The carbon trading scheme
June 7, 2008 5:13 AM   Subscribe

The BBC investigates the carbon trading scheme and finds it flawed. Article and podcast MP3.
posted by DarkForest (19 comments total) 5 users marked this as a favorite
There are at least two kind of pollution reductions we should be focusing on:

1) reduction of present absolute quantities , measured as of today (less co2 than yesterday)

2) reduction of future abs quantities, by the means of employing more expensive, but less polluting methods (we will have half the co2 we would have had without the expensive tech)

Probabily the absolute quantities will not decrease a lot or at all, considering all the new polluters entering the market (china, india, youname it) yet stabilizing them would be quite a good start.

In order to achieve that, a monetary incentive is likely to be well received by anybody, but as the BBC guys try to point out, it doesn't make ANY sense when it creates an incentive to _just use_ clean tech because it costs you less than the incentive you receive ; that's actually an incentive to produce slightly more pollution, without necessarily producing any actual good from the investment.

The incentive should be such that the enterpreneur have a financial benefit for using a method that is actually, unit of produce wise, less polluting than another legal, but less expensive one. The fact that he would have used such a method anyway isn't particularly relevant, unless that method it's the only one as it would be pointless to finance something that can't be better than anything else.
posted by elpapacito at 6:08 AM on June 7, 2008

Surely carbon trading schemes are really just a complex smokescreen put up by politicians to make it look like they are actually acting on climate change. I mean they seem so vastly complicated, impossible to implement that finding the flawed hardly seems to matter.
posted by mattoxic at 6:18 AM on June 7, 2008

Surely carbon trading schemes are really just a complex smokescreen

Agreed. It always looked like a big "shell game" to me, but I get the idea most people buy into it.
posted by DarkForest at 6:28 AM on June 7, 2008

A lot of the problems would be solved if the carbon credits (or agency managing them) claimed ownership to all cash flows generated by their capital investments. The problem lies with a few actors -- First, many of the agencies conflate thier carbon credits with charity. They get to do good for the world, and provide a bonus to the people who let their job exist. Second, those receiving the capital additions clearly see an windfall from the investment and don't question it. Those that do would realize they are grifting the investors.

If my investment saves a company, or simple farmer, on energy costs, that money damn well better be invested in MY projects, not theirs.
posted by FuManchu at 6:47 AM on June 7, 2008

It always looked like a big "shell game" to me, but I get the idea most people buy into it.

I seriously doubt most people are even aware of carbon trading, really, let alone support it. That said, I have a feeling that a lot of the people who are aware of it and support it do so from a "free markets will solve our problems" viewpoint, and not from any sort of objective study of how carbon trading is designed to work.

And, you're is a big old shell game.
posted by Thorzdad at 7:22 AM on June 7, 2008

I buy my groceries with carbon credits.
posted by CitrusFreak12 at 8:13 AM on June 7, 2008 [1 favorite]

It's a flaw, but I don't see it as quite so bad as the BBC article. In the end, companies in developing nations are still getting an incentive to go greener, and at the same time, wealth is being redistributed from the developed world to the developing world, which I like.
posted by owhydididoit at 8:45 AM on June 7, 2008

It's probably important to note that this isn't 'the carbon trading scheme', it's a carbon trading scheme. There are at dozens and dozens of independent schemes, even within single countries.

Whether these criticisms apply to all of them is a good question, given that eventually the goal is to link as many of them together as possible. Given the scale of the CDM it's certainly worth focusing on, but the diversity of schemes around the world should be noted.
posted by Adam_S at 8:50 AM on June 7, 2008

William Nordhaus discusses why a carbon tax is better than cap-and-trade. International harmonization is a key advantage. (Politicians worry about resistance to a new tax, but you can make it revenue-neutral, by reducing income tax at the same time. British Columbia is doing this.)
posted by russilwvong at 8:56 AM on June 7, 2008 [1 favorite]

When I see people leaving their 4x4 plus air conditioner running while they're in the store buying a pack of smokes, or when I shop at my local Canadian supermarket and notice that the snow peas are grown in China, the mathematics of this hits me. Let's say we have a container (earth) with some problems in it, and the problems double every day. Say we start with one problem on January first, and the container is completely full of problems (point of no return) in a year. When is the container half full of problems? December 30th. So on December 29th it is a quarter full, on December 28th it is an eighth full, on December 27th it is a sixteenth full, and on December 26th it is a thirty-second full. So on Christmas day, 359 days in, just six days before the game is up, with the container one sixty-fourth full of problems, does it look like we have problems we can't solve with a little political shell game?
posted by weapons-grade pandemonium at 9:45 AM on June 7, 2008 [1 favorite]

As with usual questions on environment, the best color is always the grey area, in which most answers lie, for example it is less carbon expensive to drive a hummer than to have a baby, but in the grand scheme of things not having offspring is not an ideal situation.

In this case I am afraid the BBC has gone into the bad habits of sensationalism: Would the new power plant running on bio-waste be built without carbon credits? Carbon credits tend to create a whole environment where the sum of all the participants waste products would be stabilized and reduced maybe in the longer term. This particular plant is built because higher oil prices make it economically feasible of course, but also because of local policies that create a friendlier environment for these type of plants. This is driven by the local government needs to lower its total carbon footprint. So indirectly the carbon scheme is helping this power plant to exist in more ways than just providing the funds for its construction.

I would tend to see this as a case of empiricism used in generalisation: A few project appear to contravene to the spirit of the carbon trading scheme, but taken in the context of a whole country applying these poilicies, these projects make perfect sense.
posted by ziadleb at 10:38 AM on June 7, 2008

William Nordhaus discusses why a carbon tax is better than cap-and-trade.

In fact, a carbon tax and a carbon cap and trade system are effectively the same thing. The cap and trade systems run by the government are diffrent then the "Carbon credit" thing where you just wave your hands and say "pay me not to put out X amount of CO2" but it's totally bogus unless the government comes in and restrains things, there is an unlimited 'supply' of credits.

The cap and trade systems put in place to limit other kinds of pollution have actually worked.
posted by delmoi at 10:57 AM on June 7, 2008

Paying for 'reductions' flat will not work. Only when carbon emissions are directly taxed, correctly communicating the cost of carbon to the market, will carbon emissions actually decline.

This whole nonsense about trading emissions credits and stuff is a way to just dodge the issue without really solving it. When corporations are being 'paid to reduce', you just get gamesmanship. Only when carbon is directly taxed, causing emissions to be expensive, will the market do the correct thing.

The problem is that we can't tax across national borders.

This is a fundamental failure of capitalism: the true costs of pollution (and long-term effects in general) are not visible to market participants. You get a strong competitive advantage by ignoring consequences.
posted by Malor at 11:36 AM on June 7, 2008

This is a fundamental failure of capitalism. What? I fail to see what capitalism has to do with it, and don't think pollution has been treated better in any communist nation. It is a problem with ownership and the ability to claim leins on damages. These comment only reinforce the silly notion that pro-environmentalist is anti-capitalist.
posted by FuManchu at 1:01 PM on June 7, 2008

The incentive should be such that the enterpreneur have a financial benefit for using a method that is actually, unit of produce wise, less polluting than another legal, but less expensive one.

Tax it.

The problem is that we can't tax across national borders.

You'd be surprised. We'll see it soon enough, at least in NAFTA I think.
posted by mrgrimm at 1:14 PM on June 7, 2008

Ah very interesting and timely post - many thanks! I'm taking a year off my banking job and I'm determined to get the most out of it; to this end, Carbon Trading has been on the reading list.

In my profile I maintain a list of resources to help people learn about finance in general and The Capital Markets specifically, and I've recently created a section on Carbon Trading and other Market Driven control schemes. I've listed a number of journal articles & books there, and I'll mention a few freely available academic papers here.

This is a very interesting and surprisingly large/complex area, and I'd rather not take an opinion without what no doubt will be a large amount of background reading first (otherwise it's an uninformed opinion and all that entails).

That being said, I'm plugged into a lot of market chatter and do hear rumors about some of the funds starting to poke about into this, apparently looking at Weather Derivatives wrt Carbon Trading which sorta seems obvious, but there you go. So there's definitely opps and I think its a market in infancy with the usual inefficiencies on embryonic markets. They do shake out over time.

Disclaimer: I certainly haven't read all of these articles yet, but I've been assembling a list of things to read to learn about these markets. In any case, Altogether, a very current and interesting part of finance. Lots to learn - many thanks for this post (the podcast was a welcome plus!! I haven't listened to it yet but I will. We don't get too many finance books cast into the audio form ... )
posted by Mutant at 1:16 PM on June 7, 2008

I missed a paper; Milunovich wrote an article called Climate Change and Carbon Trading 101 [.pdf] for Risk Frontiers Quarterly; very accessible.
posted by Mutant at 1:49 PM on June 7, 2008

A recent, short article critical of carbon trading, from Wired. via via
posted by DarkForest at 11:04 AM on June 13, 2008

The BBC has posted the second part of the series here (mp3).
posted by DarkForest at 5:57 AM on June 16, 2008

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