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Carbon Trading
How 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 Trading
Classroom 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 superpowers 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
Quasi-Privatization of Existing Global Carbon Dump by the UK
Proposed National Allocation under
the EU Emissions Trading Scheme, 2005
Industrial
Sector
Annual gift of
pollution
rights
(mtCO2)
+/- Average
annual
emissions
1998-2003
% of
Approx. value
‘available’
@ €26/tCO2
world above(pre-crash)
ground carbon
dump
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
“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 profits
for European fossil fuel-intensive corporations
____________________
BP, Esso, Shell
$ millions/year
RWE (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 . . . oldfashioned 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)
90
80
70
60
50
40
30
20
10
0
NR
R
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)