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Shifting climate policies from C02 emissions trading to green investment
The focus on C02 trading has been a policy mistake.
The UN Framework Convention on Climate Change (UNFCCC) facing political inaction over rising carbon dioxide (CO2) levels from fossil fuel burning – sees solar, wind and other renewable energies as the way forward. Successive stalemates at climate summits in Copenhagen (2009) and Cancun (2010) have led to a re-think. The Kyoto Protocol expires in 2012. Its global focus on CO2 emissions and trading schemes based in London and other financial centers became suspect. Wall Street’s meltdown in 2007-2008 revealed many sleazy practices, conflicts of interest and fraud, still under investigation. This and fossil fuel lobbies doomed prospects for a national “cap and trade” bill in the US Congress. Widespread fraud in trading CO2 “offsets” led the UN police agency INTERPOL to warn that the next white collar global crime wave would likely be in trading these carbon derivatives. Republicans and “climate deniers” in the US identified cap and trade as a tax and asked why it should not be collected by governments rather than by Goldman Sachs! Some taunted “if you like credit default swaps, you’ll love carbon derivatives!” How did global climate policy run aground in Copenhagen (2009)? Many blame unrealistic ambitions for such a sweeping global agreement structured around legitimate conflicts between the main CO2 emitters in the “rich” countries and the less-developed nations which had so far emitted far less CO2. Thus the climate debate in Kyoto in 1997 covered arguments about fairness, assigning blame for human effects on climate, demands for justice and compensation. Emission-trading schemes were devised to bridge these divides between North and South, using “neutral” market mechanisms. These markets for carbon in the Kyoto Protocols included a Clean Development Mechanism (CDM) to compensate developing countries for shifting to low-carbon technologies and development. Traders in Wall Street and London’s big banks hailed these “financial innovations” and set up trading desks and exchanges.
Large polluting industries in Europe’s Emissions Trading Scheme (ETS) quickly gamed the Kyoto Protocol. They lobbied EU governments for so many free CO2 emission permits that they crashed the ETS markets for CO2. Then, instead of shifting from fossil fuels to wind, solar, geothermal and energy efficiency, polluting industries purchased “offsets” under the CDM to fund projects in developing countries. Verification of these projects proved almost impossible, since so many would have happened any way, for sound business reasons like energy efficiency and more productive, cleaner technologies. Most of the offsets under CDM went to China – allowing it to develop solar, wind and clean technologies. Now China has developed and captured these export markets; it has stopped selling “offsets” to Europe’s polluting industries – which must now go green and buy their new equipment from China. Why did the climate issue focus so closely on CO2 and global trading of its derivative “offsets”? I reported in Building a Win-Win World (1996), how economists had through their professional associations succeeded in “capturing the climate issue for our profession.” Economists pushed policy proposals for “market-based solutions” to climate change in the US Senate during the Reagan and Clinton administrations. Influenced by the ideologies of conservative economists and elite environmentalists, they joined the push to privatize, deregulate and promote expansion of market-based globalization. Thus, US policy dominated the UN’s first climate summit in Kyoto in 1997, and led to the CO2 emissions-trading approach of the Kyoto Protocol. The focus on CO2 (with lesser attention to other more polluting greenhouse gasses: methane, NOx, VOCs) followed largely because financial traders on Wall Street and in London needed a single commodity: carbon, to construct tradable financial instruments. Many developing countries were dubious about “cap and trade.” They were understandably suspicions about turning their climate policies over to
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