Carbon Trading

Basic rationale
Launched through the Kyoto protocol in 1997, carbon trading is an approach to controlling pollution by providing economic incentives for reduced emissions of atmospheric carbon dioxide. Carbon trading takes two main forms: cap and trade and offsetting. With cap and trade schemes, governments or intergovernmental bodies set an overall legal limit on emissions in a certain time period (a cap) and then grant industries a certain number of licenses to pollute (carbon permits or emissions allowances). Companies that do not meet their cap can buy permits from others that have a surplus (hence the trade). The cap is supposed to reduce emissions over time. The goal of the system is to help polluters meet reduction‖ targets in the cheapest way possible. Often linked with carbon offsetting schemes, or emissions-saving projects‖ such as building hydro-electric dams, the cap and trade‘ concept was created to compensate for continued pollution in industrialised countries in the North. While southern movement and some governments ask for repayment of the Ecological Debt (including the carbon debt), Northern governments offer at most cap and trade schemes, including the CDM and REDD.

Limits and controversies
Carbon trading does not actually reduce emissions, but gives companies greater room to manoeuvre in addressing the emissions problem (hence the name flexible mechanism). Companies exceeding their reduction commitments can sell their surpluses to those who have failed to clean up their activities 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. The number of permits awarded is usually calculated according to existing levels of pollution (say, with a 10 or 20 per cent reduction), which means that those who have polluted most in the past are rewarded with the greatest subsidy. This is usually called grandfathering. Hence the observation that 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‖ (Gilbertson and Reyes, 2009). At world level, this is what happened in Kyoto in 1997: Annex I countries promised (if anything) a slight reduction of emissions compared to 1990, and they got in exchange a right to occupy the carbon sinks and the atmosphere. Moreover, they insisted in not doing internally the promised reductions but they wanted to use in part the CDM.

The UN-administered Clean Development Mechanism (CDM) is the largest carbon offsetting scheme, with almost 1,800 registered projects as of September 2009, and over 2,600 further projects awaiting approval. Based on current prices, the credits produced by approved schemes could generate over US$ 55 billion by 2012. Although offsets are often presented as emissions reductions, they do not reduce emissions at source, but 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 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 World Bank officials, accounting firms, financial analysts, brokers and carbon consultants involved in devising these projects often admit privately that it is difficult to count the actual amount of carbon dioxide saved.

The difficulty is this: ―Offsets are an imaginary commodity created by deducting what you hope happens from what you guess would have happened (Welch, 2007). 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 may well be an increase in greenhouse gas emissions!

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 sometimes similarly negative consequences on the communities forced to endure them. Gilbertson and Reyes (2009) add that 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‖.