Carbon TradingHow Does it Work in Practice?

Kolkata, 17 March 2007

ONE GOAL:To reduce short-term costs of modest emissions cuts for large companies(World Bank:‘to reduce the costs of emissions reductions for industrialised countries’*).

TWO MEANS:Emissions trading (“cap and trade”).Trading in carbon credits from

“offsets” or special “carbon-saving” projects.

*Ken Newcombe, Prototype Carbon Fund,, Bonn, 6 June 2000

MEANS #1

Emissions TradingClassroom Theory

Markets require private property rights

The Kyoto Protocol, the EU Emissions Trading Scheme, etc. require a new global property settlement . . .

. . . which, so far, has transformed industrialized societies’ de facto “occupation of the atmosphere”* into a de jure distribution of assets to them.

*”Economic super powers have been as successful today in their disproportionate occupation of the atmosphere with carbon emissions as they were in their military occupation of the terrestrial world in colonial times.”

Andrew Simms, New Economics Foundation

Industrial Sector

Annual gift of pollution rights (mtCO2)

+/- Average annual emissions

1998-2003

% of ‘available’ world above-ground carbon dump

Approx. value @ €26/tCO2

(pre-crash)

Power 145.3 -6% 1.5-3.0 €2.180b

Iron/steel 23.3 +16% 02.-.05 350m

Refineries 19.8 +11% 02.-.04 297m

Offshore 19.1 +14% 02.-.04 287m

Cement 10.7 +18% .01-.02 161m

Chemicals 10.1 +12% .01-.02 152m

Other 23.7 +17% .02-.05 357m

TOTAL 252.0 +2% 2.6-5.1 €3.780b

Quasi-Privatization of Existing Global Carbon Dump by the UKProposed National Allocation under

the EU Emissions Trading Scheme, 2005

“ETS has done nothing to curb emissions . . . is a highly regressive tax falling mostly on poor people . . . Enhances the market power of generators. Have policy goals been achieved? Prices up, emissions up, profits up . . . so, not really.”

Peter Atherton, Citigroup Global Markets, January 2007

“All generation-based utilities – winners. Coal and nuclear-based generators – biggest winners. Hedge funds and energy traders – even bigger winners. Losers . . . herm . . . Consumers!”

Ibid.

Windfall profitsfor European fossil fuel-intensive corporations

____________________

BP, Esso, Shell $ millions/yearRWE (Germany) US$1 billion/year

Big six UK generators $1.2 billion/year

CEZ (Czech Rep.) $150 million/3 years

____________________

Disputes over property • N vs. S • Business vs. business• Business vs. government, EU overallocations

no scarcity price crash

*Threatened lawsuits in EU

*“Greatest property rights theft in NZ history” say forest owners.

• Trading proponents vs. the public?

Emissions trading “would make money for some very large corporations, but don’t believe for a minute that this charade would do much about global warming . . . old-fashioned rent-seeking . . . making money by gaming the regulatory process.”

Wall Street Journal, 3 March

“European Commissioner for Energy gives damning verdict . . . ‘A failure’ . . .”

TV Channel 4 Evening News, London, lead story, 7 March

The EU ETS “has not encouraged meaningful investment in carbon-reducing technologies.”

Tony Ward, Ernst & Young, May 2006

“There is no reason to expect that countries will reduce their greenhouse gas emissions to comply with quotas that cannot be effectively monitored and enforced.”

Daniel Cole, Indiana University

MEANS #2

Offset Trading (including CDM)Classroom Theory+

+

In practice . . .

Another

resource

grab . . .

What’s worse . . .

Equivalences can’t be verified

This gives “carbon consultants” even freer rein to come up with fanciful numbers allowing corporations to swindle, seize assets and close out alternative futures

Business as usual

Negative climatic effects

+

Unverifiability makes gaming easy

Example: 125 MW registered wind project in Karnataka

– Wind energy investments attract accelerated depreciation of 80% in the first year

• Effective tax shelter of 24% of the project cost (at corporate tax rate of 30%)

– Wind energy gets a 10 year income tax holiday– IRR in PDD: 7.3%– IRR without tax benefits calculated by independent observer:

11%– IRR with tax benefits: 22%

Source: Axel Michaelowa, Perspective GmbH

“The argument that producing pig iron from charcoal is less bad than producing it from coal is a sinister strategy . . . What about the emissions that still happen in the pig iron industry? What we really need are investments in clean energies that contribute to the cultural, social and economic well-being of local populations.”

Letter from 50 trade unions, local groups and academics, Minas Gerais, Brazil

% of CERs generated/yr (April 2006)

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RNR LH E

FROM THE HORSES’ MOUTHS:

“The carbon market doesn't care about sustainable development. All it cares about is the carbon price.”

Jack Cogen, Natsource

“[F]ew in the market can deal with communities.”

Rabobank official

“It is widely recognized that . . . [the bulk of CDM projects] have no direct development benefits.”

Holm Olsen, UNEP

The CDM is “not working.” CDM Gold Standard staff member

OVERVIEW: Carbon trading Delays transition away from fossil fuels in the

North “tipping points” come closer in South as well.

Impedes transition away from fossil fuels in South livelihood problems including (again) climate problems.

Provides new finance for corporate or state “bad citizens” in local areas, destroying lives and livelihoods.

Is not compatible with more constructive approaches (i.e., it is not a mere “instrument” or “tool”).

Trading delays transition away from fossil fuels in the North “tipping points” come closer in South as well.

• ET creates and hands out property rights to the biggest polluters in the North, increasing their power and the inertia of a fossil-intensive system.

• Neither ET nor CDM selects for immediate investment in long-term structural change in the North.

• Climatic benefits of CDM credits can never be verified, injecting climatically meaningless currency into a system already awash with a surplus of pollution permits.

• Measurement and enforcement is currently insufficient even for ET.

Trading impedes transition away from fossil fuels in the South livelihood problems including (again) climate problems.

• Most CDM projects have zero or negative effects on a transition from fossil energy: gas capture projects generate 72% of CDM credits, renewables 2% associated effects on life and livelihood.

• Genuinely constructive Southern movements and initiatives are not recognized in the carbon market. Property ownership in purported new carbon dumps is dependent on command of technical Northern expertise. Carbon credit generators are generally in conflict with local people.

CDM tends disproportionately to provide new finance for corporate or governmental “bad citizens” in local areas destroying lives and livelihoods.

• Well-capitalized, highly-polluting firms are best able to hire consultants, get official approval, generate large blocks of cheap credits, etc.

• Local-friendly renewable projects tend to be fiddly, small, expensive per credit generated, and unable to capture green finance.

• The trade is structured in order to annex land, air and community futures in the South.

“The complete relinquishment of land and labor to the market mechanism would result in the demolition of society.”

Karl Polanyi (1944)