed in the fi rst
phase of the EU ETS, the carrying over
of an excess 211 million allowances would
have kept bogus ‘reductions’ in the system
for years to come. Despite this obvious
drawback, the EU has lifted the restrictions
on banking in subsequent phases of the EU
ETS. The proposed Waxman-Markey cap
and trade scheme in the US also allows the
banking of credits.18
16 European Union, ‘Directive 2003/87/EC of the
European Parliament and of the Council of 13
October 2003 establishing a scheme for greenhouse gas emission allowance trading within
the Community and amending Council Directive 96/61/EC’, October 2003, article 7, http://
eur-lex.europa.eu/LexUriServ/LexUriServ.
do?uri=CELEX:32003L0087:EN:NOT. Article 7
emphasises the avoidance of ‘distortions in competition’ as a key criterion to be considered when
deciding upon how permits should be allocated.
17 A. Denny Ellerman and Paul L. Joskow, The European Union’s Emissions Trading System in Perspective,
Pew Center on Global Climate Change, Cambridge MA, May 2008, p.41.
18 American Clean Energy and Security Act, Washington,
16 May 2009, p.431, http://energycommerce.house.
gov/Press_111/20090515/hr2454.pdf. Unlimited
banking is established as a basic principle, although
the legislation leaves open the possibility that the
regulator of the scheme can set limits to establish
when a credit ‘expires.’
Carbon Trading – How it works and why it fails
The capacity to bank credits is also a problem in relation to the Kyoto Protocol.
Through a combination of ‘hot air’ credits
– post-1990 reductions from Ukraine, Russia, Central and Eastern Europe – and the
US non-ratification of the Kyoto Protocol,
there is likely to be a significant surplus of
Assigned Amount Units (AAUs, Kyoto reduction units) by 2012. The banking of such
credits would represent a serious loophole
in any post-2012 global climate agreement,
allowing historical reductions as a result of
economic decline and restructuring in the
former Soviet bloc to be counted as equivalent to future domestic actions by the rich,
industrialised nations.19
The widespread use of banking clearly signals the ‘diametrically opposed motivations’
of carbon trading, as Jutta Kill of the Forest and European Union Resource Network
(FERN) explains: ‘The principles of trading
require good liquidity and thus advocate for
banking, but the principle of reducing emissions would advocate against banking as it
delays the transition [away from fossil fuels].
The fact that banking is expanding is a sign
that carbon trading is taking on a life of its
own, decoupled from...the climate objective
used as the justification for setting it up.’20
19 EU Commission (DG Environment), ‘Towards
a comprehensive climate change agreement in
Copenhagen – Extensive background information
and analysis, Part 2’, Brussels, January 2009, p.23.
Russia is currently 29 per cent above its Kyoto Protocol target, while Ukraine was 55 per cent over its
target, according to 2005 data (both countries had a
0 per cent reduction target on 1990 levels).
20 Personal communication, 14 September 2009.
Critical Currents no.
Windfall profits
A further major criticism levelled at the first
phase of the EU ETS is that it generated huge
‘windfall profits’ for power producers, helping
them to make large unearned financial gains
as a result of flaws in the rules rather than any
proactive measures taken to reduce emissions
through structural changes. Exact figures for
the whole scheme are difficult to ascertain,
since they would require a far higher degree
of transparency in financial reporting by energy companies than is currently the case,
but various estimates have been made.21
An inquiry by the UK Parliament’s Environmental Audit Committee found that ‘[it
is widely accepted that UK power generators
are likely to make substantial windfall profits from the EU ETS amounting to £500
million a year or more’.22 The German environment minister cited figures from his own
ministry which showed that the four biggest power producers in his country – Eon,
RWE, Vattenfall and EnBW – would reap
profits of between €6 billion and €8 billion
from the fi rst phase of the scheme.23 Even
Jos Debelke, deputy director general of the
EU’s Directorate General for Environment,
acknowledges that ‘due to its ability to pass
on full costs, including the opportunity
costs of allowances that were received for
free, there were significant ‘windfall profits’
to the power sector.’24
21 J. Sijm, K. Neuhoff and Y. Chen, ‘CO2 cost passthrough and windfall profits in the power sector’,
Climate Policy, vol. 6, no. 1, 2006, pp.49-72. Empirical
studies on Germany and The Netherlands show opportunity cost pass-through rates vary between 60 per cent
and 100 per cent for the wholesale electricity market.
22 UK Department for Food, Environment and Rural
Affairs, ‘Government Response to the Environmental
Audit Committee Fourth Report of Session 2004-5’,
p.6.
23 Kevin Smith, ‘Profiting From Pollution: the G8 and
climate change’, Red Pepper, June 2007.
24 Jos Debelke, op. cit., supra, note 7.
At fi rst glance, this seems somewhat contradictory and cryptic. How can polluters
profit when the value of the credits in the
scheme fell to almost nothing? And what are
‘opportunity costs’ anyway?
The answer lies in how energy companies
account for the costs of the EU ETS. The
costs that are indirectly passed on to consumers through an increase in wholesale energy
prices do not reflect what carbon credits actually cost, but rather what the companies assume they could cost. This leaves considerable
scope for overestimates: first, by assuming a
larger than necessary need to buy permits or
credits; second, by assuming that there will
be a high carbon price; and third, by assuming the costs of replacing EUAs, irrespective
of their actual use of offset credits which have
consistently commanded lower prices. Yet if
these assumptions turn out to be over-generous, the surplus is more often pocketed as
profit than returned to the consumer.
The ‘opportunity cost’ of the EU ETS refers to an economic calculation that is made
once carbon has been registered as an asset
on the company’s books. Irrespective of the
fact that most carbon permits were given out
for free, the power companies treat them as
having monetary worth.25 They then seek
to maximise the value of these permits – so
while the cost passed on to consumers approximates to the cost of reducing emissions
in accordance with a cap, what the company actually does is whatever it considers
to be cheapest – which may be to buy EU
ETS permits from other installations in the
scheme, or buy offset credits instead. By this
means, power companies ‘generate large net
25 A. Denny Ellerman and Paul L. Joskow, op.cit., supra, note 17, p.16. Windfall profits in part arise from
the difference between an ‘opportunity’ cost (the
price permits might be sold for) and an ‘acquisition’
cost (what the company paid for the permits, which
is typically zero at present).
profits at the expense of their customers –
including other sectors in the EU ETS’.26
It may be assumed that this ‘pass-through’
profiteering would at least have one positive environmental side effect – increasing
the electricity prices for industrial users, and
so helping to limit their output. This has
not tended to be the result, however. For
the most part, costs are passed through to
households and small consumers, whilst the
bargaining power of the larger industrial users ensures that they are relatively insulated.
These industries are also generously compensated in other ways by the EU ETS, as
the Carbon Trust points out: ‘[T]he tendency to give energy intensive sectors almost
everything they project they need, in an attempt to compensate for this [pass-through
cost], weakens the incentive effect.’ 27
Playing at the margins
Despite all of these fundamental failings, it
has nevertheless been claimed that the EU
ETS did result in a few emissions reductions.
This argument is based on data showing that
the power sector as a whole needed to purchase some credits, and that a few countries,
most notably the UK, had a deficit of permits
across the whole 2005-2007 period.28 But it is
actually quite misleading to aggregate the results in this way, because the overall shortfall
of permits is explained away by a handful of
large coal-fired power stations which needed
to buy additional pollution rights, while the
vast majority of individual installations had a
surplus of permits.
26 The Carbon Trust, EU ETS Phase II allocation:
implications and lessons, London, May 2007, p.12.
27 Ibid.
28 Frank Convery, Christian De Perthuis and A. Denny
Ellerman, ‘The European Carbon Market in Action:
lessons from the fi rst trading period’, MIT Working
Paper, March 2008, pp.30-32. web.mit.edu/globalchange/www/ECM_InterimRpt_March08.pdf
Carbon Trading – How it works and why it fails
Proponents of the EU ETS argue that flexibility in transfers of permits across national
boundaries within the EU and between different sectors is the fundamental strength of
the scheme, providing the ‘flexibility’ for reductions to be achieved at the lowest cost. In
practice, though, this has offered an ‘escape
hatch’ for companies in the wealthier nations
to avoid making any reductions by buying
permits that are overallocated elsewhere.
The effect was relatively understated in
the fi rst phase of the EU ETS, because the
whole scheme was overallocated, but there
was still a significant proportion of crossborder trade. The UK was the largest importer, with a net import of 17 per cent of
its EUA permits, while Lithuania was a net
exporter of 33 per cent of its surplus to other
countries.29
In the UK case, the ‘shortfall’ of permits
amounted to a few of the largest and dirtiest
power stations needing to reduce emissions
29 R. Trotignon and A. Denny Ellerman, ‘Compliance Behavior in the EU-ETS: Cross Border
Trading, Banking and Borrowing’, 2008, p.9, web.
mit.edu/ceepr/www/publications/workingpapers/2008-012.pdf . The UK Parliament’s Environmental Audit Committee has pointed out clearly
the misleading reporting that follows from this: ‘A
Defra [Department for Environmernt, Food and
Rural Aff airs] press release from January 2007, for
instance, reported that actual emissions for the
whole of the UK were 554.2 MtCO2 in 2005, some
6.4 per cent down on 1990 levels; but that “Adjusted
for emissions trading, UK CO2 emissions in 2005
were about 527 million tonnes – approximately
11 per cent lower than 1990 levels.” To reflect the
impacts of the EU ETS in this case, then, the Government has subtracted 27 MtCO2 from the actual
figures for emissions from the UK for that year.
Our fi rst concern here is that buying emissions
credits from other countries does not necessarily
translate into cutting emissions – whether in those
countries, or in fact anywhere.’ See Environmental
Audit Committee, op. cit., supra, note 10.
Critical Currents no.
or purchase extra allowances. They universally chose the latter route. For example,
‘the surrender data for one of the coal-fired
power plants in the UK that was most short
of allowances show that it acquired permits
from long installations in 19 of the 24 other
EU Member States’.30
The Lithuanian surplus also conceals an instructive story. The EU demanded the closure of Ignalina, a nuclear power plant with
a similar design to Chernobyl, for safety
reasons. Lithuania responded by claiming
that the replacement power generation capacity would come from dirty coal plants
instead, and that it should therefore gain
extra allowances.31 By overstating the CO2
emissions increases that would result from
the closure of Ignalina, Lithuania gained a
large surplus of permits, which were then
sold on and treated as ‘emissions reductions’
in the UK and other countries.32
This problem was compounded by a more
general overallocation, as the Lithuanian
National Audit Office concluded: ‘In Lithuania only 3 installations out of 93 emitted
more CO2 than they received allowances in
2005. Such a situation formed an attitude of
Lithuanian enterprises towards the emissions
trading scheme as some kind of European
Union Assistance, not as an obligation.’33
30 Convery et al., op. cit., supra, note 28, p.12.
31 Ignalina operates two units, one of which was
scheduled for closure between 2005 and 2007, and a
second scheduled for closure by the end of 2009.
32 Lithuania saw the opportunity for an even larger
loophole in the second phase of the scheme, arguing
that a special ‘reserve’ be allocated for this closure.
The EU Commission challenged this aspect of the
Lithuanian NAP. In response, Lithuania has taken
the EU Commission to the European Court.
33 National Audit Office of the Republic of Lithuania,
‘Evaluation of the allocation and trading scheme
of greenhouse gas emissions allowances’, October
2007, p.11.
Phase 2: surviving the crash test
The most common way to insulate optimistic assumptions about emissions trading from
the dismal failure that was the first phase of
the EU ETS is to present it as simply a ‘trial’
or a ‘learning by doing’ phase, with subsequent adjustments assuring that its limitations will not be repeated.34 Supporters of the
scheme claim that caps are now far tighter
– although, as we will show, this claim is disingenuous because the volume of offset credits that can be traded within the scheme is
so great that it actually requires no domestic
emissions reductions to take place.
Stress is laid on the fact that a market was established, while brushing over the awkward
fact that it failed to reduce any emissions.
But if you run a crash test and the vehicle
collapses in a heap, it is generally unwise
to declare this a success and try to drive a
larger vehicle faster the next time out. This
is however precisely what is happening with
the second phase of the EU ETS. Running
from 2008 to 2012, the scheme involves five
new countries, and some additional sectors
– including glass, mineral wool, integrated
steelworks and offshore oil and gas flaring.
France, The Netherlands and Norway have
also included nitrous oxide (N2O), a greenhouse gas not considered in the first phase of
the ETS, in their allocation plans.
Same trick, different phase
It is true that some of the early tricks to
help polluters avoid their obligations cannot be repeated. Better data now exists on
34 A. Denny Ellerman and Paul L. Joskow, op.cit.,
supra, note 17; and Commission Draft Directive Jan
2008.
emissions, making it hard to overstate levels
again. But the underlying susceptibility to
industry lobbying remains backed up by the
‘national interest’ that EU governments perceive in setting their caps as low as possible.
Most EU countries continued to allocate allowances based on historic emissions, disproportionately rewarding heavy polluters,
while even larger profits are projected from
the ‘pass-through’ of costs in the power sector than in the fi rst phase.35 Research by
market analysts Point Carbon and WWF,
for example, calculated that the likely
‘windfall’ profits made by power companies in phase 2 could be between €23 billion
and €71 billion.36 They also found that these
profits tend to be concentrated in ‘countries
with emissions intensive (coal) plants setting
the price the majority of the time’, because
this implies an assumption that the ‘normal’ state of affairs is to pollute a lot, and
so sets a very loose standard against which
all other activity is judged. As a result, the
scheme encourages a continued reliance on
coal in precisely the countries where proactive structural changes in energy production
35 Karsten Neuhoff, Markus Åhman, Regina Betz,
Johanna Cludius, Federico Ferrario, Kristina
Holmgren, Gabriella Pal, Michael Grubb, Felix
Matthes, Karoline Rogge, Misato Sato, Joachim
Schleich, Andreas Tuerk, Claudia Kettner, Neil
Walker, ‘Implications of announced phase II
national allocation plans for the EU ETS’, Climate
Policy, no. 6, 2006, pp.411-422.
36 Point Carbon, WWF, EU ETS Phase II – The
potential and scale of windfall profits in the power sector,
March 2008, http://assets .panda.org/downloads/
point_carbon_wwf_windfall_profits_mar08_final_report_1.pdf. A further report by Ofgem, the
UK government regulator, suggested that UK
power companies alone would gain GBP 9 billion
in windfall profits from the scheme; see National
Audit Office, European Union Emissions Trading
Scheme, NAO, London, March 2009, p.47.
Carbon Trading – How it works and why it fails
should be made most rapidly to avert dangerous climate change.37 Far from setting a
carbon price that makes coal uncompetitive,
then, the EU ETS is supporting a continued
reliance upon it as a power source.
New entrants
New Entrant Reserves (NERs) within the
EU ETS are supposed to ensure that installations entering the scheme for the first time
are not disproportionately affected by it.
However, the allocations for new entrants
actually allow for significant growth in emissions and expansions in fossil fuel extraction.
A study by the UK Carbon Trust found that
the NERs of The Netherlands, Belgium and
France in the second phase of the EU ETS
would allow them to expand their emissions
beyond their Kyoto Protocol targets.38
The allocation of free allowances to new entrants offers a subsidy to polluters that cleaner
energy sources cannot access. The rules set
out in some NAPs exacerbate this problem
– most notably, in Germany, which offers
‘technology-specific’ allowances that give
new coal power stations about twice as many
as gas, and further adds a ‘load factor’ correction, meaning that the most polluting plants
(lignite) are granted an additional 10 per cent
more allowances than less greenhouse gas intensive means of fossil fuel based energy production.39 The UK Carbon Trust has warned:
‘This implicit subsidy creates perverse incentives to construct new, high emitting facilities that would last for decades.’40
37 Ibid., p.2.
38 The Carbon Trust, ‘EU ETS hits crunch time’, 7
November 2006, http://www.carbontrust.co.uk/
News/presscentre/2006/071106_euets.htm
39 The Carbon Trust, op. cit., supra note 26, p.14.
40 Ibid., p.3.
Critical Currents no.
The UK, meanwhile, chose to define ‘new
entrants’ to include ‘installation modifications to enhance the recovery of offshore oil
and gas reserves’.41 One of the largest ‘new’
entrants to date is the Fawley Power Station, which was allocated 3,340,309 permits
in 2008 for the second phase of the scheme.42
The station, which opened in the 1960s,
runs on heavy fuel oil – and verified emissions data show that it has received a massive
overallocation.43
Carbon crunch
The fundamental problem of ‘overallocation’ remains, and has been exacerbated by
the fi nancial crisis. In May 2009, the EU
reported that emissions for sectors covered
by the scheme were ‘3.06 per cent lower than the 2007 level’, claiming that this
was ‘partly due to businesses taking measures to cut their emissions in response to
the strong carbon price that prevailed until
41 UK Department for Business, Enterprise and Regulatory Reform (BERR) ‘New Entrant Reserve
(NER) for Phase 1 of the EU ETS (2005- 2007) –
Q&A’, www.berr.gov.uk/fi les/fi le27005.pdf, p.1.
42 See UK Environment Agency, EU Emissions Trading
Scheme: Summary Report on Applications to the New
Entrant Reserve for Phase II of the Scheme (2008 – 2012),
3 August 2009. http://docs.google.com/gview?a
=v&q=cache:FlnuAbU2Y0IJ:www.environmentagency.gov.uk/static/documents/Business/090803_
Phase_II_NER_Report.pdf+fawley+Summary+
Report+on+Applications+to+the+New+Entrant+
Reserve+for+Phase+II+of+the+Scheme+(2008++2012)&hl=en&gl=uk
43 The EU’s official ETS data source, the Community
Independent Transaction Log lists an allocation of
706,633 for 2008, compared to verified emisisons
of 199,913 – see European Commission, ‘2008
Compliance Data (extract from CITL 12/06/2009
incl. VE for Bulgaria)’, http://ec.europa.eu/environment/climat/emission/pdf/vesu2008public.xls
the economic downturn started’.44 A closer
examination of the numbers shows this to
be disingenuous. The EU’s figures show an
overall reduction in emissions of around 50
million tonnes, but these figures were inflated by over 80 million tonnes of CDM
(and a few JI) credits. In other words, more
than the entire claimed ‘reduction’ was covered by carbon offsets generated by projects
outside of Europe.
The repeated failure of the scheme was exacerbated by the economic downturn. A
price collapse in early 2009 was triggered
by the expectation that the number of permits would again exceed the need to reduce
emissions. EUA prices peaked at €31 in the
summer of 2008, then crashed to €8 in February 2009 before recovering slightly (to
around €14 in September 2009).
What happened, in essence, was that allocations for the second phase of the scheme
were made on the assumption that European economies would keep growing. The
recession has reduced output and power
consumption, leaving companies with a
surplus of permits. Since these were mainly
given out for free, the net effect is directly
opposite to the scheme’s intention: polluting
industries are offered a lifeline in the form
of the option of cashing in their unwanted
permits, while the supposed ‘price signal’
that is meant to change their polluting ways
has been neutered.45
44 EU Commission (DG Environment), ‘Emissions
trading: EU ETS emissions fall 3 % in 2008’, 18
May 2009, http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/794&format=HTML&age
d=0&language=EN&guiLanguage=en
45 The option to ‘bank’ permits means that some
traders will see an advantage in buying at the
current low prices, even if there are relatively few
companies who need to buy to meet the present
requirements of the cap.
Offsetting as overallocation
The economic circumstances surrounding
the price collapse in early 2009 should not
distract from the more fundamental problems of overallocation that remain. As the
UK’s National Audit Office found, ‘The
maximum level of allowable emissions within the EU is higher than the cap’ once offset
credits are taken into account.46 According
to Michael Wara of Stanford University,
‘European-based polluters are likely to buy
so many permits from carbon-reduction
projects based outside the trade bloc that industries will have emitted roughly 1 percent
more in 2008 than they did in 1990.’47
As we will see in more detail in chapter 4,
the claimed reductions achieved by these
offsets are routinely based on unprovable
hypothetical scenarios and take little account of the negative social or environmental impacts of the development model
within which they are embedded.
Once again, the problem starts with the allocation of permits themselves. The UK’s
National Audit Office calculates that ‘in relation to 2005 verified emissions, the maximum use of project credits in phase 2 as set
out in approved National Allocation Plans
would result in an increase in emissions of
seven per cent’.48
46 UK National Audit Office, op. cit., supra, note 36,
p.19. Other policy measures can also infl ate the cap
for EU ETS sectors. For example, The Netherlands
argued that it would meet a significant proportion
of its reductions by increasing the proportion of
biofuels used in road transport.
47 James Kanter, ‘Do Carbon Off sets Cause Emissions to Rise?’, New York Times, 8 May 2009, http://
greeninc.blogs.nytimes.com/2009/05/08/do-carbon-off sets -cause-emissions-to-rise/#more-8281
48 UK National Audit Office, op. cit., supra, note 36, p.19.
Carbon Trading – How it works and why it fails
Officially, EU rules state that each country
should demonstrate that its plans to purchase
CDM or JI credits is consistent with the principle that the majority is ‘supplemental to domestic action’ rather than simply replacing it
outright. They also state that a high government purchase of CDM and JI credits should
be taken into account when establishing the
rules for individual installations within the
country. However, these criteria were routinely flouted by both EU governments and
the EU itself in agreeing National Allocation
Plans for phase 2 of the scheme.
Take the example of The Netherlands,
which is one of the most active government
purchasers of CDM credits within the EU.49
In its NAP for 2008-2012, The Netherlands
stated its intention to purchase 20 million
tonnes of offset credits every year towards its
reduction target.50 This would be equivalent
to outsourcing all of its emissions reductions
commitments during that period.
Further guidance on NAPs states that the
level of government purchases of Kyoto
credits should be taken into account when
setting the rules governing individual installations. In its response to the Dutch NAP,
the EU calculated that The Netherlands had
reached the maximum level allowed, and
that were Dutch-based companies allowed
to buy further offsets this would allow for
49 There is a notable confl ict of interest here, as the
head of CDM purchasing at the Dutch Ministry of
Housing, Spatial Planning and the Environment
(VROM), Lex De Jonge, is also the head of the
CDM Executive Board which is responsible for
issuing credits.
50 The Netherlands’ Ministry for Economic Affairs
and Ministry for Housing, Spatial Planning and
the Environment (VROM), ‘Netherlands national
allocation plan for greenhouse gas allowances 20082012’, p.10.
Critical Currents no.
more reductions to be imported than the
level of the cap itself.51 Having drawn this
conclusion, the EU nevertheless concluded
that ‘the general importance of promoting
the international carbon market’ was more
important than the environmental integrity
of the scheme, and granted Dutch companies the right to purchase further offset
credits (up to a limit of 10 per cent of their
emissions) anyway.52
As a result, the Dutch government has
achieved a ‘reduction target’ that allows emissions within The Netherlands to continue
increasing. This was achieved in three stages.
First, the Dutch government has planned to
cover the whole of its emissions reduction
commitment by purchasing offset credits.
Second, it then allows Dutch-based companies to buy offset credits too. Third, the limit
for offset purchases by these companies is 10
per cent, but the Dutch reduction commitment for the 2008-2012 period is only 6 per
cent.53 The Dutch case is by no means an isolated example, and shows how the ‘caps’ in
phase 2 remain so loose that emissions within
Europe could continue to increase. Given the
circumstances of the economic downturn, it
also allows for the possibility that a surplus of
permits and credits that enter the scheme in
phase 2 could be ‘banked’ to ensure that the
EU’s post-2012 targets far easier to attain.
51 European Commission (DG Environment), ‘Commission Decision of 16 January 2007 concerning the
national allocation plan for the allocation of greenhouse
gas emission allowances notified by The Netherlands
in accordance with Directive 2003/87/EC of the European Parliament and of the Council’, p.15.
52 Ibid.
53 The ‘10 per cent threshold’ specifies the volume of
emissions that can be exchanged for off sets. While
figures vary greatly per installation, this is higher
than the average 6 per cent reduction required
across The Netherlands.
All shall have prizes
Underlying the overall surplus of permits,
there remain significant differences between
sectors regarding the generosity of allocations. The UK National Allocation Plan
provides a clear example, explaining that ‘[t]
he reduction in allowances against business
as usual will be borne entirely by the Large
Electricity Producers...[since] this sector is
relatively insulated from international competition and can pass on the cost of carbon
to consumers’.54 A similar pattern of allocation can be observed across all 27 EU states.
The fl ip side of this is that every other sector
gets a virtually free ride.
It makes more sense, then, to view the EU
ETS as two parallel schemes: one that encourages the power sector to buy extra allowances – which, as we have seen, passes
the notional cost on to consumers to generate large profits for the energy companies
– and another that awards a large surplus of
free permits to heavy industry, requiring no
emissions reductions but allowing them to
sell permits back to the power sector to generate large profits.55
With the majority of permits still allocated
for free, the EU ETS is effectively providing
54 UK Department for Environment, Food and Rural
Aff airs (DEFRA), EU Emissions Trading Scheme,
Approved Phase II National Allocation Plan 2008-2012
p.11. The production of the UK’s NAP was the
responsibility of DEFRA in consultation with the
Department of Trade and Industry.
55 In 2008, the power sector was the major purchaser
of credits, while steel, iron ore, pig iron, paper,
cement, glass and ceramic products remained considerably overallocated – by 28 per cent in the case
of ceramics, pig iron and steel. European Environment Agency, ‘European Union Emissions Trading
Scheme (EU ETS) data viewer’,
http://dataservice.eea.europa.eu/PivotApp/pivot.
aspx?pivotid=473
a subsidy stream for highly polluting industry.
The example of ArcelorMittal, the world’s
largest steelmaker and the holder of the greatest surplus of EU ETS permits, is instructive.
The EU’s own data on emissions showed that
ArcelorMittal’s verified emissions increased
by 6.7 per cent in 2006 and by 15.5 per cent
in 2007, with a downward trend of -8.4 per
cent in 2008 due to the economic crisis. Yet
whether its emissions increased or decreased,
the fact that it was awarded massively more
permits than it would have needed even to
begin reducing emissions remained a constant: a 36.9 per cent overallocation in 2005,
26.9 per cent in 2006, 25 per cent in 2007 and
31.7 per cent in 2008.56
The main economic benefit here is more
straightforwardly linked to the price at
which EUAs sell, since ArcelorMittal has
no use for this excess of permits to abate its
own emissions and is unlikely to do so at
any point soon. Corporate Europe Observatory analysed this data, relating the surpluses to actual EUA prices, and found that
the company is likely to have made over €2
billion in profits from the EU ETS between
2005 and 2008, with over €500 million of
this achieved in 2008 alone – yet has needed
to make no proactive changes to its emissions to do so.57
The contrast between ArcelorMittal’s allocation and its emissions in 2009 is certain to
be even more stark, with the company making temporary plant closures across much of
Europe. Such closures, which hurt the company’s workers to protect its shareholders,
56 D. Leloup, ‘Analysis of ArcelorMittal EU ETS
Data’, 16 May 2009, https://spreadsheets.google.
com/ccc?key=pl52s4qQrteOKP6f Vq6vYFg
57 Corporate Europe Observatory, ‘Steel idol with
green feet of clay: ArcelorMittal, biggest profiteer
of the EU Emission Trading Scheme’, May 2009.
Carbon Trading – How it works and why it fails
currently count within the EU ETS as a
‘mitigation’ strategy, meaning that ArcelorMittal’s receives exactly the same number
of permits for 2009 as it would if its plants
were operating to full capacity. Yet, clearly,
a programme of temporary cutbacks does
nothing to restructure the company’s output
so that it might contribute to a cleaner, less
fossil fuel-dependent future.
Here, again, a large part of the explanation
lies with the fundamental susceptibility of
carbon trading to the influence of corporate
lobbyists. Strong steel lobbies had tilted the
balance of permit allocations, persuading
governments to award more to steel companies and less to utilities, an EU official told
Reuters press agency.58 One industry analyst
was more blunt in their assessment: ‘The
steel sector has received more permits than
it should have... Steelmakers are using the
EU Emissions Trading Scheme (EU ETS)
as a cash cow.’59
Phase 3: more of the same?
In December 2008, the EU agreed significant changes to the EU ETS for the third
phase of the scheme, which runs from 2013
to 2020. New rules set a formal limit on the
use of offset credits; the NAPs have been
scrapped in favour of an EU-wide allocation; and a far greater use of auctioning was
envisaged.
These changes have been promoted as a
further tightening of the cap, with the sug58 Michael Szabo ‘EU steel reaps $1.5 bln benefit from
carbon trade’ Reuters, 9 April 2009, http://www.
reuters.com/article/latestCrisis/idUSL9933905
59 ‘EU mills selling carbon permits as production
falls’, Metal Bulletin, 27 April 2009, http://www.
metalbulletin.com/Article/2187660/Iron/EUmills-selling-carbon-permits-as-production-falls.
html
Critical Currents no.
gestion that this should force greater reductions as well as pushing carbon prices up to
a level that would induce a shift towards
low carbon technologies. Yet a closer look
at how the rules are being set shows that significant loopholes remain with a number of
new ones introduced for the fi rst time. The
banking of surplus credits from the second
phase; rule-waivers for sectors exposed to
international competition (or ‘carbon leakage’ in the jargon); the ability to trade offset
credits widely in non-ETS sectors as part
of a new Effort Sharing agreement; the inclusion of a series of new sectors, including
aviation; the broadening of the scheme to
include the full range of greenhouse gases;
and the increasing complexity of the fi nancial instruments, futures markets and derivatives through which carbon is traded – all
point towards the continued existence of
massive holes in the cap.
Banking
The third phase of the EU ETS is in significant trouble before it has even begun. The
ability to bank permits left unused in phase
2 without limits means that phase 3 could
start with a significant surplus. Projections
based on 2008 data from the EU show that
industrial sectors have been massively overallocated – the cap having been set according to projected growth prior to the recession. These assumptions are reflected in the
New Entrants Reserve, which is an allocation of permits set aside for installations that
are entering the scheme for the fi rst time.
This reserve covers new factories and power
stations, but also includes capacity increases at existing sites.60 With the economic
60 UK Department for Business, Enterprise and
Regulatory Reform (BERR), op. cit., supra, note
41.
downturn delaying such projects, this reserve now offers a significant surplus that
can simply be rolled forward. An analysis
by Sandbag, a campaigning organisation in
favour of the EU ETS but arguing for rule
changes within it, estimates that there could
be up to 700 million surplus permits by the
end of phase 2 – equivalent to 14 times the
‘reduction’ claimed by the EU in 2008.61 If
companies decide to purchase offset credits
and ‘bank’ the surplus of credits for a later
phase of the scheme as well – which would
currently be the cheapest option for compliance – this permit surplus could be supplemented by over 900 million more surplus
offset credits. The ‘bankability of permits
and credits means that nearly 40% of Phase
3 effort could be met by carry-over from
Phase 2’, concludes the Sandbag study. This
would mean that ‘the ETS will not require
domestic emissions reductions for the next
seven years.’62
Sharing the offsets
The inclusion of carbon offsets in the EU
ETS also remains a more general problem.
Although the EU has set a formal limit of 50
per cent on the use of CDM and JI credits
for the third phase of the scheme, this is a
poor measure of the quantity of European
emissions reductions that are likely to be
outsourced, since the ability to bank credits
from phase 2 of the scheme can inflate this
number. In addition, new EU rules called
the Effort Sharing Decision allow companies
operating in sectors outside of the EU ETS
to make significant use of offsets to avoid
making reductions domestically. Using Eu61 Anna Pearson and Bryony Worthington, EU ETS
S.O.S: Why the fl agship ‘EU Emissions Trading Policy’
needs rescuing Sandbag, London, July 2009, p.4.
62 Ibid., p.14.
ropean Commission data and policy statements, the NGO FERN calculated that the
actual emissions reduction required within
the EU between 2013 and 2020 is just 3.9 per
cent compared to 2005 levels, with nearly 60
per cent of this figure coming from offsetting.63 As a result, the EU looks set to remain
a major driver of demand for the creation of
such projects.
Linking the holes
A formal limit on offsets is only as strong as
the weakest link in the chain of linked markets, and one of the key stated aims of EU
climate policy is to connect its EU ETS with
other carbon markets to form an OECDwide carbon market by 2015. At present, EU
rules exclude certain types of credits from
the scheme – including those from Land Use,
Land Use Change and Forestry (LULUCF),
and from hydroelectricity projects that do
not comply with World Commission on
Dams guidelines. Yet, as an EU Parliament
63 FERN, ‘Reducing Emissions or Playing with Numbers?’ EU Forest Watch, March 2009. This is broadly
consistent with an earlier estimate by the Climate
Action Network Europe, which found that a 3.5 per
cent reduction would be required EU-wide by 2020,
with around two-thirds (65.7 per cent) able to be met
by the purchase of offset credits outside the EU. See
CAN Europe, ‘Effort Sharing Proposal: Background Briefi ng’, 8 December 2008, http://www.
climnet.org/Effort%20Sharing%20BRIEFING.pdf.
A further calculation by Greenpeace calculated the
overall reduction as being less than 3.5 per cent, and
the proportion of offsets as 72 per cent. Greenpeace,
‘MEPs must exercise their democratic power and
reject the EU’s ‘effort sharing’ law’, Brussels, 16
December 2008, http://www.greenpeace.org/raw/
content/eu-unit/press-centre/reports/MEPs-mustexercise-democratic-power.doc. The net result is
to undermine significantly the EU’s claim that it
intends to reduce 20-30 per cent of its emissions by
2020 (which, in turn, is already insufficient compared to the scale of reductions that climate science
suggests is required):
Carbon Trading – How it works and why it fails
report admits, the linking of carbon markets
opens the way for credits formally excluded
from the EU scheme to enter it by the back
door, ‘administrators would never be able
to tell whether an incoming allowance has
maybe been freed up by use of an external
trading unit which they themselves would
not accept for compliance.’64
The Waxman-Markey American Clean
Energy and Security Act of 2009, which is
progressing through the US Congress at the
time of writing (September 2009), would allow for 2 billion tonnes of offsets per year,
with up to 1.5 billion of these able to be
generated by international projects. This
is roughly equivalent to 27 per cent of US
greenhouse gas emissions – which could
help the US to avoid domestic emissions reductions until 2026. Were the US and EU
markets to be joined up, this could open the
way for ranching and landfi ll projects, for
example, in the US to be rendered equivalent to reductions made in the EU.65
The potential linkage between the EU
scheme and a proposed Australian Carbon
Pollution Reduction Scheme (CPRS) offers another example of how the EU’s 50
per cent offset limit could easily be circumvented. The CPRS sets no threshold on the
64 Ralf Schüle and Wolfgang Sterk, ‘Options and Implications of Linking the EU ETS with other Emissions Trading Schemes’, March 2008, p.12, www.
europarl.europa.eu/activities/committees/studies/
download.do?fi le=19802. The report authors suggest that fi xed exchange rates or rule harmonisation
could avoid this problem, but the rules for currently
proposed and active schemes suggest that neither
possibility is likely.
65 Payal Parekh, ‘Waxman-Markey Bill: No Cuts until 2026’, International Rivers, 15 April 2009. http://
internationalrivers.org/en/blog/payal-parekh/
waxman-markey-bill-no-cuts-until-2026
Critical Currents no.
inclusion of offsets – allowing for 100 per
cent of reduction commitments to be met
by offsetting. The resulting surplus of credits within the Australian scheme could then
simply be sold on to the EU or US.66
The carbon leakage myth
The new holes introduced as part of the
EU’s Climate and Energy Package also include a series of rule waivers for coal-dependent Central and Eastern European states;
and for industrial producers who claim that
making emissions reductions would render
their products uncompetitive.
Although the EU claims that the scheme
will now be allocated predominantly by auctioning rather than free allocation (known
as ‘grandfathering’), the remaining scope
for the free allocation of allowances remains
significant. Initial results suggest that over
half of the 258 industrial sectors assessed so
far will be counted as at risk of significant
exposure to international competition, and
therefore eligible for free permits.67
A further provision allows EU member
states to ‘temporarily compensate certain
installations... for costs related to green66 An amendment proposed in the course of passing
the Australian scheme through the country’s Senate
illustrates one way that such a process might work –
proposing the inclusion of controversial ‘soil-based
carbon storage’ into the scheme, which could then
be exported as offsets to the US to generate revenues
additional government revenues of up to Aus$2 billion
per year. Tom Arup, ‘Single-desk carbon trade “could
earn billions”’, Sydney Morning Herald, 31 July 2009. At
the time of writing (September 2009), this particular
amendment has been blocked, and negotiations on the
Australian scheme remain deadlocked.
67 ‘Huge array of sectors to get free ETS allowances’,
ENDS Europe Daily, 8 May 2009; see also http://
ec.europa.eu/environment/climat/emission/carbon_en.htm
house gas emissions passed on in electricity
prices,’68 adding a potentially large source of
new subsidies for some of the most polluting
industries.
These concessions were introduced as a
means to avoid ‘carbon leakage’ – the risk
that capping emissions in the EU could lead
to net increases in emissions.69 If industry
decides to relocate from the EU to countries
like India and China where there is no cap
– so the argument runs – the net effect will
be to increase emissions, since the energy
intensity of industrial production in those
countries tends to be higher.
Even though ‘leakage’ could in theory become a problem, the level of concern within
EU policy and lobby circles is out of kilter
with the extent of the problem – whilst ignoring the most salient factors affecting industrial outsourcing decisions.
Producers of steel, cement and aluminium
are among those lobbying most heavily on
the ‘leakage’ question, yet a 2008 International Energy Agency study found that ‘[t]
he EU emissions trading scheme (EU-ETS)
has not, so far, triggered observable carbon
leakage’ in these sectors.70 This fi nding was
backed up by a further study of the fi rst
phase of the EU ETS, which found no evidence ‘demonstrating a correlation between
European carbon prices and a loss of competitiveness’ in the cement, refi ning, iron
and steel, paper and pulp, petrochemicals,
glass, or aluminium sectors.71 Such a pattern
is likely to continue, since carbon prices re68 European Union, 2009, op. cit., supra, note 4, Article 27.
69 Juua Renaud, Climate policy and carbon leakage: impacts of the European Union Emissions Trading Scheme
on Aluminium, OECD/IEA, Paris, 2008 p.2.
70 Juua Reinaud, Issues behind Competitiveness and Carbon Leakage, OECD/IEA October, Paris, 2008, p.4.
71 Convery et al., op. cit., supra, note 28, p.21.
main a relatively marginal factor in infrastructure investment decisions.72
In the steel sector, the EU’s own evidence
suggests that ‘the economics of blast furnace
operation [favour] production close to where
raw materials are situated’.73 Insofar as there
have been shifts in industrial production,
these have tended to favour port locations
for cheaper access to materials mined in the
South, rather than a shift to facilities outside
of Europe itself.74
While there has been a long-term trend towards relocating industry from the EU to
the South, this has been driven by the liberalisation of international trade, and reductions in the marginal cost of international
aviation and shipping – in which the continued availability of unsustainably cheap
fossil fuels has remained a key factor.75
The main function of the ‘leakage’ argument
has been to enable heavy industry to introduce
significant loopholes in both the stringency
of the caps and the allocation of free emissions permits. In the third phase of the EU
ETS, this included a coordinated campaign
72 This relative insignificance results from a combination of low prices and volatility, a pattern that is
unlikely to change because the underlying commodity – ‘carbon’ – is itself highly unstable. Indeed,
this volatility may grow worse under phase 3 of
the EU ETS as non-CO2 gases enter the system in
increased numbers, and new, more complex carbon
derivatives continue to emerge.
73 EU Commission (DG Energy and Transport), The
Market for Solid Fuels in the EU in 2004-2006 and
Trends in 2007, Brussels, 2008, p.16, http://eur-lex.
europa.eu/LexUriServ/LexUriServ.do?uri=CELE
X:52008SC2870:EN:NOT
74 This is the strategy favoured by ArcelorMittal, for
example, which has focused new investments at
coastal locations. See http://www.arcelormittal.
com/index.php?lang=en&page=545
75 Vaclav Smil, Energy at the Crossroads: Global Perspectives and Uncertainties, MIT, London, 2003
Carbon Trading – How it works and why it fails
from most key sectors of European industry.76
‘The real agenda of companies like Mittal/
Arcelor and Lafarge is to get completely off
the hook from EU climate change efforts,’
says Green MEP Claude Turmes.77
Nor is this a line of attack that is restricted to
the EU. Industry lobbyists in Australia have
been shown to be similarly disingenuous in
their claims about carbon leakage.78 In the
US lobbyists have also used arguments about
‘leakage’ and, more straightforwardly, a loss of
‘international competitiveness’ to win a string
of concessions in the Waxman-Markey Bill.79
76 The Key Stakeholders Alliance for EU ETS Review,
‘Lowering Production is no Benefit for the Environment, says European Industry’, Brussels, 21 May 2007.
The group consisted of lobbies from CEFIC (chemical
industry), CEMBUREAU (cement), CEPI (paper),
CERAME-UNIE (ceramics), CPIV (glass), EULA
(lime), EUROCHLOR (chlor-alkali), EUROFER
(iron and steel), EUROMETAUX (metals), IFIEC
(industrial energy consumers), who were critical of
even the possibility that ‘reducing production volume’
should be considered as a mitigation strategy.
77 Claude Turmes, ‘Wolf or sheep? – myth and
realities behind energy intensive industry lobby
efforts to dilute the EU climate package’, EurActiv,
March 2008, http://www.euractiv.com/29/images/
Turmes%20European%20Spring%20Council%20
2008-Background_tcm29-170918.doc
78 Ross Gittins, ‘Carbon trading: big business vote of
no confidence in itself ’, Sydney Morning Herald, 25
August 2008.
79 The ‘leakage’ argument has been raised by a broad
range of industries and associations in the US,
including (but not limited to) the USCAP coalition
of NGOs and businesses, and the steel sector. See
USCAP, ‘Issue overview: energy intensive industries’,
15 January 2009, http://www.us-cap.org/blueprint/
issuebriefs/energy.asp; Robert Guy Matthews, ‘Steel
braces for impact’, Wall Street Journal, 22 May 2009,
http://online.wsj.com/article/SB124286482447141439.
html#articleTabs%3Darticle. In Europe, some of
the most intensive lobbying on the issue came from
German chemical industry. BASF, the largest player
in this market, has also carried ‘leakage’ concerns
across the Atlantic. See Wolfgang Weber, BASF
‘Industrial Competitiveness Under Climate Policies:
Lessons from Europe: statement to the United States
Senate Committee on Foreign Relations’, 8 July 2009,
foreign.senate.gov/testimony/2009/WeberTestimony090708p.pdf
Critical Currents no.
What lies at the root of the ‘leakage’ argument is an idealised conception of ‘free competition’ that is out of kilter with how corporations (or, indeed, national economies)
actually behave. Yet it is strongest in sectors
where competition itself is weak – including
in cement, steel and petrochemicals, where
a few major transnational companies dominate the market. In sum, the leakage argument has been used as a coordinated effort
to ensure that the ‘cap’ on carbon emissions
remains full of holes.80
Aviation
The inclusion of aviation in the EU ETS
from 2012 represents a further significant
expansion of the scheme. The EU incorporated aviation in the EU ETS with a baseline
calculated from 2004-2006 emissions, rather
than 1990 as with the rest of the scheme.
The use of later data means that the aviation
industry can avoid taking responsibility for
the boom in aviation post-1990, which has
been driven forward by the advent of ‘low
frills’ airlines in the EU.81
80 Were ‘carbon leakage’ actually to become a significant problem, another means to tackle it might be
to impose import tariff s. It is notable that the US
has proposed this type of measure in July 2009 in
the course of negotiations for a global carbon treaty.
Although there are circumstances where such tariff s
might be appropriate on environmental grounds, a
strong argument can be made that these should be
weighed against the relative contributions of different states to causing climate change – see Martin
Khor, ‘Moves to tax South’s imports on climate
grounds are unfair’, Third World Network, August
2009, http://www.twnside.org.sg/title2/climate/
briefi ngs/Bonn04/TWN.BP.Bonnaugust1.doc
81 Alice Bows and Kevin Anderson, A bottom-up
analysis of including aviation within the EU’s Emissions
Trading Scheme, Tyndall Centre Working Paper
126, Tydall Centre for Climate Change Research,
Manchester, November 2008, p.18.
Beyond this, it is highly implausible that a
carbon price will affect investment decisions
in the aviation sector. A Tyndall Centre
study found that the likely price of carbon
would add fewer than four cents to a litre of
kerosene – a level that is far lower than the
tax breaks afforded for aviation fuels by EU
governments.82 The same study concludes
that carbon prices would have to rise to a
level of between €100 and €300 per tonne to
have any significant impact on the continued expansion in aviation, conceding that
even this might remain ‘insufficient’. This is
an order of magnitude beyond all estimates
of future carbon prices – and, in the exceedingly unlikely event that the price moved
towards these levels, the record of existing
lobbying around emissions trading suggests
that significant pressure from aviation (and
other industries), which could either force
an upper price cap on the scheme or equivalent exceptions and subsidies.83
There is one major effect that the inclusion
of aviation in the EU ETS is already having, though – giving proponents of aviation
ammunition in their efforts to expand the
sector. The UK government, for example,
argues that emissions increases that would
result from the planned expansion of Lon82 Ibid.; Transport and Environment, Including Aviation
in the EU’s Emissions Trading Scheme (EU ETS), June
2008, p.6. In the UK alone, the zero tax and VATfree status of aviation fuel amounts to an estimated
GBP 10 billion per year. See World Development
Movement, Dying on a Jet Plane, March 2007,
http://wdm.gn.apc.org/sites/default/fi les/dyingonajetplane19032007.pdf
83 On aviation lobbying around the EU ETS, see
Corporate Europe Observatory, ‘Climate Crash in
Strasbourg: An Industry in Denial. How the aviation industry undermined the inclusion of aviation
in the EU Emissions Trading Scheme’, December
2008, archive.corporateeurope.org/docs/climatecrash.pdf
don’s Heathrow Airport will be offset by
the purchase of EU ETS permits from other
sectors.84
Finally, the treatment of aviation within
the EU ETS clearly demonstrates how the
need for a single tradable commodity (carbon) obscures differential environmental
impacts. Emissions from aviation arise from
CO2, as well as significant amounts of nitrogen oxide, water vapour, sulphate and soot
particles, and their impact is compounded
by the formation of contrails. Some studies show these combined impacts to be far
greater than the impact of CO2 alone, yet the
EU ETS would tackle only CO2 emissions
from aviation (even when the scheme as a
whole is extended to these other gases).85 In
effect, the carbon market provides a means
to ‘offset’ aviation with a series of cheaper
reductions in CO2 emissions in other sectors
– but the environmental impacts are vastly
different.
84 See remarks of Ed Miliband, Secretary of State for
Energy and Climate Change, Debate on Aviation,
UK House of Commons, 23 April 2009, http://
www.publications.parliament.uk/pa/cm200809/
cmhansrd/cm090423/debtext/90423-0002.htm
85 European Union, ‘Directive 2008/101/EC of the
European Parliament and of the Council of 19
November 2008 amending Directive 2003/87/EC
so as to include aviation activities in the scheme for
greenhouse gas emission allowance trading within
the Community’, 13 January 2009, article 19. The
EU suggests that its own research ‘indicates that the
total climate impact of aviation could be around
two times higher than the impact of carbon dioxide
alone’ and notes ‘highly uncertain cirrus cloud
effects’. Claiming not to know how to account for
these emissions, the EU adopts what it calls the
‘precautionary principle’ of taking no account of
them at all in its calculations.
Carbon Trading – How it works and why it fails
New sectors, new gases,
greater complexity
From 2013, the EU ETS plans to expand
to cover more greenhouse gases, taking
the UNFCCC defi nition of this term as its
guide.86 Aside from aviation, it plans to additionally cover a range of other new sectors,
most significantly aluminium and a range of
chemical industries which emit non-CO2
greenhouse gases.87
At the outset, the EU ETS was limited to
CO2 emissions from large fi xed sources (especially the power sector) in order to reduce
the uncertainty of calculations. The rationale behind this decision was to ensure that
the marginal, year-on-year reductions that
the scheme sought should be greater than
the margin of error in measurement. This
objective is far from being met, and while
it is true that the effectiveness of any policy
measure (whether or not it involves trading)
is subject to robust measurement, a marketbased scheme exacerbates the problem.88 In
a system where each installation had fi xed
targets, for example, measurement problems
could be isolated and ring-fenced. A flexible, market-based mechanism, however,
allows the worst cases to generate excessive
credits which can then be sold on as equiva86 This UNFCCC currently recognises six greenhouse
gases, but further highly potent F-gases could be
added under terms of a new global climate agreement.
87 For a full listing see European Union, 2009, op. cit.,
supra, note 4, Annex I, pp.3-7.
88 The uncertainty of calculations ranged from 4 to 21
per cent. Suvi Monni, Sanna Syri and Ilkka Savolinen, ‘Uncertainties in the Finnish Greenhouse
Gas Emission Inventory’, Environmental Science and
Policy, no. 7, 2004, pp.87-98.
Critical Currents no.
lent to reductions elsewhere. Moreover,
treating such gases as equivalent reductions
abstracts from how and where those changes
are made.
This is not merely a theoretical problem, as
the example of the CDM shows. The largest
number of credits under this system has not
come from supposed CO2 reductions, but
from projects that claim to reduce HFC23,
a potent greenhouse gas used for refrigeration. Since it is relatively cheap and easy to
reduce this gas, such projects proliferated
as a means to avoid having to make more
expensive abatements. An investment of
around US$ 100 million yielded US$ 4.6
billion in profits for HFC plants, according
to a study in Nature.89
The result is the addition of a new loophole
in the EU ETS: where power producers (the
main purchases of carbon permits) could
previously purchase from overallocated industries or buy CDM credits, they will now
also have the potential to purchase extra
permits through a series of cheap non-CO2
reductions.
There is a significant chance that many of
these will not be reductions at all. Once
multiple gases are introduced in the same
scheme, the norm is to use ‘conversion factors’ to calculate reductions in terms of ‘CO2
equivalence.’ These factors vary over time,
however, and changes can result in large volumes of ‘reductions’ appearing at the stroke
of a pen. The measurement process itself is
also highly imprecise and is conducted by
proxy rather than directly. For example, a
89 Michael Wara, ‘Is the global carbon market working?’ Nature, 8 February 2007.
study in Finland found that measurements
relating to nitric acid production – the most
significant of the non-CO2 greenhouse gas
sources by volume – were ‘the most uncertain industrial source category with an uncertainty of -60 [to] +100%’.90
Expanding the EU ETS to other gases
makes sense from the point of view of carbon traders – for whom a more ‘liquid’ market with larger trading volumes is liable to
yield greater potential profits. Yet it makes
the ‘carbon’ that is traded a still more unstable commodity. The uncertainties involved
in comparing these processes are overlooked
in order to ensure that a single commodity
can be constructed and exchanged.
As the market matures, even this set of
equivalences will become harder to measure.
The EU ETS is already witnessing the development of more complex carbon market
products, which package together permits
and credits from several installations, then
slice these up and resell them. In essence,
this is the same structure that brought the
derivatives market to its knees, and the same
problem: carbon markets involve the selling
of a product that has no clear underlying asset – fertile conditions for the creation of a
new ‘bubble’. Not only do traders not know
what they are selling, but it becomes increasingly meaningless to talk about ‘emissions reductions’ in this context, since what
is reduced on paper is so far removed from
any process of any measurable change in industrial practice or energy production.
Conclusion
A failure to cap emissions once might be
considered an accident, and twice a coincidence – as the saying goes – but a third
failure starts to look like a consistent trend.
In this chapter, we have shown empirically
that the EU’s Emissions Trading Scheme is
not living up to its billing as a means to reduce carbon emissions.
In phase 1 of the scheme, too many permits
were in circulation as a result of over-generous allocations across the board. This problem has been repeated in the second phase of
the scheme, with the ability to trade emissions within the EU for offset credits from
outside the trading bloc the main means of
over-allocation. In both cases, the free allocation of permits to the power sector,
coupled with the ability to pass greater costs
to consumers than have been incurred in
purchasing permits, has resulted in significant profits, while ‘competitiveness’ concerns have seen polluting industries materially benefit from a scheme which, far from
‘capping’ their emissions, offers them a new
source of subsidies. In the third phase of the
EU ETS, some of these loopholes may be
closed, but the increasing complexity and
international linking of the European with
other carbon markets means that others will
be opened – allowing emissions ‘reduction’
permits to continue circulating without a
significant need actually to reduce emissions
domestically.
90 Suvi Monni, ‘Uncertainties in the 200 Finnish
Greenhouse Gas Emission Inventory’, VTT Working Paper no. 5, 2004, p.19.
Carbon Trading – How it works and why it fails
Critical Currents no.
4 » Regenerating responsibility
Introduction
Carbon offsets are not emissions reductions.
Each offset that is developed in the South allows pollution from fossil-fuelled power stations or heavy industry in the global North
to continue over and above reduction limits
while the same companies and industrialised
countries claim compliance with paltry reduction targets on paper. To date, the UN’s
Clean Development Mechanism (CDM) has
actually resulted in an increase of CO2 emissions worldwide – displacing emissions cuts
in the North in favour of offset projects that
have already awarded billions in free subsidies to some of the world’s most polluting
industries.
As the CDM grows, it is increasingly funding new fossil fuel power generation projects, as well as a plethora of renewable energy schemes. Yet, as the case studies in this
chapter will show, even renewable energy
projects cannot automatically be assumed to
be clean or sustainable.
Hydroelectricity and biomass projects,
which are rapidly becoming important
sources of CDM credits, generate significant
side-effects that could have greater climate
change impacts than if they had never happened. In addition, such projects typically
support a development paradigm that is insensitive to the needs of local communities,
including their health, land use and water
requirements.
How the CDM increases emissions
Perhaps the most fundamental point to note
about carbon offsets is that they increase
global emissions rather than decrease them.
Even if an emissions ‘reduction’ sold by an
offset project developer could be verified
as successful, any gain would by defi nition
be nullified by increased emissions allowed
to the buyer, delaying the transition to a
post-fossil fuel economy elsewhere. If every project were designed and implemented
perfectly, the net result would be to move
emissions from one place to another with no
net reduction.
In practice, the CDM is riddled with inadequacies, as this chapter will show. One such
defect lies in that a significant proportion of
projects – anywhere between one-third and
three-quarters – does not represent ‘emissions
Carbon Trading – How it works and why it fails
that gives access to adverts that sell small
scooters and then some entrepreneur
sets up a small petrol depot for the small
scooters and another entrepreneur buys
some wagons instead of using oxen and
the whole thing builds up over the next
20 or 30 years, so it is the same thing.
The additionality test would be, if you
can imagine Marconi and the Wright
brothers getting together to discuss
where they will be in 2009, easyJet and
the internet will be facilitating each other through internet booking. That is the
level of…certainty you would have to
have over that period. You cannot have
that. Society is inherently complex.2
savings’ by any reckoning.1 The companies
behind such projects are paid to do what they
would have done anyway, while the credits
allowed companies in industrialised countries to exceed their emissions cap.
The underlying problem is that emissions
savings are defined as anything that is ‘additional.’ A baseline assumption is made about
what the future would have held without the
project; the CDM is assumed to have altered
the future, and credits are awarded as a result.
Credits from such a scheme are in principle
unregulatable, since they are calculated relative to a claim about what would have happened in the future. The future is impossible
to predict, yet the CDM accords it a false certainty, and even goes so far as to quantify an
exact number of emissions to be ‘saved.’
In addition, the counterfactual ‘baseline’ is
measured against the purported emissions
savings of a carbon offset project, and these
are calculated over 100 years. For example, a
wind farm in India may claim to be generating carbon credits because it is saving on the
burning of fossil fuels. However, as Kevin
Anderson of the Tyndall Centre for Climate
Change Research explains:
...those wind turbines will give access to
electricity that gives access to a television
1
International Rivers Network, ‘Rip-offsets: The
Failure of the Kyoto Protocol’s Clean Development
Mechanism’, 2008, p.3. International Rivers Network found that 76 per cent of the projects approved
by 1 October 2008 were already up and running
by the time they were approved to generate CDM
credits, strongly suggesting that they would all have
happened anyway. As a result of a separate analysis, David Victor of Stanford University concluded
that ‘between one and two thirds of all the total
CDM offsets do not represent actual emission cuts.’
Interview with John Vidal, ‘Billions wasted on UN
climate programme’, The Guardian, 26 May 2008.
Critical Currents no.
Easy pickings
A second assumption underpinning carbon
offsets is that the cheapest reductions should
be made first – with a market-based approach
assumed to be the best means of achieving
this goal. Yet the evidence of how the CDM
and voluntary offsets schemes have performed
to date shows this to be deeply flawed as a
means to tackle climate change or stimulate a
greener development path.
Most CDM offset credits, called Certified
Emissions Reductions (CERs), are generated by projects that contribute nothing to
a transition to a non-fossil dependent society. As of September 2009, three-quarters of
the offset credits issued were manufactured
by large fi rms making minor technical adjustments at a few industrial installations to
eliminate hydrofluorocarbons (HFCs) and
2
UK House of Commons Environmental Audit
Committee, ‘Inquiry into Carbon Budgets’, 23 June
2009, http://www.parliament.the-stationery-office.
co.uk/pa/cm200809/cmselect/cmenvaud/uc616-ii/
uc61602.htm
nitrous oxide (N2O).3 This picture is unlikely to change dramatically by the time
the Kyoto Protocol’s fi rst commitment period expires. By the end of 2012, HFC and
N2O credits are still expected to account for
the largest shares of the CDM (28.5 per cent
and 14.4 per cent respectively), followed by
hydro-electricity projects (10.8 per cent).
Solar power is expected to account for 0.03
per cent of CDM credits by 2012.4
As Michael Wara of Stanford University
puts it:
[T]he CDM market is not a subsidy implemented by means of a market mechanism by which CO2 reductions that
would have taken place in the developed
world take place in the developing world.
Rather, most CDM funds are paying for
the substitution of CO2 reductions in the
developed world for emissions reductions
in the developing world of industrial
gases and methane. Indeed, the industrial
gas emissions that account for one third
of CDM reductions do not even occur
in the developed world...because Annex
B industries [those in developed countries], after recognizing the threat posed
by these emissions and the low cost of
abating them, have opted to voluntarily
capture and destroy them.5
3
4
5
According to Risoe data, 56 per cent of the emissions reductions arise from HFC-23 projects, with a
further 20 per cent from N20 projects. HFC-23s are
a powerful greenhouse gas produced as a byproduct
in refrigerant production.
UNEP Risoe CDM/JI Pipeline Analysis and Database, ‘expected figures’ 135437, www.cdmpipeline.org
Michael Wara, ‘Measuring the Clean Development
Mechanism’s Performance and Potential’, UCLA
Law Review, no. 55, 2008, p.1780.
The key lesson here is that we should be
challenging the claims that markets offer
the cheapest solutions for tackling climate
change, and ask instead: cheapest for whom
and cheapest when? HFC-23 projects have
generated massive profits for a handful of
companies producing refrigerant gases, and
others that use it as a primary feedstock
for production of polytetrafluoroethylene
(PTFE), commonly referred to as Teflon. In
fact, the sale of carbon credits from these
activities rapidly became far more valuable
to the companies than the production of the
refrigerants and coatings that lead to its creation in the fi rst place.6
Various studies even found that the CDM
could even have accelerated the production of these gases, to maximise the credits
generated through capturing them.7 Wara
estimates that a straightforward subsidy to
regulate HFC-23 emissions would have cost
less than €100 million – yet, by 2012, up to
€4.7 billion in carbon credits will have been
generated by such projects.8 A similar story
6
7
8
M. Wara and D. Victor, ‘A Realistic Policy on International Carbon Off sets’, PESD Working Paper
no. 74, 2008, p.11.
Wara and Victor, op.cit, supra, note 6, pp.1786-7; Joint
Committee of UK Parliament on the draft climate
change bill, Final report, Volume I, August 2007.
The CDM board tried, belatedly, to deal with the
perverse incentives to overproduce HCFC-22 (an
ozone-depleting refrigerant and greenhouse gas) in
order to capture and destroy HFC-23 (a byproduct of
HCFC-22 production, which the Intergovernmental
Panel on Climate Change considers to be a greenhouse gas 14,000 times more potent than carbon
dioxide),, by approving only projects that already
had HCFC-22 production capacity in the 2000-2004
period. But Wara fi nds evidence that the suppliers
have, in response, manipulated the base year data to
overstate the inefficiency of their plants and ramp up
production of the gas to receive extra CDM credits.
Michael Wara, ‘Is the global carbon market working?’, Nature, 8 February 2007.
Carbon Trading – How it works and why it fails
could be told about N2O reduction projects,
which generally capture emissions from adipic acid production, part of the process of
manufacturing synthetic fibres like nylon.
Rhodia uses dates from the 1970s. Rhodia
already makes 35 times more money selling
carbon credits than it does from the adipic
acid market.
What was cheap and profitable for the companies cashing in on such projects turns out
to be an extraordinarily expensive subsidy to
a highly polluting industry with a long record
of blighting the lives of local citizens and the
environment surrounding these factories.9
As the world’s largest adipic acid producer,
Rhodia has sought to repeat this trick elsewhere, with a number of similar CDM projects in South Korea and Brazil, where it also
owns factories. In May 2009, Rhodia gained
approval for a similar Joint Implementation
project in southern France.11
Rhodia cashes in
Rhodia, a French chemical fi rm, makes
adipic acid at a factory in South Korea. By
investing US$ 15 million in equipment that
destroys nitrous oxide – an unwanted byproduct – the company is set to produce US$
1 billion in UN-approved carbon credits for
sale to polluting industries in industrialised
countries.10 Nitrous oxide is a greenhouse
gas said to be around 300 times more potent
than carbon dioxide, so Rhodia can generate 310 tonnes of carbon credits just by
burning one tonne of the compound.
The trade does not reduce overall greenhouse gases, because customers buy Rhodia’s credits only so that they can continue to
invest in fossil fuels. Nor does it help Korea
decarbonise: at best, it is irrelevant; at worst,
it encourages the country to build more
dirty industries so that it can make money
by cleaning up later. Nor does the trade encourage green innovation. The technology
9
Nadene Ghouri, ‘The great carbon credit con:
Why are we paying the Third World to poison its
environment?’, Daily Mail, 1 June 2009. http://
www.mailonsunday.co.uk/home/moslive/article-1188937/The-great-carbon-credit-eco-companies-causing-pollution.html
10 Jeff rey Ball, ‘French Firm Cashes In Under UN
Warming Program’, Wall Street Journal, 23 July 2008.
Critical Currents no.
A greener future?
Proponents of the CDM suggest that a new
balance of future projects will gradually give
incentives for cleaner energy production
and more sustainable development. Yet the
evidence does not support this conclusion,
most obviously in relation to the plethora of
fossil fuel projects that are supported by the
CDM. To apply for the scheme, a project
simply needs to prove that it is cleaner than
the norm for existing power production in
the region or country where it is located.
As new plants are generally more efficient
than old ones, this is rarely a difficult task.
A study of new gas-fi red power stations in
China, for example, found that all 24 new
combined cycle gas turbine plants under
construction between 2005 and 2010 had
applied for CDM subsidies.12
The same trick looks set to be repeated with
new ‘supercritical’ coal-fired power plants,
which have been eligible for CDM credits
since autumn 2007 – despite the fact that coal
is amongst the most CO2 intensive sources
of power. Fifteen projects had sought validation under this methodology as of September
11 ‘Rhodia gets Kyoto carbon credits for French
plant’, Reuters, 20 May 2009.
12 Wara and Victor, op.cit, supra, note 6, p.1793.
2009, including the Tata Mundra project, a
complex of coal-fired power plants in Gujarat,
India.13 With the support of the International
Finance Corporation, the private investment
arm of the World Bank, this project claims
that it will emit 3.6 million tonnes of CO2 less
than would otherwise be the case, generating
an estimated US$ 50 million per year from
the sale of carbon credits. Yet the scheme as a
whole is expected to emit 700 million tonnes
of CO2 during its operating life, which is
greater than one year’s greenhouse gas emissions for the whole of the UK.
Instead of supporting clean energy, the CDM
proposes to support a dirty energy source on
the grounds that it is a marginal improvement on the current, incredibly dirty practice. This overlooks the likely emergence
of supercritical technology as a norm for
new large coal-fi red power stations, since its
adoption is in any case backed by other fiscal and policy incentives.14 Further, it sets
up a perversely circular structure. Instead
13 CDM methodology ACM0013, ‘New grid connected fossil fuel fi red power plants using a less GHG
intensive technology’, was devised by Perspectives,
a CDM/JI consultancy founded by carbon market
analyst Axel Michaelowa. The methodology was
approved in September 2007, and 15 projects had
been submitted as of September 2009; see http://
cdmpipeline.org/publications/CDMpipeline.xls
In response to controversy over its inclusion, the
CDM Executive Board has limited its use to 15 per
cent of power generation within any given country.
14 The Indian government is proposing to waive import duties on supercritical technology and income
taxes on revenue generated from supercritical coal
plants. In China, the government has instructed
power companies to choose supercritical plants
rather than subcritical plants because they use less
coal – a policy directive that makes the ‘additionality’ claim attached to such projects highly questionable. See Subhash Narayan, ‘Tax sops for supercritical tech’, The Economic Times, 21 August 2009. http://
economictimes.indiatimes.com/News/News-ByIndustry/Energy/Tax-sops-for-supercritical-tech/
articleshow/4917200.cms ; Wara, op. cit., supra, note
5, pp.1796-7.
of envisaging a rapid transition to clean energy, the CDM is subsidising the lock-in of
fossil fuel dependence through providing
incentives for coal-fi red power stations in
the South, rather than energy infrastructure
based on local needs. With the credits that
these new plants will generate, the CDM is
at the same time encouraging a continued
reliance on coal-fi red power stations in the
North as well.
Why even ‘good’
projects are bad projects
The growth of CDM investment in fossil
fuel power generation is not the whole story,
however, as proponents of the scheme might
still claim that it will expand investments in
‘renewable’ sources at a similar rate.
Typically, the calculations for hydroelectric
projects are that they will replace energy that
would otherwise have been sourced from
fossil fuels. However, a survey of Chinese hydropower projects submitted for CDM validation found that over three-quarters were
expected to start generating credits within 12
months of their validation. Since hydropower plants normally take several years to build,
the likelihood is that most projects were under construction before beginning the CDM
validation process.15 Such projects also create
significant local environmental and social
impacts in their own right.16 The likelihood
of increased emissions of methane (a more
15 Barbara Haya, ‘Letter to CDM Executive Board On
Non-Additional Chinese Hydros’, 12 October 2007,
http://www.internationalrivers.org/node/1892
16 The NGO International Rivers maintains a
non-exhaustive list of controversial CDM hydroelectricity projects: http://www.internationalrivers.
org/en/taxonomy/term/482. See also Tamra Gilbertson, ‘The Bhilangana Dam on Troubled Waters’,
Mausam, vol. 2, pp.3-5, Oct 2008-Sept 2009.
Carbon Trading – How it works and why it fails
potent greenhouse gas than CO2) as a result
of dam building also remains unconsidered
within the CDM approval process.17
A similar assessment could be made of biomass power projects, which tend simply to
count the methane (CH4) emissions that are
avoided because it is burned rather than allowed to biodegrade – without considering
the huge emissions caused by cutting down
forests or draining carbon-rich peatlands to
set up plantations in the first place.
The attempt by carbon offset promoters to
distinguish between ‘good’ and ‘bad’ projects
misses the point, since even the most renewable projects are inserted within a system that
generates credits to carry on polluting elsewhere. But such projects not only perpetuate
the old problems of coal, oil and gas; they
often promote local conflict as well. Not designed to deal with the real complexities and
intricacies of communities and livelihoods,
they require enormous quantities of land,
water, machinery and are not set up to benefit the local communities or ecology. They
generally take place in regions where people
have little political power, thereby deepening
the North-South gap.
The resulting confl icts often come as a surprise to idealists convinced that carbon offset projects – whether set up under the auspices of the Kyoto Protocol’s CDM or under
voluntary private schemes – will bankroll
community-friendly renewable energy and
set the South on a low-carbon path to industrialisation. But as argued in chapter 3, the
carbon market is not designed in a way that
17 Duncan Graham-Rowe, ‘Hydroelectric power’s
dirty secret revealed’, New Scientist, February 2005.
Critical Currents no.
would make the attainment of such goals
possible. Because its purpose is, rather, to
provide cost savings in the achievement of
minimal, short-term abstract emissions targets, it is ineffective in channelling investment to long-term development pathways
that could result in a fossil-free future, with
the market taking no account of community
needs or local environmental impacts when
selecting which projects receive financing..
As the case studies in this chapter will outline, in order to generate carbon credits from
trees or energy crops, plantation companies
have to maintain their hold on land that
citizens may need for other purposes. In order to generate carbon credits from burning
rice husks, developers dismiss local people’s
need of a valuable resource. In order to keep
track of the carbon that their agroforestry
schemes generate, rural development organisations have to divert resources from their
traditional work. In order to obtain carbon
credits for building wind farms, companies
annex land for showcase ‘green’ projects
whose principle purpose is to gain from
tax and depreciation benefits rather than to
generate power, while depriving local communities of common grazing lands.
The confl icts that result from such projects
are inevitable, with the big, highly-capitalised fi rms or agencies that are in the best
position to hire carbon consultants and accountants, liaise with officials or pay the fees
needed for UN registration tending to be
the worst corporate ‘bad citizens’ in many
localities. As a result, common ground exists between communities resisting carbon
offset projects and those suffering from other aspects of the fossil fuel economy.
If most fossil fuels must be kept in the
ground, then renewable energy is going to
become increasingly important to energy
economies and livelihoods worldwide. But
there are blind ways of promoting renewable
energy. The following case studies serve as a
warning of how not to go forward. If renewable projects are embedded inside existing
‘development’ frameworks – North-South
power relations – and used indirectly to
promote more dirty industries, they become
incapable of promoting a future of truly
‘sustainable’ renewable energy.
Reduced Emissions from Deforestation
and Forest Degradation (REDD)
Reducing Emissions from Deforestation
and Degradation (REDD) schemes are
among the most controversial within the
climate debate. The concept assumes that
deforestation happens because too little
economic value is placed on intact forests,
and that providing money for conservation
to forested countries in the South will help
to protect them.18 Yet this idea is challenged
by many Indigenous Peoples (IPs) and forest communities, who warn that putting a
price on forests will encourage further land
grabs by large companies and governments
and that this is already the experience of
some REDD pilot projects. Many IPs and
forest peoples’ organisations stress that the
real drivers of deforestation are the major
construction, mining, logging and planta18 The concept of payments for environmental
services was discussed in the lead-up to the Kyoto
Protocol, but was rejected (see box, ‘Environmental
Services to LULUCF, chapter 2, p. 25). In 2005,
a group of countries, the Coalition of Rainforest
Nations developed a proposal on REDD which was
put forward at the 2007, UNFCCC Conference of
the Parties in Bali (COP 13).
tion developments whose owners stand to
be rewarded by REDD funds.
Several REDD schemes are already underway, some hosted by the UN and the World
Bank, others in response to bilateral agreements between countries.19 A number of
countries, including Ecuador, have started
their own REDD funds, positioning themselves to reap the profits of a new global
climate agreement.20 A number of private
conservation funds and voluntary offset
projects have also established new REDD
schemes.21
19 The Norwegian government has committed US$
600 million a year to REDD; Australia is involved
in REDD projects in Australia and Vanuata; and
the German technical cooperation agency (GTZ) is
setting up projects in Indonesia and Laos.
20 Ecuador is currently seeking donations from
organisations and governments for its new ‘Forest
Partners Program’ (‘Programa Socio Bosque’), set
up to capitalise on future REDD funds. See http://
www.ambiente.gov.ec/paginas_espanol/sitio/
index.html The programme (and a counterpart,
called Socio-Paramo) has been criticised by the
Confederation of Indigenous Peoples from the Ecuadorian Amazon (CONFENIAE, the Ecuadorian
member organisation of COICA). The statement
from the First Congress of Women of the CONAIE
declared: ‘We reject the implementation of the
Socio-Bosque Program and the Socio-Paramo Program because they impose “conservation” without
recognizing our rights to sustainably manage forest
resources according to our needs. We also reject the
proposals to sell the carbon of the Amazonian rainforests’; 28 and 29 August 2009, http://www.conaie.
org/index.php?option=com_content&view=arti
cle&id=50%3Aprimer-congreso-de-mujeres-conaie&catid=1%3Alatest-news&Itemid=50&lang=en
21 These include REDD projects sponsored by NGOs,
including The Nature Conservancy, Conservation
International, WWF US, Environmental Defense
Fund, Woods Hole Research Center, CIFOR, and
the Wildlife Conservation Society – a number of
which have been accused of coercing Indigenous
Peoples to hand over their lands for new REDD
schemes with little or no consultation. See www.
redd-monitor.org and www.wrm.org.uy
Carbon Trading – How it works and why it fails
UN REDD
UN-REDD was set up by the United Nations Development Programme (UNDP),
the United Nations Environment Programme (UNEP) the Food and Agriculture
Organisation (FAO) and the World Bank,
and is currently running pilot projects in
Bolivia, Democratic Republic of Congo,
Indonesia, Panama, Papua New Guinea,
Paraguay, Tanzania, Vietnam and Zambia.
Indigenous Peoples Organisations (IPOs)
note the current lack of a formal consultative process for Indigenous Peoples within
the climate change negotiations as evidence
that REDD will flout the UN Declaration
on the Rights of Indigenous Peoples (UNDRIP), which was adopted by the UN
General Assembly in 2007. More specifically, neglect of rights to Indigenous territories
as well as to free, prior and informed consent (FPIC) granted by the UNDRIP is also
a concern for IPs. It is highly unlikely that
these rights will be recognised by any new
deal negotiated at the UN Climate Conference in Copenhagen in December 2009.
The Framework Document that established
UN-REDD itself admits a range of potential failings – noting that REDD could ‘deprive communities of their legitimate landdevelopment aspirations’ and ‘marginalise
the landless’; that ‘hard-fought gains in forest management practices might be wasted’;
that it could ‘lock-up forests by decoupling
conservation from development’; and that
it might ‘erode culturally rooted not-forprofit conservation values.’22 Yet no real an22 UN-REDD Framework Document, p4-5, www.
undp.org/mdtf/UN-REDD/docs/Annex-AFramework-Document.pdf , Poverty Environment
Partnership (PEP) Policy Brief www.povertyenvironment.net/?q=fi lestore2/download/1874/PEPREDD-policy-brief-Oct-08.pdf
Critical Currents no.
swers to these potential rights violations and
difficulties are offered. It is asserted without
evidence that putting a cash value on forests
will help to avoid deforestation, and that if
this theory proves correct the net result of
the scheme will be beneficial.
This is a symptom of a more general failure
of REDD schemes to take account of the
unjust realities of current land tenure regimes. ‘In many tropical countries, states…
legally defi ne the remaining forests as socalled “state land”,’ explains Tom Griffiths
of the Forest Peoples’ Programme. With
REDD payments administered top-down
by governments, companies and conservation NGOs, the risk is that forest-dependent
peoples would be evicted in order to ‘protect lucrative forest carbon “reservoirs”’.23
World Bank funds
The World Bank’s Forest Carbon Partnership Facility (FCPF) was launched at the
UN Climate Conference in Bali in 2007,
amid protests that demanded ‘World Bank
out of my forest’ and ‘No carbon market for
forests’. The FCPF was initiated without Indigenous Peoples’ input or recognition.
To date, the FCPF consists of two funds, the
Readiness Fund and the Carbon Fund, the
former to support country readiness efforts,
the latter to buy certified emissions reductions
for trading on the carbon market. According to the Indigenous Environment Network
(IEN), ‘the World Bank isn’t waiting for the
UN to adopt a REDD implementation framework: they have moved forward with their
own REDD-type projects through R-PINs
23 Tom Griffiths, Seeing ‘RED’? ‘Avoided deforestation’
and the rights of Indigenous Peoples and local communities, Forest Peoples Programme, June 2007, http://
www.forestpeoples.org/documents/ifi _igo/avoided_deforestation_red_ jun07_eng.pdf
(Readiness Plan Idea Notes) and through its
other carbon and climate funds.’24
By June 2009, 37 countries submitted readiness concept notes, the fi rst 20 of which
have priority status for funding until June
2010. After that date all of the 37 countries
may be eligible for funding.25 In addition,
the World Bank already funds REDD-type
projects through its BioCarbon Fund and
Forest Investment Programme.
The World Bank’s track record on forests and
carbon markets is hardly impressive. During the 1980s, it funded a series of disastrous
commercial logging projects, mega-dams and
road-building programmes that opened the
way to widespread deforestation.26 Mounting
criticisms led to a new forest policy in 1991
which, at least on paper, ended the Bank’s
support for commercial logging, while stressing conservation and local people’s rights. In
practice, though, the Bank continued to incentivise forest destruction through its structural adjustment programmes.
A 2007 study by the International Alliance of
Indigenous and Tribal Peoples of the Tropical Forests documented the ‘servitude’ suffered by Batswa Pygmies under the World
24 Indigenous Environment Network, ‘No REDD!’
booklet, Sept. 2009. www.ienearth.org
25 Bank Information Center, http://www.bicusa.org/
en/Issue.50.aspx . To date, three countries (Indonesia, Panama and Guyana) have submitted Readiness
Preparation Proposals (R-PPs) and are poised to
receive readiness funding once the World Bank has
completed its due diligence and the countries have
addressed concerns raised by the World Bank, an
independent assessment panel and the governing
body of the FCPF.
26 World Rainforest Movement (2002) ‘The World
Bank in the forest’, http://www.wrm.org.uy/actors/
WB/index.html
Bank Ibi-Batéké carbon sink plantation.27
Hailed as an inspiring model for Africa, the
tree plantation grows trees to burn them
for fuelwood and charcoal and claims to be
the Democratic Republic of the Congo’s
fi rst clean development project. However,
Pygmy leaders have repeatedly denounced
the World Bank for funding deforestation of
their ancestral forests, violating their rights,
leading to the destruction of their livelihood
and causing social confl ict.
REDD and carbon markets
The FCPFs ‘ultimate goal is to jump-start a
forest carbon market’, says Benoit Bosquet,
a World Bank senior natural resources management specialist who has led the development of the Facility.28 These are unoriginal
27 International Alliance of Indigenous and Tribal Peoples
of the Tropical Forests report, ‘Indigenous Peoples and
Climate Change: Vulnerabilities, Adaptation, and Responses to Mechanisms of the Kyoto Protocol’, 2007; S.
Makelo, ‘The DRC Case Study: the impacts of carbon
sinks of Ibi-Batéké Project on the indigenous Pygmies
of the Democratic Republic of Congo’, pp.45-74, especially 62-64, http://www.international-alliance.org/
documents/Climate%20Change%20-%20DRC.pdf
.The human rights violations against Pygmies are acute
throughout the country. See also ‘Pygmies beg UN for
aid to save them from Congo cannibals’, http://www.
timesonline.co.uk/tol/news/world/article1135111.
ece. See also World Bank, ‘DRC Ibi Bateke Carbon
Sink Plantation’, http://wbcarbonfinance.org/Router.
cfm?Page=Projport&ProjID=43647 .World Bank documents claim no Indigenous Peoples affected, on pages
4 and 8, http://www-wds.worldbank.org/external/
default/WDSContentServer/WDSP/IB/2009/06/04
/000333037_20090604015605/Original/487470ISDS0
rev1i0Bateke0Box338924B0.doc; ‘Four million dollar
investment from World Bank Carbon Finance’, http://
web.worldbank.org/external/projects/main?Projectid=
P096414&Type=Financial&theSitePK=40941&pagePK
=64330670&menuPK=64282135&piPK=64302772. But
it is worth noting that the Inspection Panel shows the
Bank broke its own rules; see for example, http://www.
bicusa.org/EN/Article.3645.aspx; Forest Carbon
Inventory Project, http://www.forestcarbonportal.
com/inventory_project.php?item=294
28 http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21581819~pagePK:6
4257043~piPK:437376~theSitePK:4607,00.html
Carbon Trading – How it works and why it fails
words. In 1999 the World Bank launched its
first carbon fund, the Prototype Carbon Fund
(PCF) with the aim of creating ‘a short-term
catalyst to jump-start the transfer of finance
for clean energy technologies to developing
countries’.29 What followed, in the form of
the CDM, was anything but such a catalyst.
ing Herald has reported that ‘scores of carbon
traders...have been active in PNG and Indonesia trying to sign landowners’. Tim King,
from the Wilderness Society, said there had
been ‘a tsunami of carbon traders spreading
across PNG. Carbon fi nance and REDD
have triggered a “gold rush” mentality.’32
At the Bali climate negotiations in 2007, the
International Indigenous Peoples Forum on
Climate Change (IIPFCC) warned that ‘[u]
nder REDD, states and carbon traders will
take more control over our forests’. At UN
climate negotiations in Bangkok in September 2009, the IIPFCC stated: ‘[T]he recognition of our rights must be in accordance with
international human rights law and standards
including the UNDRIP and ILO Convention
169, among other human rights instruments.
If there is no full recognition and full protection for Indigenous Peoples’ rights, including
the rights to resources, lands and territories,
and there is no recognition and respect of our
rights of free, prior and informed consent of
the affected indigenous peoples, we will oppose REDD and REDD+ and carbon offsetting projects, including CDM projects.’30
Cap and trade legislation in the US, passing
through Congress at the time of writing,
also looks towards massively increasing the
volume of offsets – with international forest
offsets projected to account for a significant
proportion of US carbon reduction targets.33
The mere prospect of deforestation credits
being recognised in a new US climate bill
has been enough to spark a REDD land
grab in central Africa.34
REDD is already linked to the carbon market, with almost all of the 100 pilot projects
underway assuming that they will be able to
generate offset credits. In Papua New Guinea (PNG), carbon traders are accused of coercing villagers to ‘to sign over the rights to
their forests’ for REDD.31 The Sydney Morn29 www.worldbank.org
30 Press Release International Indigenous Peoples’
Forum on Climate Change, Bangkok, Thailand, 29
September 2009. REDD+ is an addition to include
other forms of biotic carbon stores such as soils and
projects to theoretically increase carbon storage.
See for example www.biofuelwatch.org.uk.
31 Sydney Morning Herald, 3 September 2009, http://
www.smh.com.au/environment/i-am-a-top-foreigner-in-papua-new-guinea-says-carbon-kingpin20090903-fa0m.html
Critical Currents no.
Avoided responsibility
and other criticisms
A number of further criticisms have been
levelled at REDD proposals. The UN definition fails to differentiate between forests
and plantations, which means that companies
could replace intact forests with monoculture
tree plantations and still qualify for REDD
subsidies.35 Such plantations have devastating
impacts on Indigenous Peoples’ and forestdwelling communities’ livelihoods.36
32 Marian Wilkinson and Ben Cubby, ‘Australian fi rm
linked to PNG’s $100m carbon trading scandal’,
Sydney Morning Herald, 4 September 2009. http://
www.smh.com.au/environment/australian-fi rmlinked-to-pngs-100m-carbon-trading-scandal20090903-fa2y.html
33 ‘The Green Gold Rush’, http://www.businessspectator.com.au/bs.nsf/Article/The-big-green-rushpd20090907-VN255?OpenDocument.
34 Point Carbon, ‘Firm Targets US Buyers with
African REDD Credits’, 20 July 2009, http://www.
pointcarbon.com/news/1.1166150.
35 Chris Lang, ‘REDD: an introduction’, http://www.
redd-monitor.org/redd-an-introduction/
36 See for instance the fi lm ‘Our Land Our Struggle’,
http://www.carbontradewatch.org/index.
php?option=com_content&task=view&id=161&It
emid=45; www.wrm.org.uy and the case study on
Plantar in the next chapter.
In addition, REDD schemes tend to reduce complex forest ecosystems to a simple
carbon store – undervaluing them as water
catchment areas and habitats for biodiversity,
as well as their inestimable role in sustaining
livelihoods, cultures and peoples.37
Creating a trade in forest carbon requires an
accounting system far beyond what is technically possible. Significant doubts remain
even about basic matters such as the ability
to measure accurately deforestation rates, to
say nothing of techniques for equating forest
and fossil carbon. As Jutta Kill of the Forests
and the European Union Resource Network (FERN) points out, ‘Carbon in forests is always released into the atmosphere at
some point, as part of a cycle, whereas the
release of fossil carbon is a one-way road.’38
Such concerns were among the reasons for
the limitations placed on tree plantations as
carbon ‘sinks’ within the CDM, and are the
reason why the EU ETS currently excludes
credits from land use, land use change and
forestry (LULUCF).
There is also a serious risk of wide-scale
corruption. Peter Younger, Interpol environment crimes specialist has warned that
‘[f ]raud could include claiming credits for
forests that do not exist or were not protected, or by land grabs. It starts with bribery or
intimidation of officials, then there’s threats
and violence against those people. There’s
forged documents too… Carbon trading
transcends borders. I do not see any input
from any law enforcement agency in planning REDD.’39
37 WAHLI/Friends of the Earth Indonesia, Statement
on REDD, December 2007, http://www.walhi.
or.id/
38 Personal interview, January 2008.
39 John Vidal, ‘UN’s forest protection scheme at risk
of organised crime, experts warn’, Guardian, 5
October 2009.
Despite these warnings, REDD schemes on
the negotiating table at Copenhagen are already being primed for expansion to other
sectors. Under proposals dubbed REDD+
this could include soil carbon and agriculture, with the trade in REDD carbon credits eventually including biochar off sets and
genetically modified crops and trees.
Ultimately, REDD has more to do with
avoided responsibility than ‘avoided deforestation’. The cost-benefit assumption that
‘action to avoid deforestation would be relatively cheap’, in the words of Sir Nicholas Stern, lies behind the drive to include
REDD in a new agreement, irrespective of
the social and environmental consequences.40 For example, the co-organisers of the
Copenhagen Business Summit on Climate
Change suggested that avoided deforestation measures could account for up to half
of the action needed to limit climate change
by 2020.41 This is a boon to power suppliers
and heavy industry, which is keen to fi nd a
cheap source of offsets so that it can avoid
taking action to reduce its own emissions.
But these simplistic schemes to grow money
on trees represent a significant setback for the
complex work of protecting forests through
defending the territorial and other rights of
Indigenous Peoples and forest communities
– who have currently and historically done
the most to protect forest ecosystems.
40 Nicholas Stern et al., Stern Review on the Economics
of Climate Change, HM Treasury, London, 2006,
p.viii.
41 Oscar Reyes, ‘Carbon trading and cash values on
forests cannot curb carbon emissions’, Guardian, 28
May, http://www.guardian.co.uk/environment/cifgreen/2009/may/28/carbon-trading
Carbon Trading – How it works and why it fails
How are CDM projects
registered and credits generated?
The CDM is a project-based system. Projects can be considered separately or as aggregated projects.42
account of the world without the project. As
Lambert Schneider of Germany’s Oko Institute puts it: ‘If you are a good storyteller you
get your project approved. If you are not a
good storyteller you don’t get your project
through.’45
CDM projects must either use a previously
approved methodology or propose a new
one. There are currently (as of September
2009) 124 approved methodologies within the CDM, each of which has been approved separately by the CDM Executive
Board.43 These include a broad range of activities ranging from the capture of greenhouse gases, through to energy production
and efficiency initiatives. With the exception of nuclear power, the CDM is officially
technology-neutral. This has led to the inclusion of various new fossil fuel projects
within the scheme – including huge, ‘supercritical’ coal-fi red power stations (although
‘carbon capture’ is currently excluded).44
Since the PDD documentation is highly
complex, this task tends to be carried out
by specialist ‘project design consultants’.
The largest of these companies is EcoSecurities, which had developed 309 of the CDM
projects successfully registered by September
2009. The same company is also the largest single purchaser of CDM credits, since
its interests lie mainly in trading the credits
rather than in the projects themselves.
Each project wishing to be considered must
fi rst complete a Project Design Document (PDD) to show how it will produce
emissions reductions that would not otherwise have happened (termed ‘additionality’). It should also show that the project will
not simply displace the pollution elsewhere
(‘leakage’). Both of these concepts require
that a hypothetical ‘baseline’ be created – an
The validation process starts with the PDD
being sent to a Designated Operational
Entity (DOE) or validator, whose task it is
to assess the project. At the start of this process, there is a 30-day period where the proposed project is open to public comment.
42 An aggregated CDM project consists either of
several (similar small-scale) projects that can be
grouped together as one project, or of similar or
varying projects that together form a programme.
43 http://cdmpipeline.org/cdm-methodologies. htm
#3; accessed 13 September 2009.
44 Thus far 15 projects have sought validation under
the heading ‘New grid-connected fossil fuel fi red
power plants using a less GHG intensive technology’ (ACM0013) since this methodology was
approved in April 2007. http://cdmpipeline.org/
publications/CDMpipeline.xls, September 2009
Critical Currents no.
A project must then receive approval from
the host country’s Designated National
Authority (DNA), which is usually the
country’s environment or energy ministry,
before being submitted for validation.46
These comments should then inform the
project validator’s recommendations, but
45 Lambert Schneider, presentation at conference on
Review of the EU ETS, Brussels, 15 June 2007.
46 Several countries have implemented new national institutions to streamline the DNA approval
process. One example is the Thai Greenhouse
Gas Organisation established in 2007, to fast-track
CDM projects after investors complained that the
Office of Environmental Policy and Planning (the
original DNA) was too slow, and could thus jeopardise Thailand’s opportunity to ride on the CDM
profit-making bandwagon.
are routinely sidetracked or left unanswered. This is not particularly surprising,
since the validators are private companies
which compete for the business of project
developers – opening up the possibility of
significant confl icts of interest.
validation report are submitted to the CDM
Secretariat, an administrative body attached
to the UNFCCC. They are then passed to
the UNFCCC registration and issuance
team, which reviews the project and can ask
for revisions or reject it outright.
In practice, a handful of companies and state
bodies dominate the validation market –
with the two largest companies, Det Norsk
Veritas (DNV) and TÜV SÜD, accounting
for over half of the projects submitted to
date.47 DNV was temporarily suspended between November 2008 and February 2009
for assigning staff with inadequate technical expertise to evaluate projects, for a lack
of internal audits and a lack of documentation to back up its decisions.48 In September
2009, the third largest validator, SGS UK,
was also suspended by the United Nation
due to similar allegations.49
The project finally passes to the CDM Executive Board, which ultimately decides
on whether the project will be approved.
With 1,792 projects registered, but 2,605
still at a validation stage, it is clear that the
present system is severely stretched. Project developers and traders talk of a ‘bottleneck,’ and are pressuring the UN to relax
the rules.
Once the validator has assessed the project a
request for registration is made. The PDD and
47 Det Norsk Veritas (31.4 per cent) and TÜV Süd
(21.2 per cent), http://cdmpipeline.org/publications/CDMpipeline.xls, September 2009.
48 The toothlessness of this measure is expressed by
DNV’s own press release on its re-instatement
– having served only three of the six months
of its suspension: ‘During the suspension period, validation and verification work relating to
ongoing projects continued as usual. No projects
could, however, be submitted to UNFCCC for
registration or requested for issuance of certified
emissions reductions. Due to the fact that the ongoing projects were progressing normally during
the suspension period, only a limited number of
projects experienced a delay in their validation
and verification processes.’ http://www.dnv.com/
press_area/press_releases/2009/dnvscdmaccreditationreinstated.asp
49 Danny Fortson and Georgia Warrnen, ‘Carbon
trading market hits as UN suspends clean energy
auditor’, The Sunday Times, UK, 9 September 2009.
http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article6832259.ece
To do so, however, misses the more fundamental reasons underlying the creation of a
labyrinthine CDM bureaucracy. As Michael
Wara and David Victor put it in their study
of carbon offsets: ‘Lacking any other source
of information about individual projects and
facing pressure from both developing and
developed country governments, the CDM
Executive Board is prone to approve projects.’ They go on to explain: ‘Asymmetries
of information are rampant; the incentives
mostly align in favor of approval.’50
Once a project is registered, a project must
submit monitoring reports to the CDM
secretariat. These are reviewed by the UNFCCC registration and issuance team, with
the subsequent report sent to the CDM Executive Board for approval. Only after this
process is completed can certified emission
reductions (CERs) be issued – although, in
practice, many will have been traded in advance on a futures market.
50 Wara and Victor,op. cit., supra, note 6, p.14.
Carbon Trading – How it works and why it fails
Flooded – A. T. Biopower case study
Biomass in Thailand51
‘Tell me which industry you can call clean;
I have never seen one.’
Sunthorn Yensook, Nam Song resident
in Hor Krai sub-district in the province of
Pichit, about 200 km north of Bangkok. The
power station is located one kilometre from
the Nan River and has a daily fuel requirement of 500 metric tonnes and a daily water
requirement of approximately 2,200 cubic
metres. It is fed in its entirety with rice husks.
The power plant is surrounded by newly
planted eucalyptus and pine trees.52
Biomass is often considered to be a renewable
resource that uses waste products to generate
electricity. For people who have depended
on this ‘waste’ for either their local economy
or livelihoods it is a different story. What
is waste and who has the right to defi ne it?
Far too often the waste in question already
has a purpose within a local economy. This
case study from Thailand highlights an example of a ‘waste’ product, in this case rice
husks, which is in fact a valuable part of an
existing local economy. It shows that even
small-scale biomass energy projects, which
are allegedly among the better offset projects, also cause pollution and can in effect
be detrimental to the lives and livelihoods
of local residents.
The power station is accredited as a biomass
energy project of the CDM. The A.T. Biopower project was the first CDM project registered in Thailand, and among the first five
for which baseline methodologies were approved by the CDM Executive Board.53 It is
one of 24 registered CDM projects in Thailand, with close to 100 more projects in the
pipeline. The credits generated by the project
are bought by Japan Mitsubishi UFJ Securities, a financial services group, and Chubu
Electric, a Japanese power company which is
registered in The Netherlands to minimise its
corporate tax obligations. Chubu also owns a
34 per cent stake in A.T. Biopower.
A. T. Biopower and the CDM
What waste?
In 2001, A.T. Biopower put forward a plan to
build five rice husk-burning biomass power
stations with the objective of bundling them
together and acquiring CDM financing. The
first station was built in Pichit near the fertile banks of the Nan River in north-central
Thailand. The Pichit power station is a 22
megawatt capacity thermal power plant located next to the community of Sa Luang
Rice husks are a by-product of rice-milling.
They have been used for centuries to absorb
animal droppings, mostly from chickens.
The resultant product is used as an agricultural fertiliser as well as for brick manufacturing. The rice husk and manure mixture
creates a healthy balance of carbon and nitrogen which releases minerals into the soil and
51
This case study research was conducted
by Nantiya Tangwisutijit, Tamra Gilbertson and Ricardo Santos in November
2008.
Critical Currents no.
52 http://www.atbiopower.co.th/power_plant/power_
plant_e.htm
53 Anne Arquit Niederberger and Raymond Saner,
‘Exploring the relationship between FDI flows and
CDM potential’, Transnational Corporations, April
2005.
builds soil content. Rice husks therefore play
a vital role in local small-scale agriculture.
Farmers in the region commented that they
will have to replace this natural fertiliser
with chemical fertilisers because demand
from the power plant has driven up the price
of rice husks, meaning they are no longer
affordable.54 Local chicken farms and brick
factories have to go further away to source
rice husks, destroying a once self-sufficient
system in the region as well as causing local
farmers to become dependent on fossil fuelbased fertilisers.
The A. T. Biopower project claims to be replacing power generation which would otherwise require oil, coal and natural gas. It
also claims that the resulting ash by-product
will be used for cement production, further reducing the environmental impact.
No mention is made of existing uses for
rice husks, which are presented merely as
waste products. This fiction is elaborated on
by the project validator, Det Norske Veritas (DNV), which claims that uncontrolled
burning or dumping of rice husk, without
utilising it for energy purposes, is the predominant current practice.55 No supporting evidence is offered to back this up, and
the wording is simply copied from a standardised text that DNV applies to all such
projects in all countries.56
54 Personal interview with community member
conducted by Nantiya Tangwisutijit and Tamra
Gilbertson, 11 November 2008.
55 See ‘A.T. Biopower Rice Husk Power Project in
Pichit, Thailand’, Validation Report, pp.10 and 27,
http://cdm.unfccc.int/UserManagement/FileStorage/
OUR7L1SX25WD2DXB1BHNCAGCR7PPW1
56 The ‘baseline methodology’ used by the project is
ACM0006 (version 04) –
‘Consolidated baseline methodology for grid-connected electricity generation from biomass residues’.
UNFCCC CDM database. www.unfccc.int/
By assuming that the burning of rice husks
is climate-neutral, talking up the ‘sustainability’ of the project and talking down the
local environmental impacts, the project developers are able to maximise the number of
free offset credits issued to A.T. Biopower.
Over 100,000 CERs have been issued already, and by 2020 it is projected that over
1 million offset credits will have been generated by the project.57 When sold on the
market, these might plausibly fetch between
US$ 10 and US$ 30 each, with each credit
claimed to represent a metric tonne of carbon emissions.
Health and environmental risks talked down
Local residents near the Pichit plant have
complained about respiratory problems and
irritated skin. One local resident said, ‘I feel
itchy all of the time from the dust and I have
to keep my doors and windows closed day
and night.’58
Silica (SiO2) is the main mineral component
of rice husk ash (RHA) (85-90 per cent). It
carries serious health risks, particularly to the
respiratory system.59 Silicosis is an irreversible lung disease which is normally found in
workers at mining operations or rock quarries, but it can also be caused by inhaling
57 UNEP Risoe CDM/JI Pipeline Analysis and Database, http://cdmpipeline.org/
58 Personal interview with residents conducted by
Nantiya Tangwisutijit and Tamra Gilbertson, 11
November 2008.
59 N. Yalçin and V. Sevinç, ‘Studies on silica obtained
from rice husk’, Elsevier Science Ltd and Techna
S.r.l. 2001. This RHA in turn contains around
85-90 per cent amorphous silica. References and
further reading may be available for this article. To
view references and further reading you must this
article.See also www.ricehuskash.com.
Carbon Trading – How it works and why it fails
RHA.60 A few years ago certain villages in
northern Thailand were dubbed ‘villages of
widows’ because of the large number of pestle-and-mortar-making workers who died
from silicosis. China reports 24,000 deaths
per year due to silicosis.61 Residents near the
Pichit plant stated that ‘they were offered as
much ash as they wanted for free because
the company does not want it’.
Increased nitrogen-based fertilisers also have
adverse affects on humans and the environment. High levels of nitrates in groundwater
pose significant risks to ecosystems, and can
cause significant health problems in humans
and fish.62
In addition, ammonia gas (NH3) may be
emitted following the application of inorganic fertilisers and cause emissions of the
greenhouse gas nitrous oxide (N2O). N2O
accounted for 8 per cent of greenhouse gas
emissions in 2005, mostly from fertilisers.
Since N2O is held to be 296 times more potent than CO2, it has a tremendous impact
on the climate.63 Finally, because nitrogenbased fertilisers are generally made from
natural gas, their use entrenches fossil fuel
dependence. Neither the emissions nor the
impact of introducing a new fossil fuel de60 Shuchun Liu et al., ‘Silicosis Caused by Rice Husk
Ashes’, School of Public Health, Harbin Medical
University, no. 38, 1996, pp. 257- 62.
61 http://www.who.int/mediacentre/factsheets/fs238/en/
62 Lynda Knobeloch, Barbara Salna, Adam Hogan,
Jeff rey Postle and Henry Anderson, ‘Blue Babies
and Nitrate-Contaminated Well Water’, Environmental Health Perspectives, no. 108, 7 July 2000,
http://www.ehponline.org/docs/2000/108p675678knobeloch/abstract.html; see also Roots,
Nitrogen Transformations, and Ecosystem
Services, http://arjournals.annualreviews.org/doi/
abs/10.1146/annurev.arplant.59.032607.092932
63 Nicholas Stern et al. Stern Review on the Economics of
Climate Change, HM Treasury, London, 2006, p. viii.
Critical Currents no.
pendence on local farmers are discussed in
the offset project documentation.
Villagers complained of noise pollution when
the power station was being built. In addition, the station was so loud in the first month
of operation that residents living opposite
it complained of having to shout to make
themselves heard. Instead of slowing operations or modifying the engine, the company
responded by offering the villagers ear plugs.
Each time the villagers have complained
about the station, the standard response has
been to offer them gifts to stay quiet.
Local resistance in Nam Song
Nam Song is a river-dependent community
in Phayuha Khiri district, in Nakhon Sawan
province, Thailand. It is located on the fertile flood plain of the Chao Phraya River,
just downstream from where two tributaries
merge at Nakhon Sawan (Heavenly City)
and 50 km from the A. T. Biopower plant
in Pichit. The main source of livelihood is
agriculture, which relies on seasonal flooding. When the water subsides in the dry
season, the fertile banks are planted with
cabbage, broccoli and other seasonal vegetables. When the water is high in the rainy
season, it is used to flood rice paddies, while
aquaculture facilities are constructed on the
river’s edge. Community forests are also an
important resource, providing food, building materials, medicines and high ground
for livestock during seasonal flooding.
Nam Song residents learned in 2001 of A. T.
Biopower’s plans to build a biomass power
plant on a rice field nearby. The residents decided to visit a community that was already
affected by another rice-husk burning power
plant in Wat Sing district, Chainat province,
about 40 km southwest of Nakhon Sawan,
which was owned by another company. One
community leader reasoned: ‘The developers
only told us positive sides about the factory
and we are uneducated so we needed to find
out about the negative sides too.’ Residents
of Nam Song then travelled to Wat Singh,
where the local community was living with
the effects of the power plant. After having
spoken to the residents in Wat Singh and witnessed the impacts on the residents, the Nam
Song residents made a commitment to form
their own opposition.
After months of information-gathering, the
Nam Song community experienced a major
setback when the local sub-district administration agreed to instal the power station in
Nam Song. The Thai government requires
developers to have a public hearing process
with residents before proceeding. At the
public meeting, the local government officials and the company consultants met with
the community and asked them to sign their
names on a piece of paper labelled ‘consultant meeting’. The consultants and local
government officials added names of villagers who were not in attendance. The company showed the list of names to the local
authority, stating that 88 per cent of the 528
villagers who attended the meeting agreed
to the power plant being built. In the meantime, A. T. Biopower placed a deposit on
the plot of land they planned to develop.
This incident provoked the villagers to send
a grievance letter to the local government.
Initially, they were divided over whether the
power plant should be built, which caused
strife in daily life as well as among family
members. Eventually, they resolved to end
their divisions, with the whole community
signing the letter stating their objections
to the meeting and to the proposed power
plant. The villagers then created the Nam
Song Conservation Club to co-ordinate a
full-scale campaign against the project.
The Nam Song Conservation Club began
gathering research with the aid of other
movements and organisations. The villagers
sought to show that the rice field was on a
flood plain and an inappropriate power station site, and that building it so close to where
they lived constituted a threat to the health of
the people and the river. The campaign grew
to include meetings, door-to-door organising
and several rallies of over 700 people outside
the provincial government headquarters.
The developers used several tactics that are
typical in such situations wherein corporations make systematic attempts to disrupt
the local community resistance. Members of
a community in the nearby Pichit province
who also faced the possibility of a new biomass power plant were sent by the company
to bribe the village leaders, offering them
‘compensation’ to stop protesting. All of the
village leaders were threatened by developers and local government, and were told
their lives could be in danger if they continued the campaign. Large bribes were offered, and the villagers were repeatedly lied
to in an effort to destroy their unity.
Despite the project developers investing a
lot of time and energy in their attempts to
persuade the Nam Song community that
the project was beneficial, the community
remained unconvinced. ‘We do not need
factories or development, we live with nature and we like the way things are,’ stated
Carbon Trading – How it works and why it fails
Jongkol Kerdboonma, a member of the club.
Another resident stated: ‘We knew the plant
was bad because it involved money.’ Promises
were made to the community to implement
a development fund and a new health fund.
But the promises were met with skepticism
by local leaders. ‘Which doctor will tell us
that we are sick from the pollution if the doctor is hired by the company?’ they asked.64
Interestingly, the Nam Song community
was never offered any electricity from the
power plant, not even at a subsidised rate.
Each household pays 300 baht per month to
the national grid.
The Nam Song Conservation Club states
three main reasons for their opposition to
the rice husk burning power plant:
- ‘We have lived self-sufficiently on this
river for generations, so why would we
want to destroy the land with pollution
that would be bad for the people and the
environment?’
- ‘We already knew they would dump the
ash in our river, and that it would pollute
the river and the fish.’
- ‘Rice husks are not an agricultural waste
product to begin with. We use them for the
chicken pens, and after they have absorbed
the chicken waste we use this as a fertiliser. If the power station was built here rice
64 The A. T. Biopower website claims that the
company will establish ‘(1) Environmental Impact Protection Guarantee Fund which will pay
compensation for the damages the power plant has
caused to the environment of the community such
as excessively over-standard smog emitted from the
plant’s smokestack; (2) Community Development
and Environment Fund which will support and
develop the education, heath care, occupation for a
better standard of living of people in community’,
http://www.atbiopower.co.th/power_plant/power_
plant_e
Critical Currents no.
husks would be too expensive to use as a
fertiliser, and we would have to switch to
100 per cent synthetic fertilisers.’
The women in the village played an essential
role in fundraising, organising and maintaining trust within the community. They
made handicrafts and sweets to fundraise for
the campaign. They sold t-shirts and sweets
at meetings, which provided an opportunity
to talk with others about the struggle. They
canvassed an area of 10 square km and gathered 4,000 signatures for just one of the rallies at the government headquarters.
The success of the women’s work was such
that they too were targeted and harassed by
the project developers. The developers lied
to the women, telling them that the men in
the village were receiving bribes from the
company. The women were then further
questioned about why they would want to
keep supporting the men if they themselves
were not receiving money as well. The
women’s awareness that this tactic was being
used in an attempt to derail their organising
confi rmed to them the importance of their
work for the continuing struggle.
An open and democratic organising process
helped the community maintain its stamina. One resident stated: ‘We made all of our
decisions together at meetings, which prevented internal confl icts from arising.’ The
residents acknowledged that there were disagreements and tensions during the difficult
phases of the struggle. ‘We would scrutinise
each other, even watch each other and everyone was very tense.’ However, the community continued to organise, reach out for
support, and demonstrate. They received
solidarity and support from other commu-
nity movements, NGOs and the Assembly of the Poor, a large umbrella grassroots
movement involving tens of thousands of
Thai villagers who are affected by unjust
policies and development. The Nam Song
residents said they ‘learned a lot from each
others’ struggles’ and maintained their unity
so that no one accepted the bribes or backed
down from the threats.
After six years of struggle, and with the help
of several outside solidarity organisations,
they were able to approach the National
Human Rights Commission (NHRC) to
request an official investigation. In 2007,
the NHRC recommended that the power
plant should not be built on the grounds
that it was inappropriate to build on the
flood plain, and that it would violate human
rights by polluting the river and damaging
the villagers’ livelihoods.
This intervention would not have happened
without the villagers’ long struggle, as Nam
Song resident Soontan Yentosuk, concluded:
‘We cannot rely on any laws to protect us,
which are no better than a piece of paper, so
we had better protect ourselves.’
Blown away – Wind energy
projects in Satara, Maharashtra65
It is often argued that renewable energy projects within the CDM are inherently ‘good’
projects designed to reduce emissions and
promote local sustainability. Yet renewable
energy ventures are not fundamentally dif65 This case study research was conducted by Nishant
Nandi and Soumitra Ghosh of the National Forum
of Forest People and Forest Workers, India, and
Tamra Gilbertson from CTW/TNI. Sections of it
were published in Mausam, no. 1, July-August 2008.
ferent in nature from other CDM projects.
They often contribute to land grabs and exacerbate local confl icts and pollution, while
continuing to benefit the dirty industries
that buy pollution credits from them.
The following case studies conducted in the
Satara and Supa districts of Maharashra on
the Sahyadri Valleys, Western Ghat, India
serve as a warning of how not to proceed
with renewable energy. There are many
ways to build truly sustainable, small-scale,
renewable energy. However, if projects are
embedded within an institutionalised development framework they tend to inhibit
rather than advance a future of truly ‘sustainable’ renewable energy.
CDM finance for the wind
Since 2007, CDM wind power projects in
India have more than tripled, with over 80
projects registered to date. In fact, wind is
the largest single CDM project type in India, with over 300 project applications in the
pipeline as of September 2009.66
Projects vying for CDM status are obliged
to prove that they provide social, economic,
environmental and technological wellbeing
for local communities, yet the projects described below grossly violate these criteria.
In addition, there are severe environmental
impacts created by the infrastructure needed for the wind energy generators (WEGs),
as well as from the sheer concentration of
wind turbines in a small area. Size, scale
and decision-making power are matters that
have not been addressed.
66 UNEP Risoe CDM/JI Pipeline Analysis and Database, http://cdmpipeline.org/, based on data from
February 2007 and September 2009.
Carbon Trading – How it works and why it fails
Wind power has been developed rapidly
over the last 10 years in the state of Maharashtra, India. In 1996, the Maharashtra
Energy Development Agency (MEDA) initiated a demonstration wind power project
with Suzlon Energy Ltd. which acquired
huge tracts of land in the Satara region with
the purpose of building up wind power infrastructure and selling the power plants
along with the land to other companies at
a minimum price of Rs 50 million (around
€765,000) each. Today the Satara region has
more than 1,000 WEGs owned by MEDA,
Suzlon, Bajaj Auto, Tata Motors and others
on an area of about 40 km squared.
Cheap land and infrastructure coupled with
bulk subsidies at source made the energy financing easy, but the possibility of earning
extra revenue through selling carbon credits
benefited the projects further. Most of the
projects approved for entry into the CDM
already existed prior to entering the scheme,
managing to pass through the Executive
Board despite providing little evidence that
they would not have been built anyway.67
MEDA is a state-run organisation that develops energy projects throughout Maharashtra. It started a ‘demonstration windmill project’ at Chalkewadi village, located
60 km from Satara, in 1996, initially leasing
100 acres of land from villagers for a fiveyear term, and later purchasing the land at
6,000 rupees (Rs 6,000) per acre (around
€88). The apparent success of the project attracted private companies like Suzlon Energy Ltd, which were already one of the
leading suppliers and manufacturers of wind
turbines and related equipment. This project gave way to Suzlon setting up additional
wind energy generators in neighbouring
67 Mausam, vol.1, no. 1, July-August 2008.
Critical Currents no.
villages at the cost of Rs 40-60,000 per acre
(€550-900), within a 20 km radius. Within
only a few years, a once-forested plateau has
been transformed into a barren land packed
with electricity lines, roads, power stations,
plastic garbage and over 1,000 WEGs.
Other investors, mainly from the automobile
and energy industries, began moving into the
region, purchasing the WEGs set up by Suzlon.68 The lure of cheap infrastructure and
bulk subsidies at source drew the companies
to Satara, while the possibility of earning
additional revenue through the sales of carbon credits acted as another strong incentive.
Many companies applied for CDM registration, mainly with aggregated wind energy
projects, but no new WEGs or infrastructure
were set up for the CDM projects – which
raises the question of ‘additionality’ (whether it could ever be verified that the WEGs
would have been developed even if carbon
financing had not been forthcoming).
The private companies operating on the site
sell electricity to Maharashtra State Electricity Board (MSEB) at Rs 3.16 per unit
while they consume electricity provided by
MSEB at a concessional rate of Rs 1.20 per
unit.69 In 2006, Suzlon was investigated by
the Indian tax authorities and found to have
made false depreciation claims on wind
farm equipment to evade taxes, totalling
between Rs 700-1,000 crore (around US$
200 million).
In the case of Satara, second only to Tamil
Nadu in terms of installed capacity, it is es68 The companies include Bajaj Auto, Tata, Encron,
Star, GIO, Sarita Chemicals, WESTAJ RRB, Energy Micon and MTL.
69 The companies include Ellora Time Ltd., Bharat
Forge, Star Gutaka, Sarita Chemical, Westaj RRB,
Energy Micon, MTL.
timated that the region could produce up
to 3,650 megawatts in 28 feasible sites.70 The
plant load factor (PLF) for wind turbines, or
what the turbines actually produce, in India
averages 20 per cent, which is low compared
to global averages. But what is worse, Maharashtra’s average has decreased over the
years from 19 per cent in 2002-3 to a low of
11.7 per cent in 2007-8.71
An investigation of wind energy development in Satara by the Indian magazine
Down to Earth found that
...companies have merrily installed
plants, not to generate power, but to
gain from tax and depreciation benefits.
The business seems a closed loop – the
turbine-maker makes deals with investor companies to set up plants. Nobody
quite knows the cost of a windmill. The
turbine-maker gains and the investor
profits. Indeed, nobody seems really interested in selling power, increasing efficiency and cutting costs.72
This suggests that the subsidies attached to
building wind farms and greenwashing the
effects of owning them are more sought after by the companies than the energy produced by them.
The combination of incentives described
above makes wind turbine projects in Maharashtra an extremely attractive economic
proposition, which do not require carbon
credits to become viable. Both the Indian
government and the Maharashtra government have been providing subsidies and
cheap infrastructure to dirty industries
70 Ibid.
71 Ibid.
72 Ibid.
interested in promoting a ‘green’ image
through ownership of windmills.
Perhaps more unsettling than the lack of
‘additionality’, or the unsavoury carbon accounting that accompanies it, is that the Satara wind energy projects are tarnished by
their unethical and often illegal dealings.
Most notably, local villagers were seldom
paid a fair price for the land acquired, and
more often than not the land was obtained
through evidently fraudulent means.
Tata Group and the CDM
Tata Motors, part of the Tata Group, is the
largest automobile manufacturer in India
with revenues reaching US$ 7.2 billion in
2007.73 It is perhaps most famous for its
release of the Nano in 2008, the cheapest
compact car in the world. Yet Tata Motors also has an atrocious record of human
rights violations, most notably through land
grabs.74 Tata Group has 16 registered CDM
projects, including three wind power projects. These wind projects aim to generate
836,000 tonnes of CO2 credits by 2012.
Sahajanpur Village
Sahajanpur is located 8 km from Supa on a
windy plateau. The village population is
about 200 families (around 1,100 people). A
landless, scheduled-caste community in Sa73 www.tata.com
74 The CPI (M)-led state government of West Bengal
created a Special Economic Zone (SEZ) for Tata
Motors’ Nano project near Singur, which led to
forced evictions of 12,000 families and resistance
by the landless. After ongoing social upheaval
including the rape and burning of a 16-year old
landless girl who had protested in 2006, the Tata
Nano factory was moved to Gujarat in 2008. http://
news.webindia123.com/news/ar_showdetails.
asp?id=712070812&cat=&n_date=20071207
Carbon Trading – How it works and why it fails
hajanpur were surviving until recently on
patches of 78 acres of government land that
was also eventually obtained for wind farms.
Before setting up its wind turbines on these
lands in 2001, Tata made several promises
to the villagers – such as jobs, local tax payments, schools, a health clinic, and toilets in
every house. The PDD states that the villagers willingly gave their lands to the project
developers and that Tata Motors Ltd promised jobs to the residents.
In fact, the people initially resisted the acquisition of their lands. According to an engineer who earlier worked for Ispat, India,
Tata officials picked up a few villagers in
their company vehicles and brought them to
a meeting in Satara. The engineer claims the
Tata officials mentioned the CDM and the
environment to the group, but that no one
understood what they were talking about.
The engineer also stated that there was a
banner on the back wall that read ‘Stakeholders’ Meeting.’
According to local residents the wind power
company hired a few other deed-holding
villagers to prepare documentation for land
acquisition from fellow villagers. The locals
were paid Rs 20,000 per acre (€250), far below the then existing market rate. The company managed to acquire close to 900 acres
of local land from about 80 per cent of the
residents. Before this, villagers stated they
were harvesting two good crops per year
without the use of chemical fertilisers.
Residents tell of how the village leaders were
‘hired’ by the company to trick them into
selling their lands. One resident, 65 years
old, claims he was paid Rs 20,000 per acre
(€250) for his three acres of land and when
Critical Currents no.
he complained about the price the company
officials replied that they were overpaying
because people in Satara were only being
paid Rs 8,000 per acre.
Promising the sky
Tata promised employment in order to lure
the villagers into selling their lands at below market rates, but save for a handful of
security guards, no one in Sahajanpur has
been employed. Without jobs or land, the
prospects for the residents are dim.
The company also promised a new road, vehicles, ponds, and electricity in the temple,
but the residents have received none of these
benefits. Further, the sarpanch (head of the
village council) of Sahajanpur, who was
briefly employed by the company, stated
that the company had not paid the Rs 56,000
tax that it owes to the Gram Panchayat (local government body). The community has
considered taking the company to court.
The company did not provide even basic
information about its aims. Residents were
unaware of the concept of CDM and there
is no evidence of their participation in the
project, contrary to what was stated in the
PDD. Many residents say that they were deceived into selling their lands. Now without
lands or jobs and no alternative source of
livelihood, many people in the region are
forced to migrate in search of work.
The company has reaped significant profits
from the scheme. Tata Motors sold on a proportion of these credits to EcoSecurities, the
largest carbon broker in the world, which
then sold half of these voluntary credits on
the Chicago Climate Exchange (CCX) in
September 2007 for an average price of US$
22.11 per unit, fetching over US$ 3.5 million
through this one sale alone.75
The Tata case is only one of many in the
area, however – with the village of Kadve
Khurd, around 70 km from Satara, facing
similar problems.
Kadve Khurd Village
Bharat Forge Ltd., owned by the Kalyani
Group, is a supplier of engine and chassis
components. To meet electricity demand at its
plant at Pune, Bharat Forge initially planned
to build a 4.2 megawatt wind energy power
project near the village of Kadve Khurd. The
project was registered in the CDM in 2003 for
the period of 2001-2008 with a total estimated
‘emissions reduction’ of 60,315 tonnes of CO2
e. The project was renewed for a six-year cycle
in May 2009 to run until 2015.
The villagers of Kadve Khurd knew nothing about the wind project before Bharat
Forge Ltd began erecting turbines on their
lands. Local residents launched strong resistance to protect their lands, which were
being forcibly acquired. A total of 30 wind
turbines stand in and around the village of
Kadve Khurd today, and the community is
forcibly kept off the lands.
The project occupies 299 acres, largely devottar or temple properties and privately
held farmland. The deal for these lands was
struck with a village headman whose family
has been traditionally holding the land on
75 http://www.tatamotors.com/cop/page5a.php,
Ron Mahabir, ‘Tata Motors Cashes in CERs on
Chicago Climate Exchange (CCX)’ Asia Cleantech,
26 September 2007, http://asiacleantech.wordpress.
com/2007/09/26/tata-motors-cashes-in-cers-onchicago-climate-exchange-ccx/
behalf of the villagers. The villagers had old
colonial-era documents dating back to the
19th century but no ‘official’ and ‘new’ title
to the land. Accordingly, the company did
not compensate them. The local administration refused to hear the villagers’ case, and
in vain they sought justice from the Collector’s Court in Pune. The Collector refused
to stop construction of the wind turbines
and annulled a motion to that effect that had
been passed by a lower court. The company,
with support from the police, responded by
falsly accusing several of the agitating villagers of robbery and equipment theft.
In the village, people view the wind turbines as harmful junk that provides no local
benefits. It supplies neither electricity nor
employment, and destroyed the only common pasture of the village. In addition, the
company wielded a ban on cattle grazing in
the project area.
Villagers at Kadve Khurd have never heard
of the Clean Development Mechanism or
carbon credits.
The story of Shivram Ahare76
The company offered Shivram Ahare, a
resident of Kadve Khurd, Rs 50,000 for his
land. He refused and produced an old map
which proved his rights to the land in addition to a Sanad (grant deed) from the period
of British colonialism, a receipt for payment
of agricultural tax, and the original village
land documents. When all attempts at coaxing and bribery failed, the company threatened to kill Shivram, who then fled the village for two months.
76 Interview with Nishant Mate and Tamra Gilbertson, 14 November 2006.
Carbon Trading – How it works and why it fails
Shivram Ahare fi led his fi rst legal case in
2001 in Tahsil (Block) Court, which declared Shivram’s documents outdated – but
a higher, Sub-Divisional Court later ruled
that construction on his land should stop.
This was subsequently overruled on appeal – a decision which the villagers allege
was subject to bribery. Shivram Ahare was
then given 15 days to appeal against this last
judgement to the High Court, but by that
time all village records had been burnt by
the company’s agents.
Shivram Ahare explains the situation in his
own words:
We showed our documents to the company for our rights to the land and the company then showed us the ‘deed of sale’ to
the land. This document was signed by
someone in Pune and it is a faulty document because no one in the village ever
agreed to this or signed such a thing. All
of us [from the village] tried to stop the
construction and the company went to
the police station in Tanali. The police
would not accept their complaint so they
went to the Umbras police station and
fi led charges against us for property damage of 50,000 rupees and other materials
and for stealing windmill materials.
The police came at 2 am to take 15-20 of
us to the police station. Most were held
for three hours but they kept me for a
day. The lawyer from the company went
to talk to me at the police station but I
refused to cooperate and the police got
angry. They were going to beat me but I
threatened the police and they let me go.
The police said that they forgave me and
let me free.
Critical Currents no.
Later other police officers were sent by
the company to the village to threaten my
life so I fled the village for two months.
The company then stopped work for 14
days and hired a lawyer and made new
papers. The lawyer stated that in 1981
there was a new land accord that we
didn’t know about. I went to the company with the documents and the company
offered me 50,000 rupees for the land,
but I got really suspicious and thought
there was something bigger happening
and then the company took me to court.
I went to the lawyer and sent a notice to
the company. They called me Satura and
offered me 35 lakh rupees just to keep
quiet, just to keep quiet! I refused and
went to court but the company would
not go to court and we are still waiting
for the court decision.
Crushed – Wilmar
Group case study 77
Indonesia emits more human-originated
greenhouse gases than any other country in
the world except for the US and China. But
most of its emissions, unlike those of the US
and China, come from deforestation and the
burning of peatlands cleared for the booming
palm oil industry. Almost half of Indonesia’s
22.5 million hectares of peatlands have already
been logged and drained for palm oil.78
Palm oil is used for food, cosmetics and fuel,
and demand for it is predicted to double by
77 Research conducted by Wiwied Widya Astuti and
Mr. Kaka from Jikalahari, Sumatra, Indonesia, and
Tamra Gilbertson and Oscar Reyes from CTW/TNI.
78 A. Hooijer, M. Silvius, HJM Wosten, ‘Peat –CO2,
Assessment of CO2 emissions from drained peatlands
in SE Asia’, Delft Hydraulics Report Q3943, 2006.
2030 and triple by 2050.79 International players include giant corporations like Cargill,
ADM-Kuok-Wilmar and Synergy Drive,
which is the biggest palm oil trader in the
world, exporting to Northern giants such as
Cadbury’s, Nestlé and Tesco.
The province of Riau covers 9 million
hectares, about the size of Portugal, with
4 million hectares of peatlands storing 14.6
gigatonnes of carbon.80 Burning all of these
peatlands would release the equivalent of one
year’s global carbon dioxide emissions, or
five years’ worth of emissions from all fossil fuel power plants.81 Riau holds a quarter
of Indonesia’s palm oil plantations, one-third
of the concessions being sited on peat. Riau
was once mostly dense forest, but half of the
remaining area could soon be converted to
palm plantation if government plans are realised in the next decade.82 According to the
World Bank, between 60 per cent of lowland
79 FAO, 2006. See also ‘World palm oil production’,
OECD Statistics, 2007. The OECD predicts a doubling of production on 2000 levels by 2015.
80 S. Ritung Wahyunto and H. Subagio, ‘Peta Luas
Sebaran Lahan Gambut dan Kandungan Karbon di
Palau Sumatera’ (Maps of Area of Peatland Distribution and Carbon Content in Sumatera, 1990-2002),
Wetlands International, Indonesia Programme &
Wildlife Habitat Canada, 2003.
81 Greenpeace, ‘How the Palm Oil Industry is Cooking the Planet’, Amsterdam, November 2007.
82 M. Colchester et al., ‘Promised land: Palm oil and
land acquisition in Indonesia: Implications for local
communities and Indigenous People’., Hrsg. Forest
People Programme, Perkumpulan Sawit Watch,
HuMA and the World Agroforestry Center,2006.
Provincial governments are even more ambitious
in terms of oil palm expansion, planning for an
additional 20 million hectares. Nearly 80 per cent
of the expansion is planned for Sumatra and Kalimantan, with most of the remainder, some 3 million
hectares, in Papua, Indonesia’s largest remaining
region of intact rainforests. Nearly 40 per cent of
the expansion in Sumatra – some 3 million hectares
– is earmarked for the province of Riau.
rainforest of Kalimantan and Sumatra was
destroyed between 1985 and 1997, the expansion of palm oil plantations being the main
culprit.83 Between 1995 and 2005, the amount
of Indonesian land being used to grow oil
palm increased by some 8.6 million acres (3.5
million hectares), more than doubling the total plantation area, according to a report by
Credit Suisse, an investor in expansion.
Palm oil production has ironically sparked
more fi res in Riau in the course of meeting
the global demand for what is being pushed
as a solution to climate change, and big
commodity traders have already made plans
to expand biodiesel infrastructure still further in Indonesia. However, using agrofuels
to substitute for even a mere 10 per cent of
the worldwide demand for diesel fuel in the
transport sector would require more than
three-quarters of total current global soya,
palm and rapeseed oil production.84
Back doors and secret passageways
Murini Samsam, located near Pelintung,
Riau, is a subsidiary of Wilmar International
Ltd, Asia’s largest agribusiness group, which
has a long record of human rights abuses and
83 D. Holmes, ‘Deforestation in Indonesia: A View of
the Situation in 1999’, World Bank, Jakarta. Draft
Report, 3 July 2000.
84 Greenpeace, op. cit., supra, note 82. Ten per cent of
global mineral diesel used in 2005 = 60.1 million
tonnes. Given that the energy content of 1 tonne
of diesel is equivalent to 1.1 tonnes of vegetable
oil, 66.1 million tonnes of vegetable oil would be
needed to replace 60.1 million tonnes of mineral
diesel. Therefore, 66.1 million tonnes of vegetable
oil would be the equivalent of 76 per cent of global
production of soya, palm and rapeseed oil production in 2005/6.
Carbon Trading – How it works and why it fails
other social and environmental scandals.85
Although palm oil is not specified as a renewable energy or resource within the CDM
guidelines, the factories that crush the seeds
to make oil can register for CDM financing
under ‘biomass’ or ‘cogeneration’ methodologies. At the time of writing there are 47
registered CDM palm oil projects, with a
further 55 at the validation stage and three
under review.86 Most of these projects are in
Malaysia and Indonesia. As with all CDM
projects, the manner in which the palm oil is
grown, sourced and used as a final end product – and the related greenhouse gas emissions – is not taken into account. Crushing
85 In the summer of 2007, the Wilmar Group formed
a US$ 4.3 billion merger with Archer Daniel Midland Asia Pacific (ADM) and its subsidiaries to become Asia’s leading agribusiness group and the largest palm oil biodiesel manufacturer in the world.
See Press Release, ‘Wilmar secures all approvals for
US$4.3 Billion Merger and Acquisitions’, Wilmar
Group, Singapore, 22 June 2007. The company
has a chequered history, however, which includes
alleged human rights abuses, dodgy land acquisition
deals and biodiversity scandals. In September 2009,
the International Finance Corporation (IFC), the
private fi nance arm of the World Bank Group, was
forced to admit that it violated its own standards by
investing in the Wilmar Group and froze new investments in oil palm projects. The IFC announced
on 28 August 2009 that it was currently suspending
all investments into large-scale palm oil operations. This follows a formal complaint to the IFC
lodged by a number of environmental NGOs in
August 2007, which stated that the Wilmar Group
were illegally using fi re to clear primary forests and
high conservation value areas, in addition to seizing Indigenous Peoples’ land without free, prior,
and informed consent. Perkumpulan Sawit Watch,
Lembaga Gemawan, Kontak Rakyat Borneo
(Indonesia), The Forest Peoples Programme (UK),
Friends of the Earth (Netherlands), with 18 other
concerned NGOs and local organisations. See Forest Peoples Programme, http://www.forestpeoples.
org/documents/ifi _igo/ifc_wilmar_update.shtml.
See also World Bank Correspondence, http://www.
ifc.org/ifcext/agribusiness.nsf/AttachmentsByTitle/
Colchester_et_al_August_28_2009.pdf/$FILE/
Colchester_et_al_August_28_2009.pdf
86 UNEP Risoe CDM/JI Pipeline Analysis and Database, http://cdmpipeline.org/ September 2009.
Critical Currents no.
facilities have applied for emissions reduction credits mostly by using two methodologies. After the seeds are crushed, the fruit is
converted into a viscous run-off and either
dumped or held in wastewater facilities. In
these cases, the factories claim to capture
methane in wastewater holding ponds by
covering the area with plastic and catching
the gas. Another approach companies use to
claim emissions reductions is through installing steam turbines in the production process
and cogeneration methodology.
Murini Samsam operates a palm kernel
crushing facility with the purpose of producing crude palm oil for export. The company entered the CDM market by means of
a biomass energy project, which intends to
generate power for the factory from palm
oil solid waste.
The project was registered to start generating carbon credits in January 2006 for a
10-year period, with over 500,000 CO2 e
reductions expected by 2016.87 Murini Samsam would therefore expect to fetch around
US$ 8 million for installing a 9.7 megawatt
boiler and condensing steam turbine, which
uses palm kernel shells and palm kernel fibre
left over from the crushing process.88
The PDD uses a lot of language to present
a green face for the project. ‘The construction of a new boiler and condensing steam
turbine running on biomass for the production of electricity for the processes of MSS
has [made] a significant contribution to the
sustainable development of the company.’89
87 As of September 2009, the project was still subject
to a delay in issuing the fi rst credits.
88 Project Design Document, Small-scale CDM
Project: MSS Biomass 9.7 MWe Condensing Steam
Turbine, Version 1.2; 25 April 2006
89 Ibid.
But nowhere does the company address the
greater environmental or social impacts of
the palm oil plantations.
A win-lose scenario
The Murini Samsam factory is located
about 4 km from Balai Raja, a wildlife conservation area widely known as a reserve
protecting the few remaining elephants in
the region. Local residents state that when
the palm oil industry expanded there were
increased incidences of confl icts in the region because the local people and animals
were increasingly crowded out. It is estimated that 90 per cent of the original forest inside Balai Raja has been destroyed as a
direct result of palm oil expansion.90 Local
communities plant palm oil because their
lands have been taken through government
concessions given to the companies; yet it
is they who are blamed for illegal logging
and palm oil expansion. The real drivers of
deforestation are rewarded with land concessions and big money.
In Riau, 70 per cent of the land belongs to
the plantation industry and 23 per cent is
allocated as protected forest. Communities
are squeezed between the palm oil industry
and government-led land conservation efforts. According to a local researcher, communities often choose to struggle against
the government since otherwise ‘they will
have a war with the companies, the companies will attack the communities, and there
will be many human rights violations. The
villagers use the wildlife conservation area
to survive and as a result get into confl ict
with the government instead.’91
90 Interview with members of Jakalihari with Tamra
Gilbertson and Oscar Reyes, December 2007.
91 Filmed interview with researcher from Kabit Riau,
with Tamra Gilbertson, December 2007.
Palm oil plantations create major social
problems, such as poor working conditions
on the plantations and in the factories as
well as land rights confl icts with the resident population.92 Workers at the Murini
Samsam factory stated that they work seven
hours a day, six days a week and a half-day
on the seventh. Some workers do double
shifts. Workers are paid 800,000-1,000,000
Rupiahs (US$ 80-100) per month. They
stated that they have had many confl icts
with the company but were not organised
enough and were forced to stop. They also
reported frequent accidents such as burns.
In one case a worker lost his arm.93
Agrofuels in the CDM
Biodiesel is listed as a sub-type category under biomass methodology within the CDM
framework but to date no projects have been
registered. At the time of writing, three
projects have been withdrawn and four are
at the validation stage.94
Another home for agrofuel projects is the
transport sector. There is currently one project that receives CDM funding by powering
public transport with used vegetable oil and
several more projects are at validation stages.95
As with all methodologies in the CDM, when
one delinquent project methodology is set in
motion it paves the way for others to follow.
In mid-October 2009 new biodiesel methodology (ACM0017) passed through the CDM
executive board. This dangerous inclusion
92 M. Colchester et al., op. cit., supra, note 83.
93 Personal interviews with workers at the Murini
Samsam factory, Dec. 2007.
94 UNEP Risoe CDM/JI Pipeline Analysis and Database, http://cdmpipeline.org/
95 Ibid.
Carbon Trading – How it works and why it fails
paves the way for agrofuels from seeds to
qualify for CDM credits. Eligible fuels, the
technical document states, are ‘waste oil/fat
and vegetable oil that is produced with oil
seed from plants that are cultivated on dedicated plantations established on lands that
are degraded or degrading at the start of the
project activity’.96 How degraded lands are
defined remains open to debate.
It is unknown if the palm oil factories that
currently receive CDM fi nancing specifically produce agrofuels to be burned in the
North because public records of the palm
oil supply do not differentiate specific uses –
whether the oil is used for food, cosmetics,
or fuel.
What is clear, however, is that the CDM is
designed to look only at a snapshot within a
moving picture and assesses reductions based
on this dissected reality. The marginal ‘emissions savings’ generated by such projects obscure the far larger destructive picture.
Burned – Plantar SA case study 97
Introduction
Plantar SA is a pig-iron and plantation company whose CDM project in the state of
Minas Gerais, Brazil, was one of the first to
be supported by the World Bank Prototype
Carbon Fund (PCF), which anticipated the
purchase of over 1.5 million CERs (around
96 http://cdm.unfccc.int/methodologies/PAmethodologies/approved.html
97 Research was conducted by Marcelo Calazans of
FASE, Brazil, and Tamra Gilbertson of CTW/TNI.
Critical Currents no.
US$ 25 million, assuming credits are sold at
US$ 15) in ‘emissions reductions’ by 2012.98
Plantar and the World Bank promoted the
project as a model operation that would plant
trees, enhance workers’ safety and foster environmental education projects for children.
As documented in Carbon Trading: a critical
conversation on climate change, privatisation and
power, however, the company’s activities in
the area of the project have illegally dispossessed many people of their land, destroyed
jobs and livelihoods, dried up and polluted
local water supplies, depleted soils and the
biodiversity of the native cerrado savannah
biome, threatened the health of local people,
and exploited labour under appalling conditions.99 The proposed carbon-saving project
helps sustain the environmentally-damaging
model of monoculture plantations and iron
production that is responsible for this, while
doing nothing to improve the climate.
The original project proposal, submitted as
a forestry offset, was rejected by the CDM
Executive Board. At fi rst, Plantar claimed
that there would be an ‘accelerated reduction in the plantation forestry base in the
state of Minas Gerais’. It presented its plantations as forests but admitted that once it
had cut down the trees and burnt them to
make pig iron it would not replant them unless carbon fi nance was forthcoming. When
98 World Bank, ‘Brazil: Plantar Sequestration and Biomass Use’, http://wbcarbonfinance.org/Router.cfm?P
age=PCF&FID=9707&ItemID=9707&ft=Projects&
ProjID=9600. This was part of a larger scheme to generate carbon credits equivalent to 13 million tonnes of
carbon emissions reductions, many of which would be
sold on the ‘voluntary’ carbon market.
99 Larry Lohmann, ‘Carbon Trading, a critical
conversation on climate change, privatisation and
power’ (Development Dialogue, no 48). Dag Hammerskold Foundation. Uppsala, 2006.
reminded that CDM rules do not allow
credit to be provided for ‘avoided deforestation’, the company rewrote its design documents to emphasise other justifications. The
second attempt claimed that Plantar was
preventing an otherwise necessary switch in
the fuels for its pig iron operations from eucalyptus charcoal to more carbon-intensive
coal or coke.
In other words, the company claimed that
carbon credits for its 23,100 hectare project
were the only thing that could ensure charcoal supplies, even though Minas Gerais
alone boasts 2 million hectares of eucalyptus
plantations. Plantar itself owns rural properties covering more than 180,000 hectares,
mainly devoted to eucalyptus for charcoal
and almost all located in Minas Gerais, and
provides management services for more than
590,000 hectares of plantations for itself and
other companies in Brazil.
The repeated rejection of this project should
have led to it being scrapped, as some 143
local groups and individuals argued in a letter to the CDM Executive Board of June
2004: ‘[T]he claim that without carbon
credits Plantar...would have switched to
coal as an energy source is absurd... Yet now
[Plantar] is using this threat to claim carbon
credits for continuing to do what they have
been doing for decades – plant unsustainable eucalyptus plantations for charcoal... It
is comparable to loggers demanding money,
otherwise they will cut down trees... [The
CDM] should not be allowed to be used by
the tree plantation industry to help fi nance
its unsustainable practices.’
But that was not the end of the matter, and
the project was instead repackaged and re-
submitted to the CDM in its component
parts, which included a project to reduce
methane in the tree-burning process, a revised reforestation project and a further
project linked to the reforestation project,
which claims to introduce a new iron ore
reduction system in pig-iron processing.
In 2007, Plantar fi rst managed to gain access to the CDM for its methane reduction
project, which it expects to generate 112,689
CERs over a seven-year time span from
2004 to 2011. This involves nothing more
complex than regulating the temperature of
its ovens, and ensuring that they are adequately ventilated – a process that is dressed
up in technical jargon with reference to a
study conducted at a local university.100
At the time of writing, the resubmitted reforestation project is still in the CDM pipeline
at validation stage. It now promises ‘dedicated plantations’ grown for the production
of charcoal that is referred to, euphemistically, as ‘renewable biomass’.101 The company
claims that the original rejection was not due
to flaws in the project itself, but was rejected
because CDM regulations on land use, landuse change and forestry were not finalised
at the time it was originally submitted. On
this basis, it attempts to backdate the claim
for carbon credits to 2000 – although the fact
that the activities described in the project
have already been underway for nine years is
prima facie evidence that there is nothing ‘additional’ about it.
100 http://cdm.unfccc.int/Projects/DB/DNVCUK1175235824.92/view
101 ‘PDD: Reforestation as Renewable Source of Wood
Supplies for Industrial Use in Brazil’, 4 March 2008,
http://www.netinform.net/KE/fi les/pdf/PDD_
AR_Plantar.pdf
Carbon Trading – How it works and why it fails
The methodology of the second project,
‘Use of Charcoal from Planted Renewable
Biomass in the Iron Ore Reduction Process
through the Establishment of a New Iron
Ore Reduction System’, was accepted by the
UN Methodology Panel in mid-July 2009.
Plantar argues that a new CDM methodology should be created relating to what it describes as an innovative method for reducing
CO2 emissions from blast furnaces. In fact,
the project is wracked with discrepancies.
For example, the Project Design Document
admits that multiple sources will be used for
the supposedly ‘sustainable’ charcoal, but no
environmental assessment has been made of
the plantations that would be used in addition to those of Plantar itself.102
Plantar anticipates that the reforestation
project would reduce over 3 million tonnes
of CO2 over its 30-year time span, which
could fetch the company around US$ 45
million from its buyer, the Netherlands
CDM Facility, a Dutch government scheme
managed by the World Bank. The iron ore
reduction project aims to generate 2,133,551
CERs (around US$ 30 million) over a seven-year time frame.
Planting trees with sole objective of burning trees
Plantar promotes its charcoal operations as
‘carbon-neutral’.103 Yet this entire concept is
102 The PDD reads: ‘Within the Plantar Projects an additional area of approximately the same size of the
one within the proposed A/R activity is planted in
response to the CDM, in order to ensure the supply
of renewable charcoal for the integrated project’s
iron production’. https://cdm.unfccc.int/UserManagement/FileStorage/FJZUI99VFCYK55BIM0FQ9X51SOB6S3,
103 http://www.plantar.com.br/portal/page?_pageid=73,91138&_dad=portal&_schema=PORTAL
Critical Currents no.
flawed, based as it is on the idea that putting
carbon dioxide into the atmosphere from
fossil fuel combustion can be neutralised
quickly and safely, and also glossing over the
broader social and environmental impacts of
monoculture plantations.
Plantar does not plant native species in sustainable forests. The company plants one
species of non-native tree in an industrial
plantation model for the sole purpose of
burning them, thus releasing CO2 and other
pollutants.
The trees are burned in small ovens to make
charcoal that is then used for the company’s pig iron operations, yet a considerable
amount of destruction was required to clear
a path for this industry. Forests and pastures
were destroyed to make way for the eucalyptus plantations, in the process releasing
CO2 locked in by the soil. Iron ore mining
is then a requirement to produce the inputs
for the pig iron operations, and at the other
end of the process lie further pollutants from
the iron factories. More broadly, still, the
project contributes emissions from burning
trees, as well as feeding a production chain
that encompasses iron ore mining, iron
smelting, shipping and so on.
Plantar claims that its industrial eucalyptus plantations absorb carbon, but the trees
have a seven-year life cycle and there is no
evidence to suggest that such a short, rapidgrowth life cycle could contribute to ‘neutralising’ carbon in the fi rst place. In fact,
research shows that plantations do not even
begin to balance the CO2 lost from vegetation clearance and soil disruption until after
ten years of growth.104 It stands to reason,
then, that the plantations release more CO2
than they could possibly absorb. Other research shows that only intact old-growth
forests can lock in CO2 while planted ‘forests’ must stand for decades to generate the
same effects.105
Handing out repression as usual
The claims that Plantar makes about its social programmes are equally flawed, and
serve as little more than an attempt to obscure the destructive role of large-scale industrial plantations, which have caused significant upheavals and exacerbated confl icts
over land distribution.
The award-winning fi lm The Carbon Connection documented how a local community was exploited by Plantar for the 12,540
hectares needed for its World Bank Prototype Carbon Fund project.106 At the time of
fi lming, members of the community came
together to speak out against the company
and the impacts the plantations were having on their lives. Four years on, all participants have either had their lives threatened or have seen the company offer jobs to
family members to keep them quiet. Today
they are under such severe pressure that any
communication is dangerous.107
Certain communities came together to organise against Plantar’s atrocious practices
104 CarboEurope, research from 2002, http://www.
carboeurope.org/
105 Fred Pearce, ‘Tree farms won’t halt climate change’,
New Scientist, 28 October 2002.
106 The Carbon Connection Documentary, free stream
at www.carbontradewatch.org, 2007.
107 Personal interview with residents conducted by
Tamra Gilbertson, Minas Gerais, 2005.
but were silenced by a consistent pattern of
manipulation and intimidation by the company. Usually it starts out by offering a family
member a job to create tension and division. If
this does not work it takes more drastic measures, including phone calls which threaten
that ‘accidents’ could occur, more pointed
threats on people’s lives, or even death threats
aimed at other family members.108
The Aracruz connection
Recent developments suggest that worse
may be yet to come. Plantar SA has now
formed a joint project with Erling Lorentzen,
founder of the pulp mill giant Aracruz Celulose, with the intention of further investments in the pig-iron industry supported by
carbon credits.
Aracruz Celulose is listed on the Chicago
Climate Exchange (CCX) as a forest product company selling voluntary offsets credits. Aracruz joined the Chicago Climate
Exchange (CCX) in 2005 and began to sell
credits from a voluntary offset project which
assumed emission reductions of 1 per cent in
2003, 2 per cent in 2004, 3 per cent in 2005
and 4 per cent in 2006, compared to a baseline established by the company. Aracruz
itself estimated that these offsets may generated revenues of up to US$ 2.5 million.109
Under Lorentzen’s guidance, Aracruz grew
to become one of the most controversial
pulp companies in the world. Its plantations
– many of which are planted on land belonging to the Tupinikim and Guarani In108 Personal interview with residents conducted by
Tamra Gilbertson, Minas Gerais, 2006.
109 Estimates based on Aracruz Celulose 2007 Annual
Report selling at US$ 15 per tCO2e.
Carbon Trading – How it works and why it fails
digenous Peoples, and traditional AfricanBrazilian Quilombola communities, have
led to the eviction of thousands of families,
as well as seriously restricting access to water, food and land. The company has been
responsible for destroying thousands of
hectares of the unique Mata Atlântica forest, while its activities have also been documented as diverting rivers, and drying up
streams and watercourses.110
In 2008, Aracruz Celulose was hit by a major scandal involving undisclosed currency
derivative contracts, causing the value of the
company to plummet and resulting in a lawsuit from shareholders claiming a violation
of US federal securities law. In the fallout
from these losses, the Lorentzen family sold
its 28 per cent stake in the company to Votorantim Celulose, in a deal bankrolled to
the tune of US$ 1 billion by the Brazilian
National Development Bank (BNDES).
With this apparent Brazilian government
bailout of Aracruz, Lorentzen is leaving the
pulp and paper industry and moving to new
pastures. The Plantar family and Lorentzen
have struck a deal to develop more lands in
Minas Gerais. Lorentzen stated in an enthusiastic interview about venturing into
‘green’ charcoal: ‘I have bought areas in Minas Gerais with the plan to produce charcoal
for the pig-iron industry. The lands are in
the west of Minas, near Diamantina.’111
110 For more on Aracruse Celulose, see http://www.
wrm.org.uy/bulletin/106/Brasil.html and http://
www.foei.org/en/publications/pdfs/briefi ngpaper-for-the-peoples-tribunal-on-human
111 Vera Saavedra Durão, ‘Lorentzen mantem empreendedorismo que criou a Aracruz’, Valor, 16 March
2009.
Critical Currents no.
Climate, fire and resistance
There is a glimmer of hope in the north of
Espírito Santo where Quilombola communities have set fi re to eucalyptus plantations
as an act of resistance and a fi nal desperate
attempt to reclaim lands from Aracruz Celulose and Plantar SA. In the region, Plantar
is in charge of ground operations including,
planting, fertilising and all field maintenance, while Aracruz manages felling operations and land claims.
A cloud of smoke covered a solid area of eucalyptus trees in the extreme north of Espírito Santo from 11-13 March 2009. In the
world of industrial tree plantations, the Quilombolas of the Sapê do Norte are viewed as
criminals, responsible for imbalance of the
forest and of the climate. However, this is
not where the story begins.
The Sapê do Norte are a group of Quilombos, forest communities which are descendants of slaves who revolted against the
Portuguese, in the region of São Mateus
and Conceição da Barra. Today there are 39
rural communities, of which 25 hold certificates to their lands through the official
Citizenship in Territories Programme 2008
and/or the Palmares Cultural Foundation.
The regional development model, started
up in the 1970s by the dictatorship of the
time, is based on large-scale, quick-growing
eucalyptus monoculture, causing serious
environmental, cultural, economic and social problems. Changes were abrupt, starting with the destruction of the native Atlantic Forest, followed by the disappearance of
rivers and streams, the expulsion of families,
their houses and lands and a massive migration to the urban peripheries.
In the 1970s, there were 12,000 rural Quilombolas inhabiting the region. Today, the
Quilombola Commission of Sapê do Norte
calculates that there are only 1,200 families
still residing in the region (around 6,000
people). In the region of Sao Mateus there
are more than 50,000 hectares of eucalyptus
planted and in Conception do Barra over 70
per cent of the municipal territory is covered
by cane and eucalyptus plantations.112 Local communities say that 10 former streams,
lakes and rivers no longer exist and that
fauna and flora which guaranteed the food
security of the people for more than two
centuries have been wiped out. According
to the Environmental, Cultural, Social, and
Economic Rights Violation Report, land,
water, work and food are the principal rights
being violated by the expansion of eucalyptus monoculture.113
In 2006, the Department of Social Development produced a nutritional survey of
Quilombola communities throughout Brazil. Food and nutritional insecurity was reported to be so grave that the proportion
of malnourished Quilombola children aged
0 to 5 years was 76.1 per cent higher than
that of the Brazilian population as a whole
and 44.6 per cent higher than that of the
general rural population.114 These statistics
were found consistent with the Quilombola
communities in Espírito Santo. Another indicator that illustrates the social vulnerability of the Quilombolas is the Human De112 ‘Relatório de Violações de Direitos Econômicos,
Sociais, Culturais, Ambientais’, report from FASE/
Rede Deserto Verde, 2003.
113 Report DESCA/2003.
114 ‘Diagnóstico da Segurança Alimentar Quilombola
do Sapê do Norte/ES’, report from FASE/Comissão Quilombola/Fórum Nacional de Segurança
alimentar e nutricional, 2008.
velopment Index (HDI). The HDI for the
39 Quilombola communities in the Sapê do
Norte region shows that they are disadvantaged compared to the rest of the state of
ES in the areas of education, life-span and
reproduction.115
The Quilombola leadership are meanwhile
being criminalised, as shown in an increase
in the number of legal charges brought
against them and Quilombola associations.
Some 82 Quilombolas have been prosecuted since 2003, mostly near Conception do
Barra, for gaining access to eucalyptus and
to the little native forest that still remains.
The communities have rights to demand access to their land and water resources, which
in many cases are essential to cultural traditions, based on Convention 169 of the ILO
and the Brazilian Constitution.116
A semi-arid tropical ‘rainforest’
In 2008, more than seven months passed
without rain. Local residents blame eucalyptus monoculture, which they say has radically altered local climate. Plantar manages
the plantation in the region and performs the
‘dirty work’ for Aracruz Cellulose, applying weedkillers, fungicides and insecticides
managing all general field maintenance and
planting. With the dry period prolonged
and compounded by the fi nancial crisis, in
late 2008 Plantar suspended replanting and
sacked more than 500 subcontracted workers. The climate crisis deeply affects the
115 ‘Saúde das populações quilombolas no ES: Vulnerabilidade e direitos humanos’, Psicologia Social,
ABRAPSO, 2008.
116 Artigo 68 and decrees 4886, 4887 of 2003, The
Specific Education Convention 169 of the OIT and
Brazilian Constitution.
Carbon Trading – How it works and why it fails
subsistence agriculture of the Quilombolas
but also has an effect on local jobs and business productivity.
Aided by the private security forces of Aracruz Cellulose, the corporations sought to
stop the gathering of facho (branches and sections of the trees left over in the fields after
industrial felling) by the communities. The
facho is burned by the Quilombolas to make
charcoal, which is an alternative source of
income and creates a shadow economy for
the survival of around 1,000 Quilombolas
in Sapê do Norte. This brutal act of repression pushed Quilombolas over the edge.
Without forest, work, land, water or charcoal, the communities began setting fi re
to the eucalyptus surrounding them. Over
100,000 hectares in the region were consumed by fi re. Private police brigades were
sent to quell the resistance. Ironically, the
company has massive investments in private
police forces, so may have made money out
of the event. As the region heats up and becomes semi-arid, Aracruz has also invested
in genetically modified fi re-resistant eucalyptus trees better adapted to long periods
of drought.
The Quilombolas of Sapê do Norte are
gravely affected by desertification in the extreme north of Espírito Santo and fight for
their territory by reconverting monoculture
into diverse Atlantic Forest and agro-ecological zones as an important instrument of
productive resistance. For example, agroecology, mobilises women, young people
and the elderly in beneficial activities seldom
valued or even mentioned in the United Nation’s COPs nor in the big forums and official events that regulate the climate regime.
While Quilombola communities build climate justice with their own hands, official
Critical Currents no.
climate change policy instruments award
carbon credits to fi rms such as Plantar and
Aracruz Cellulose, whose activities worsen
climate change, depleting water resources,
contaminating rivers, laying off workers,
increasing air pollution and threatening local communities. Plantar SA continues to
devastate communities and the environment
while taking moral cover behind the skirts
of the World Bank and the UNFCCC.
Conclusion
Carbon offset projects tend to follow prepackaged designs that do not deal with the
real complexities and intricacies of communities and livelihoods. They use up enormous resources in terms of land, water and
the time and energy of the residents.
All of the communities in the case studies above suffered from bribes, threats and
even jail time, as so often happens in the
course of infrastructure projects conducted
in the name of ‘development’. In many of
the cases, however, a strong and concerted
campaign of local organising was able to
resist the advances of the company – benefiting too from solidarity with other local
organisations.
The stories told by consultants may be convincing to outsiders, but are not convincing narratives for many local residents. The
CDM only looks at one cog and misses the
other moving parts. By perpetuating a system that promotes a structure that ignores
local needs, the CDM obstructs the vital
social change that is so fundamental to the
future of the planet.
The legacy of such development projects
is that they pit communities against each
other and encourage divisions within single
communities as well. When encountering
local protest, the common response of the
developers and companies has been to resort to a range of bullying tactics – including threats, lies and bribery. For example,
what was deemed a human rights violation
in Nam Song was ignored in Pichit only 50
km away.
The experience of the communities highlighted in the case studies however, shows
that local resistance can be effective when
there is a strong basis for unity. An open
decision-making process and the central involvement of women in the campaigns were
important contributing factors.
Carbon Trading – How it works and why it fails
Critical Currents no.
5 » Ways forward
One of the most common responses – at
least in Northern countries – to the clear
evidence that carbon trading is not working
is to suggest fi xes that would ‘improve’ the
workings of the system: changing rules on
the ‘banking’ of permits; introducing price
floors and ceilings to control volatility; expanding global carbon markets to ‘increase
liquidity’; and so on.
What these proposals have in common is
an implicit assumption that carbon trading
fails because the rules have been designed
inadequately or have been badly applied.
Although instances of such failings certainly exist, they bring us no closer to understanding why the system has misfi red so
spectacularly. Why have many corporations
and states pushed for the inclusion of large
volumes of offsets in carbon trade markets,
for example? We have argued that this push
has to do with a complex interaction of state
and corporate power, where those with the
loudest voices in the process push for offsetting as a means to escape their responsibility
to change industrial practices and the means
of power production domestically. In chapter 3, we saw how public decision-making
on carbon trading is driven by ‘competitiveness’ rather than environmental concerns.
In chapter 4, we further saw how offsetting
is embedded in a development paradigm
that disregards existing sustainable practices
and community needs. Powerful economic
and elite interests are at stake here, which
are unlikely to be shifted by academic exercises in how to ‘perfect’ carbon markets, as
though they existed in a power vacuum.
1
Ultimately, carbon trading is a means to preempt and delay the structural changes neces-
Those advocating the Kyoto regime will be
reluctant to embrace alternatives because it means
admitting that their chosen climate policy has and
will continue to fail. But the rational thing to
do in the face of a bad investment is to cut your
losses and try something different.
Steve Rayner and Gwyn Prins1
Carbon trading has failed to tackle climate
change and will continue to do so. The problems identified in this booklet do not simply
relate to the specifics of how the rules of the
system were designed, or to teething problems in its implementation, but are fundamental to the whole scheme itself.
Can carbon trading be fixed?
Steve Rayner and Gwyn Prins, ‘Time to Ditch
Kyoto’, Nature, no. 449, 29 October 2007, pp. 973-75.
Carbon Trading – How it works and why it fails
sary to address climate change. Instead of reexamining the fundamentals of an economic
and political system that has led to climate
change, carbon trading adjusts the problem
of climate change to fit these structures. This
wholesale re-definition can be found at every stage of the process – from cap-setting to
trading, offsetting and speculation.2
Carbon trading first requires that action on
climate change is translated into measurable units which represent ‘emissions reductions’. This is the basis of government’s setting a ‘cap’ on emissions, which is intended
to specify a gradual path towards reduction.
But cap-setting imagines far greater certainty
than climate science, with its plethora of ‘illunderstood feed-back effects’, is able to deliver.3 It translates a series of complex and overlapping developments across a broad sweep of
economic sectors – from power generation to
manufacturing and agriculture – to a single,
linear path to which a number is accorded by
policymakers for the purposes of comparison. And it deflects questions about the underlying economic model, which is premised
upon the cheap exploitation of fossil fuels to
bankroll continued GDP growth.
While the Kyoto Protocol, and the carbon
trading schemes that have followed it, claim
to offer fi nancial incentives that would
gradually de-carbonise industrialised soci2
3
Larry Lohmann, ‘When Markets are Poison:
Learning about climate policy from the fi nancial
crisis’, The Corner House Briefing, no. 40, September
2009, http://www.thecornerhouse.org.uk/pdf/
briefi ng/40poisonmarkets.pdf
Gwyn Prins et al., How to Get Climate Policy Back
on Course, LSE/University of Oxford, 2009, pp.5-6,
http://www.lse.ac.uk/collections/mackinderProgramme/pdf/ClimatePolBackonCoursePRODUCTIONFINAL060709.pdf
Critical Currents no.
eties and prevent massive fossil fuel dependence in less industrialised ones, the reality
to date has been the opposite. ‘In the real
world, indicators are moving stubbornly in
the wrong direction,’ concludes Professor
Gwyn Prins of the London School of Economics. ‘The world has been re-carbonising,
not de-carbonising. The evidence is that the
Kyoto Protocol and its underlying approach
have had and are having no meaningful effect whatsoever.’4
The trade in pollution permits compounds
this problem. It aims to find the cheapest
solutions for polluting industries, on the assumption that it does not matter where and
how ‘reductions’ are made. The uncertainties
in the long-term climatic effects of adopting
different industrial and agricultural processes
are overlooked in order to ensure that a single commodity can be constructed and exchanged, and the significant risks of ‘locking
in’ unsustainable practices brushed aside.
Trading also displaces measures to tackle
climate change from one place to another
through the practice of offsetting. Despite
the well-documented problems with off setting, most of the proposals on the table in
UN climate negotiations actually advocate
its expansion. ‘Sectoral crediting’, the inclusion of new sectors in the Clean Development Mechanism (CDM), or the generation
of carbon credits associated with Nationally
Appropriate Mitigation Actions (NAMAs)
would primarily serve to increase the vol4
Ibid.; LSE, ‘Research institutes publish plan to
rescue climate policy from imminent failure’, 7 July
2009, http://www2.lse.ac.uk/ERD/pressAndInformationOffice/newsAndEvents/archives/2009/07/
climate%20poliyc.aspx
ume of carbon trading. Such proposals are
not being driven by considerations of environmental integrity, but by fi nancial interests. In carbon markets, accumulation is
achieved partly by increasing the geographical scope and the number of industrial sectors and gases covered.
traders do not know what they are selling;
paper ‘reductions’ may bear little specifiable
relation to the changes in industrial practice
or energy production required for meaningful climate action. With rampant financial
innovation added to the mix, speculation increasingly becomes an end in itself.
For the financial sector, too, the main interest
in new global climate legislation also lies in
scaling up carbon markets. Samuel DiPiazza,
chief executive of PricewaterhouseCoopers
and Chair of the World Business Council on
Sustainable Development, noted in private
at the World Business Summit on Climate
Change in May 2009, ‘I have yet to find
someone who says the CDM is really working well,’ yet went on to prioritise ‘finding a
way to create offsets’. As Tracy Wolstencroft,
managing director of Goldman Sachs, told
another panel at the meeting, carbon trading
now encompasses ‘some of the largest emerging markets in the world’.5
The whole approach distracts from effective
solutions – trapping us within a framework
that sees the climate problem in primarily
fi nancial terms.
The drive to expand carbon markets is being
accompanied by the development of more
complex carbon products deploying a variety of derivative and hedge fund techniques.6
These are structures similar to those that
contributed to the financial crisis. Like many
derivatives, the new carbon commodities
are difficult or impossible to value accurately
and may well lead to a new ‘bubble’ whose
bursting would have disastrous results.7 Even
without the complexities introduced by derivatives, securitisation and the like, carbon
5
6
7
Oscar Reyes, ‘The Climate Business’, New Internationalist, forthcoming December 2009.
Forest and European Union Resources Network,
“Beginners´ Guide to Carbon Trading,” forthcoming.
Michelle Chan, Subprime carbon? Re-thinking the
world’s largest new derivatives market, Friends of the
Earth US, Washington D.C., 2009.
Different paths
‘What’s your alternative?’ is a question that’s
often asked. The question is strange in that
it positions carbon trading as the standard
against which other approaches should be
judged. Yet in the long history of environmental protection, markets in pollution
permits are a relatively new, little-tried idea
which, as we saw in chapter 2, redefi ne the
problem to fit the assumptions of neoliberal
economics that are now largely discredited.
In seeking ways forward, we need to look
again at the nature of the question being
addressed. Carbon markets foster a trade
in claimed ‘emissions reductions’ (many of
which exist only on paper) that are cheap
according to current economic assumptions.
Reducing emissions in the short term by a
small amount can be done without starting
any of the structural changes needed in the
long term.8 Tackling climate change, by
contrast, requires fi rst and foremost a rapid
phasing out of fossil fuel use.
8
Arlen Dilsizian, ‘The politics of climate change: an
interview with Larry Lohmann’, Re-Public, 26 September 2008, http://www.re-public.gr/en/?p=419
Carbon Trading – How it works and why it fails
No single alternative will suffice. Current
practices in a whole host of sectors, from
manufacturing to industrial agriculture,
need to be reviewed and reassessed There is
no evidence that a complex social and economic problem of this scale can be effectively tackled by indirect economic ‘incentives’
of the sort offered by carbon trading.9
This is not simply a question of money. The
knowledge systems that are currently being applied to address climate change tend
to reproduce the ingrained privilege of the
wealthy minority that caused climate change.
Recognising and learning from existing climate solutions, by contrast, requires drawing on a multitude of locally adapted technologies and practices that do not neatly fit
with the grand schemes promoted by current
economic elites. As the A. T. Biopower case,
among many others, has illustrated, carbon
trading cannot value such practices and actively selects against them. With powerful
economic interests pushing for new ‘standardised multi-project baselines’ to increase
the volume of such projects while doing away
with any check on specific local conditions,
this problem could soon get even worse.10
Prins et al., op. cit., supra, note 3; see also www.
oilwatch.org
10 Council of the European Union, ‘EU position for
the Copenhagen Climate Conference (7-18 December 2009) – Draft Council conclusions’, Brussels,
19 October 2009, p.20; International Emissions
Trading Association (IETA), ‘Position Paper on the
Clean Development Mechanism under a Post-2012
Framework
’, IETA, London, June 2009, pp.4-5, www.ieta.
org/ieta/www/pages/getfi le.php?docID=3298. The
idea is to use common assumptions calculated in
the absence of any assessment of the local situation
as a starting ‘baseline’ for multiple CDM projects –
obviating the need to assess local conditions. IETA
is also seeking ‘positive lists’ of project types which
would be pre-approved for CDM eligibility.
In planning a transition away from fossil fuels, and the unsustainable industrial and agricultural practices that they enable, a broad
range of approaches hold far more promise
than carbon markets. A non-exhaustive list
of such proposals includes measures to:
• shift subsidies away from fossil fuels to
help keep them in the ground
• re-assess energy demand and efficiency
• advance the public debate on climate
change and ecological debt
• expand useful forms of conventional
regulation
• institute carefully-directed programmes of public investment
• undertake legal action against climate
offenders
• secure land tenure for Indigenous
Peoples’ and forest-dependent communities
• promote sustainable local farming and
people’s food sovereignty
• build alliances between communities
and movements based on local needs
and desires
• organise and support local action
• explore taxation as a supplementary
measure
9
Critical Currents no.
Shifting subsidies from fossil fuels
to help keep them in the ground
With UN climate negotiations wrapped up
in acronym-fi lled debates about tradable
emissions reductions, discussions of direct
measures to keep fossil fuels in the ground
are rarely heard. Yet any strategy to tackle
climate change needs to plan for a rapid transition away from how energy is produced and
used. There is no precedent for achieving
such a change through a carbon market – and
while subsidy shifts, regulation, direct public
investment and taxation will not, in and of
themselves, stimulate the necessary changes
to solve the problem, they can help reverse
the current commitment to fossil fuels.
Subsidies are especially important. Around
US$ 300 billion per year, or 0.7 per cent of
global GDP, is currently spent on energy
subsidies, with the lion’s share of this used to
artificially lower or reduce the real price of
fossil fuels like oil, coal and gas or electricity
generated from such fossil fuels.11 Yet these
subsidies would have a more positive impact
if they were diversified across community-led
initiatives. As currently distributed, fossil fuel
subsidies rarely flow to those most in need
of energy – including the 1.6 billion people
globally who lack access to electricity.12
A significant proportion of energy subsidies
goes into funding infrastructure projects to
ensure that fossil fuels keep flowing – such as
the €8 billion that the European Investment
Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) are
projected to pour into the Nabucco pipeline. Spending an equivalent sum on building efficiency initiatives in the Central and
Eastern European states that would be supplied by the Nabucco pipeline could result
in energy savings of over three times the
amount of gas that is projected to be transported by the project.13
11 UNEP Report, ‘Reforming Energy Subsidies: Opportunities to Contribute to the Climate Change
Agenda’, August 2008.
12 Kevin Watkins et al., Human Development Report
2007/8: Fighting Climate Change – human solidarity in
a divided world, United Nations Development Programme/Palgrave, Basingstoke, 2007, p.43, http://
hdr.undp.org/en/media/HDR_20072008_EN_
Complete.pdf
13 CEE Bankwatch, ‘Real energy security from
energy efficiency not Nabucco says Bankwatch’,
13 July 2009, http://bankwatch.org/project.
shtml?apc=147578-----1&x=2190273&d=r
Shifting funds away from
military expenditure
Military budgets are another critical area.
The US, for example, which spends more
on defence than all other nations combined,
budgeted US$ 494.3 billion for defence in
2009, not including money spent on wars
in Iraq and Afghanistan.14 According to
Stiglitz and Bilmes a conservative estimate
of the cost to the US alone for the Iraq war
is upwards of US$ 3 trillion.15 Even if one
ignores the handouts of hundreds of billions
of dollars recently given to large private
banks, there is clearly no lack of money that
could be spent on tackling climate change.
Yet instead of moving money into climate
change mitigation, government agencies are
currently using the threat of climate change
to bolster support for military budgets in
an attempt to close off borders and fi nance
wars, thus stimulating xenophobia towards
climate refugees and adding to the anti-immigrant backlash in both the US and Fortress Europe. In 2003 the Pentagon-sponsored report, ‘An Abrupt Climate Change
Scenario’, warned of the need to strengthen
US defences against ‘unwanted starving immigrants’ from the Caribbean, Mexico and
South America.16
The Pentagon-sponsored report also recommended that the Department of Defense
14 Center for Defense Information, http://www.cdi.
org/research/index.cfm. Figures based on requested
defence budget or projections, not actual spending.
15 Joseph Stiglitz and Linda Bilmes, The Three Trillion
Dollar War, Allen Lane, London, 2008.
16 Peter Schwartz and Doug Randall, ‘An Abrupt
Climate Change Scenario and its Implications for
United States National Security’. Washington,
DC: Environmental Media Services, 2003. http://
www.ems.org/climate/pentagon_climate_change.
html#report.
Carbon Trading – How it works and why it fails
(DOD) ‘explore geo-engineering options
that control the climate’.17 According to researcher Betsy Hartmann, ‘a far better approach would be for the military to clean up
its own act. The DOD is the largest single
consumer of fuel in the US, and the present war in Iraq is not only wasting lives, but
millions of gallons of oil daily.’18
Re-assessing energy demand
Overuse of fossil fuels is closely connected
with centralised, deterministic energy demand forecasts, which both consistently
overestimate energy needs and, acting as
self-fulfi lling prophecies, tend to bring
about an inflated demand. A comparative
historical study led by Professor Paul Craig
of the University of California found that
most forecasts had overestimated US energy
demand by 100 per cent.19 Forecasts in other
countries, as well as international forecasts,
tend to follow the same pattern, while also
underestimating the potential of efficiency
savings to obviate new fossil fuel infrastructure.
The result is large, centralised energy-generating plants supported by a fossil fuel infrastructure designed for a fictional demand that
17 Schwartz and Randall, supra, note 18.
18 Betsy Hartmann, ‘War Talk and Climate Change’,
Truthout, November 2007. http://www.truthout.
org/article/betsy-hartmann-war-talk-and-climatechange
19 Paul P. Craig, Ashok Gadgil, and Jonathan G.
Koomey ‘What can history teach us? A retrospective examination of long-term energy forecasts
for the United States,’ Annual Review of Energy and
the Environment 2002, vol. 27, pp.83-118, http://
www.lbl.gov/Science-Articles/Archive/assets/images/2002/Dec-17-2002/FinalEnergyForecasts.pdf
Critical Currents no.
is in fact far in excess of actual needs.20 Once
built, of course, such infrastructure tends
to encourage further increases in industrial,
commercial or export demand, while taking
resources away from the development of less
centralised energy. It also often fails to meet
more basic needs or to encourage the development of energy sources more efficiently
attuned to basic local needs. Electricity-deprived households existing in the shadow of
large generating plants are a common sight
in many Southern countries, many of which
also boast a fossil fuel extraction infrastructure that ill-serves the needs of local people.
For example, Nigeria, the world’s eighth
largest oil exporter, imports 76 per cent of its
petroleum and 34 per cent of its kerosene, as
a cost of US$ 3.6 billion. Yet in the oil-rich
Niger delta region, firewood is the primary
energy source for 73 per cent of the people.21
The same principles follow for industrial renewable energy as pointed out in chapter 4
in the cases of A. T. Biopower and the wind
farms in Maharashtra.
Bottom-up assessments of energy demand
tend to contrast sharply with the mechanical
(and usually inaccurate) projections commonly used to justify fossil fuel subsidies and investments. Such assessments suggest the merits
of focusing on smaller, decentralised energy
provision, rather than foreign-backed projects
to foster energy exports and economic accumulation in metropolitan centres.22
20 See, e.g., Chuenchom Sangarasri Greacen and
Chris Greacen, ‘Thailand’s Electricity Reforms:
Privatization of Benefits and Socialization of Costs
and Risks’, Pacifi c Affairs 77(3) (2004): 517-42 and
Chris Graecen, ‘Small is Pitiful: Micro-Hydroelectricity and the Politics of Rural Electricity Provision in Thailand’. Berkeley: Energy and Resources
Group, University of California, Berkeley, 2004.
21 Greg Muttitt, ‘The price of democracy’, Oilwatch
Resistance Bulletin, 63, 2006. Based on data
from the UNDP Human Development Report
2005/2006.
22 Hendro Sangkoyo, Presentation to Durban Group
for Climate Justice, Belem, Brazil, 25 January 2009.
Forest payments
versus territorial rights
Another much-needed shift is to curb the subsidies and incentives for deforestation provided
by national governments, export credit agencies, the World Bank and others. These include a range of lavish subsidies to pulp mills,
industrial monoculture operations, funding for
genetically modified (GM) tree research, mining in forested areas, commercial logging and
other agencies of displacement and ecological degradation.23 Agrofuel incentives, most
notably the EU Renewable Energy Directive,
which demands that 10 per cent of transport
fuels come from biological sources by 2020,
are exacerbating the problem.
As we showed in chapter 4, new REDD
schemes look set to continue this pattern of
misdirected funding and incentives – stimulating land grabs and presenting new economic opportunities for the large plantation, pulp
and paper and construction companies whose
activities are driving deforestation. Defending the rights of Indigenous Peoples’ and forest communities is an important contribution
towards measures to ensure community-based
and traditional forest management, protection
of forests and territorial rights.24
Regulation
Before the advent of pollution trading, environmental policy was largely a question
of regulation. Advocates of market-based
approaches often call these ‘command-andcontrol’ approaches, calling to mind Com23 See, for example, www.wrm.org.uy and www.
redd-monitor.org
24 Ricardo Carerre, Community Forests: equity, use and
conservation, World Rainforest Movement, Montevideo, 2004.
munist-style bureaucracies stomping on innovation and freedom. In fact, ‘regulation’
encompasses a whole range of instruments,
from efficiency standards for electrical appliances and buildings to feed-in tariffs for
renewables. Carbon markets themselves
achieve 100 per cent of their environmental
goals through government regulation in the
form of cap-setting, and none through their
trading elements. The claim that emissions
trading is less bureaucratic, less centralised,
less coercive and more supportive of innovation than other forms of regulation does
not stand up to scrutiny.25
Nor does it follow that carbon markets are
more effective at reducing pollution. In the
EU, for example, the Large Combustion
Plant Directive (LCPD) sets non-tradable
‘emissions rate limits’ on sulphur dioxide,
oxides of nitrogen (NOx) and dust particles
from large plants – including coal-fi red
power stations. It came into force in January
2008, giving plants the option to either ‘opt
in’ and meet these limits, or ‘opt out’ and
reduce their outputs in the subsequent period, and close entirely by 2015. This measure
alone could achieve more to reduce pollution than emissions trading – were it not for
the fact that the drop in emissions resulting
from closing old coal plants could provide
leeway for other sectors to continue polluting up to the level of the ‘cap.’26
25 David Driesen, ‘Does Emissions Trading Encourage Innovation?’ Environmental Law Institute, no. 33,
2003, pp.10094-10108, www.hm-treasury.gov.uk/d/
Driesen2.pdf
26 European Union, ‘Directive 2001/80/ec of the
European Parliament and of the Council
on the limitation of emissions of certain pollutants
into the air from large combustion plants’, Brussels,
23 October 2001,
http://eur-lex.europa.eu/LexUriServ/LexUriServ.d
o?uri=OJ:L:2001:309:0001:0021:EN:PDF
Carbon Trading – How it works and why it fails
One of the most serious shortcomings of carbon trading is its tendency to undermine existing legislation. The intersection between
the Integrated Pollution Prevention and
Control (IPPC) Directive, the main EU legislation to control air pollution, and the EU
ETS is a case in point. The IPPC sets energy
efficiency requirements and gas concentration limits on a range of installations, some of
which were also covered by the EU ETS. To
make the two systems compatible, the terms
of the IPPC were relaxed. As the European
Environment Agency explains: ‘[O]perators
of large sources might be obliged to reduce
their emissions (in order to comply with the
IPPC Directive) when it could be more economically efficient to increase emissions further and buy additional allowances instead.’
The result of this conflict was that the IPPC
Directive was amended to exclude ‘CO2
emission limits for installations which are
covered by the EU ETS’.27
Carbon offsets, too, have had the perverse
effect of discouraging industrial regulation:
climate-friendly legislation would preclude
certain activities from being counted as ‘additional’, cutting off a potential revenue stream.
Legal action
Litigation can provide another important
arena for action that does not require a trading floor.28
The environmental justice implications of
human rights legislation are being examined, too, in various legislatures. In 2005,
over 63 Inuit people launched one of the
27
European Environment Agency, Application of the
Emissions Trading Directive by EU Member States –
reporting year 2007, EEA, Copenhagen, 2008, p.27.
28 See http://www.risingtide.org.au/
Critical Currents no.
world’s fi rst legal actions on climate change,
on behalf of all Inuit, contending that
greenhouse gas emissions from the United
States violated their human rights.29 The
action was rejected by the Inter-American
Commission on Human Rights but gained
worldwide attention.
In May 2009, a groundbreaking case against
Royal Dutch/Shell was brought to court on
charges of complicity in the 1995 execution
of Ken Saro-Wiwa and eight other Ogoni
environmental activists. The world’s boardrooms watched the case, which was seen as
a test of whether transnational companies
owned or operating in the USA could be
held responsible for human rights abuses
committed abroad. An out-of-court settlement in June 2009 saw the company pay
US$ 15.5 million in damages, but it may
yet set a precedent for similar challenges.30
In Australia, meanwhile, groups including
Rising Tide and Queensland Conservation initiated a legal challenge to a proposed
coal mine expansion in 2006. The country’s
Land and Resources Tribunal ruled against
the groups, but international attention was
gained for the struggle against the Xstrata
Coal Queensland mine.31 A further major
case – this time involving the failure of oil
giant Texaco Chevron to clean up millions
of dollars’ worth of toxic waste, is currently
underway in Ecuador.32
29 Stephen Leahy, ‘Inuit to Charge U.S. for Climate
Change’, Inter Press Services, 12 February 2005,
http://ipsnews.net/africa/interna.asp?idnews=27451
30 Press Release, ‘Settlement reached in human rights
case against Royal Dutch/Shell’, Center for Constitutional Rights, 8 June 2009; John Vidal, ‘Shell
settlement with Ogoni people stops short of full
justice’, The Guardian, 10 June 2009, http://www.
guardian.co.uk/environment/cif-green/2009/
jun/09/saro-wiwa-shell
31 See http://www.risingtide.org.au/
32 See http://chevrontoxico.com/
Public investment
Large-scale investment in a cleaner energy
infrastructure capable of breaking industrialised societies’ fossil-fuel dependence is also
crucial, and, as explained above, will not be
forthcoming from carbon markets. Such investment should proceed with considerable
caution, however, if it is to avoid throwing
money at damaging projects.
Today, private research on energy alternatives is skewed towards solutions that perpetuate climate change. One example is the
blossoming global agrofuels trade, which has
largely been driven by agribusiness interests (although the transport lobby is working hard, too, in order to get the emissions
problem ‘off its books’). Agrofuels exacerbate land confl ict, driving up food prices,
and increasing emissions through encouraging deforestation.33
Public research commitments made by governments are also weak and problematic. In
the EU, for example, public and private expenditure on energy-related research and development is currently about half the level of
the early 1980s, with the largest part ‘spent on
nuclear and fossil fuel-based technologies’.34
‘Carbon capture and storage’ (CCS ) is one
of the key technologies likely to benefit from
such investments – with major industry lob33 Tamra Gilbertson, Nina Holland, Stella Semino
and Kevin Smith, ‘Paving the way for agrofuels,
EU policy, sustainability criteria and climate calculations’, TNI Discussion Paper, September 2007,
www.tni.org/pdf/Agrofuels.pdf
34 EU Commission (DG Environment), ‘Towards a
comprehensive climate change agreement in Copenhagen – Extensive background information and
analysis, Part 2’, Brussels, January 2009, pp.76-77.
bies, including the International Chamber
of Commerce, claiming that it will require
public subsidies in addition to carbon market incentives.35 Yet in unguarded moments,
even representatives of the power sector can
be blunt about the shortcomings of CCS.
‘One of the plants we are building is CCS
ready, although to be quite frank no one
really knows what that is at the moment,’
stated Steve Lennon, managing director of
South Africa’s Eskom, at the World Business
Summit on Climate Change. James Rogers,
chief executive of US-based Duke Energy,
added that CCS is at best 15 years off and
is likely to prove unfeasibly expensive if it
even works at all.36 One of the few existing
pilots, run by the Swedish company Vattenfall, burns 10 to 40 per cent more coal than
existing coal-fi red power stations, with significant implications for increased environmental damage and potent methane emissions from coal mines. And there remain
other significant technical concerns about
risks to the ecosystem and health, as well
as unanswered questions about earthquakes,
leakage of stored carbon back to the surface
and possible infrastructure collapse.37
Given these failings, why has carbon capture emerged as the technology of choice
35 International Chamber of Commerce, ‘Challenges
to the Implementation of New Technologies: the
Case of Carbon Capture and Storage
’, ICC, Paris, November 2007.
36 Oscar Reyes, ‘Carbon trading and cash values on
forests cannot curb carbon emissions’, The Guardian, 28 May, http://www.guardian.co.uk/environment/cif-green/2009/may/28/carbon-trading
37 Shanta Barley, ‘Bury the carbon, set off a quake?’
New Scientist no. 2727, 23 September 2009;
Greenpeace International, False Hope: why carbon
capture and storage won’t save the climate, May 2008,
http://www.greenpeace.org/raw/content/international/press/reports/false-hope.pdf
Carbon Trading – How it works and why it fails
for many in the energy sector? Part of the
explanation lies in its providing a technological ‘fi x’ that appears to allow for the
continued burning of fossil fuels on a massive scale. Rather than changing the energy
production model to prioritise renewable
energy, CCS offers an easy-sounding ‘end
of pipe’ solution aimed at cleaning up a mess
rather than avoiding it in the first place.
It should be clear, then, that encouraging
public incentives for new energy infrastructure cannot be a blank cheque. Public ownership means little without public control
– and, under present ‘governance’ models,
this is severely lacking. With state energy
companies run as commercial enterprises,
and private energy companies consolidating their market share in most industrialised
nations, affording them considerable lobby
influence over public investment decisions,
little scope currently exists for a publiclycontrolled genuine public influence in favour of a sustainable and just energy production model. For such reasons, any increase in
public fi nances to change the energy system
should be accompanied by democratisation
of governance of the expenditure.
North-South financial transfers
Public investment in tackling climate
change is not restricted by national borders,
however. As we saw in chapter 2, the United Nations Convention on Climate Change
referred to the ‘common but differentiated
responsibilities’ that states have in tackling
climate change – although the Kyoto framework turned this on its head.
The bottom line is that the Northern, industrialised countries have done most to
Critical Currents no.
contribute to the climate change problem,
and are best placed to deal with the fallout
from it. They have a wide-ranging ‘debt’”
which encompasses a financial responsibility
for expropriating resources from the South
(ranging from oil to biological resources to
intellectual property), as well as a broader
imperative to rapidly tackle their greenhouse gas emissions rather than outsource
responsibility for them.
The CDM works directly contrary to this
goal – insofar as investment in clean infrastructure is needed, it should be provided
from public sources – with industrialised
countries shouldering the burden of responsibility, since they predominantly caused
the problem. Such funding is no guarantee
of success, however, unless a decentralised
structure is adopted which allows for meaningful citizens’ participation and sensitivity
to local contexts – allowing for the adaptation and improvement of locally-adapted
industrial and agricultural techniques, and
engaging in a bottom-up assessment of real
energy needs.
Taxation
Taxation is another potential source of revenue for climate financing, although a number of critical reservations remain about how
and when it should be implemented.
A variety of carbon tax schemes have been
proposed. Far too often they are presented as a ‘silver bullet’ alternative to carbon
trading. This is misleading, since no single
price mechanism, or single mechanism of
any kind, is capable of solving the problem
of climate change. As a means for altering
behaviour, carbon taxes have many of the
same problems as carbon trading. They rely
on incremental cost changes to redirect investment, rather than tackling the way fossil
fuels are ‘locked in’ to industrialised economies or addressing the fundamental power
dynamics inherent in current production
and trade patterns. Although advancing a
‘polluter pays’ approach, carbon taxes do
little to address the root problems associated
with the production of pollution itself.
One argument raised in favour of carbon
taxes is that they might provide a revenue
source for climate financing. Questions
remain, however, as to whether creating
an entity called ‘carbon’ in order to tax it
– with the many contradictions and ambiguities that entails – is worth the effort. To
begin with, proposals for new taxation may
be less effective than measures to change the
balance of existing taxation, which has seen
a marked decrease in the levels of taxation
paid by fossil-dependent corporations over
the past decades.38 Addressing other loopholes, most notably the aviation industry’s
continued avoidance of fuel duties on kerosene, could be a more effective means to
raise revenues.
Various other means could be adopted to
raise appropriate levels of taxation for the
purposes of climate fi nancing. With power
companies now straddling the role of power
producers and energy traders, taxes on currency and fuel commodity speculation could
be an appropriate means – and potentially
less ‘regressive’ than a number of the carbon
tax proposals on the table.
Ultimately, though, the crucial issue that remains is how such revenues are distributed and
controlled. At a global level, for example, the
channelling of revenues through the World
Bank or regional development banks – if past
experience is taken as a guide – is that such
funds would be channelled to unsustainable
large-scale infrastructure projects.
Moving mountains
The examples of subsidy-shifting, regulation, taxation and legal action highlighted
above can be useful tools for tackling climate change, if adopted cautiously and
backed up by popular action. Ultimately,
though, climate change remains a political
question: action and organising are essential. Alternative futures cannot be designed
in a boardroom or academic classroom and
then placed into a rigid one-size-fits-all
plan. The voices of those living alongside
exploitative infrastructure projects – from
plantations to factories – are among the
most powerful when it comes to addressing
the question, ‘What is your alternative?’
In the South as well as the North, community-level or popular strategies have historically
proven successful as a means to achieve social
and environmental change. Often communities have taken action to protect environmental resources as strategies for survival.
The legacy of this resistance holds lessons for
all who aim to address climate change, and it
is important that environmentalists and other
activists who today promote ‘climate justice’
recognise this longer and broader history of
community-based or popular struggles.
38 Howard Wachtel, ‘The Vanishing Corporate Profits
Tax’, July 2004, http://www.tni.org/detail_page.
phtml?page=archives_wachtel_vanishing
Carbon Trading – How it works and why it fails
This broader context of struggle includes
the activities of a range of groups, movements and networks:
• Actions by groups, especially IPs
and forest-dwelling communities, to
protect community forests and other
local commons are a powerful force
against climatically destabilising land
clearance, commercial logging, industrial fish farming, tree plantations and
industrial agriculture.
• Networks against trade liberalisation, privatisation and commodification help slow
growth in unnecessary transport and
protect local subsistence regimes against
threats from fossil fuel-intensive sectors.
• Popular movements against fossil fuel
extractions, including movements
against oil wars, gas and oil pipelines,
fossil fuel extraction, power plant pollution, liquefied natural gas (LNG)
expansion, coal mining and mountain
top removal, tar sands extraction and
airport and highway expansion, all help
curb extraction of fossil fuels.
• Popular movements in both North and
South against fossil fuel pollution from
electricity generating and other industrial installations contribute to building
solidarity and stopping dangerous pollution that causes climate change.
• Initiatives to set up small, communityled renewable energy sources for local
benefit, whether off-grid or on-grid,
build resistance by providing more
sustainable direct energy. Often they
provide a cheap alternative to fossil fueloriented centralised generating systems
particularly in many areas of the South.39
39 See www.oilwatch.org for more information on
small-scale, renewable energy projects and how
they can work.
Critical Currents no.
Insofar as these approaches defend local resilience, promote community solidarity and
organisation, such strategies are crucial not
only in slowing climate change but also in
adapting to it.40
Numerous such initiatives, networks, organisations and popular movements exist
today. Amongst many, Oilwatch is contesting the continued expansion of oilfields
in the Niger Delta; the Alert Against the
Green Desert Network is resisting eucalyptus plantation in Esprírito Santo, Brazil; the
Durban Group for Climate Justice promotes
continued research and solidarity work
against carbon trading; La Via Campesina
and its member organisations are fostering a ‘food sovereignty’ movement built
around sustainable small-scale agriculture;
Climate Justice Action is mobilising to contest ‘false solutions’, including carbon trading, promoted at UN climate negotiations;
the Indigenous Environment Network has
worked tirelessly to resist tar sands developments, and is actively opposing the adoption of REDD projects; Rising Tide North
America is popularising the climate debate
and taking direct action on coal mining involving mountain top removal; Gender cc is
raising the profi le of women climate justice’s
work in the climate debate. Many more
struggles go without high-profi le names,
but continue to resist infrastructure projects
40 See Working Group on Climate Change and Development, Africa – Up in Smoke?, New Economics Foundation, London, 2005; Larry Lohmann,
‘Democracy or Carbocracy? Intellectual Corruption and the Future of the Climate Debate’, Corner
House Briefi ng Paper no. 24, October 2001, www.
thecornerhouse.org.uk; Neil Adger, ‘Social Vulnerability to Climate Change and Extremes in Coastal
Vietnam’, World Development, vol. 27, no. 2, 1999,
pp.249-69.
that are escalating climate change – from
forest dwellers’ movements in Brazil, to
dispossessed populations struggling against
hydroelectric dam projects from Panama to
the Mekong delta, workers striking against
the BP oil refi nery in Grangemouth, Scotland, and communities resisting LNG expansion in Astoria (Oregon, US), Asturias
(Spain) and Aliaĝa (Turkey). These groups
often lack a voice in the international arena,
but their approach already goes far beyond
the default thinking of global elites.
No detours around politics
Q. At the talks you give to American audiences, you are often asked the question,
‘What should I do?’.
But that’s not the answer that people want.
The real question people have, I think, [is],
‘What can I do to bring about an end to
these problems that will be quick and easy?’
… But that’s not the way things work. If you
want to make changes in the world, you’re
going to have to be there day after day doing the boring, straightforward work of getting a couple of people interested in an issue,
building a slightly better organization, carrying out the next move, experiencing frustration, and fi nally getting somewhere…
That’s how you get rid of slavery, that’s how
you get women’s rights, that’s how you get
the vote, that’s how you get protection for
working people. Every gain you can point
to came from that kind of effort.41
Noam Chomsky, 2005
A. Only by American audiences. I’m never
asked this in the Third World. When you
go to Turkey or Colombia or Brazil, they
don’t ask you ‘What should I do?’. They tell
you what they’re doing… These are poor,
oppressed people, living under horrendous
conditions, and they would never dream of
asking you what they should do. It’s only
in highly privileged cultures like ours that
people ask this question. We have every option open to us, and have none of the problems that are faced by intellectuals in Turkey, or campesinos in Brazil… But people
[in the US] are trained to believe that there
are easy answers, and it doesn’t work that
way… You want a magic key, so you can
go back to watching television tomorrow?
It does not exist. Somehow the fact of enormous privilege and freedom carries with it
a sense of impotence, which is a strange but
striking phenomenon… There is no difficulty in fi nding and joining groups that are
working hard on issues that concern you.
Until environmentalists abandon the credo that ‘it’s too late to stop carbon trading
now’, they will be forced to continue to run
through a repertoire of schemes to fi x the
unfi xable – for example, certifying ‘best
practice’ carbon projects, or instituting new
sectoral markets to streamline and simplify
the trade. Frustrated complaints about officials’ ‘lack of political will’ are often heard
from more committed environmentalists
who have become indoctrinated into this
dynamic, yet the more they become enmeshed in roles as market verifiers, monitors
and corporate consultants the less they are
able to face the extent to which they have
been swindled. The harder it becomes then
to acknowledge that political alliances have
been made in a way that has undermined
local struggles and ‘alternatives’.
41 Noam Chomsky interviewed by David Barsamian,
Imperial Ambitions. Conversations on the Post-9/11
World, Metropolitan Books, New York, 2005, p.39.
Carbon Trading – How it works and why it fails
To treat carbon trading as if it were an alternative on a par with the political and social actions mentioned above signals a loss
of political and historical perspective. In this
light, the question, ‘What is your alternative
to carbon trading?’, needs to be turned on
its head. Carbon trading itself is a novel elite
‘alternative’ for addressing climate change
and undermines other, more fruitful mainstream strategies of movements and networks such as those mentioned above. Not
only are these strategies more ‘technically’
realistic than carbon trading, they are more
politically realistic – provided environmentalists and other activists fulfi l their responsibility to help build alliances that can make
them so.
There are no short cuts around the difficult
work of political organising and alliancebuilding. There are no back roads or technofi xes around the historical and international
policies that have created climate change.
No aspect of the debate on climate change
can be disentangled from discussions about
colonialism, racism, gender, women’s rights,
exploitation, land grabs, agriculture and the
democratic control of technology. Carbon
trading will never address these critical issues because the struggle against climate
change has to be part of the larger fight for a
more just, democratic and equal world.
Critical Currents no.
Carbon trading lies at the centre of global climate policy and is projected
to become one of the world’s largest commodities markets, yet it has a
disastrous track record since its adoption as part of the Kyoto Protocol.
Carbon Trading: how it works and why it fails outlines the limitations of an
approach to tackling climate change which redefines the problem to fit the
assumptions of neoliberal economics. It demonstrates that the EU Emissions
Trading Scheme, the world’s largest carbon market, has consistently failed
to ´cap´ emissions, while the UN’s Clean Development Mechanism (CDM)
routinely favours environmentally ineffective and socially unjust projects.
This is illustrated with case studies of CDM projects in Brazil, Indonesia,
India and Thailand.
UN climate talks in Copenhagen are discussing ways to expand the trading
experiment, but the evidence suggests it should be abandoned. From subsidy
shifting to regulation, there is a plethora of ways forward without carbon
trading – but there are no short cuts around situated local knowledge and
political organising if climate change is to be addressed in a just and fair
manner.
Critical Currents is an
Occasional Paper Series
published by the
Dag Hammarskjöld Foundation.
It is also available online
at www.dhf.uu.se.
Printed copies may be obtained from
Dag Hammarskjöld Foundation,
Övre Slottsgatan 2
SE- 753 10 Uppsala, Sweden
email: secretariat@dhf.uu.se
phone: +46 (0)18-410 10 00