Carbon trading will fail if it does not move forward

Aubrey Meyer, founder of the Global Commons Institute, tells edie why he believes emissions trading in its current form is floundering - and the contraction and convergence framework he has developed could help address the issue.

The proposal to ‘trade’ carbon permits was introduced at the time of the UN Earth Summit in 1992. A policy debate had emerged that led to the creation of the international climate treaty, the United Nations Framework Convention on Climate Change (UNFCCC) that year.

The objective of this was and still is to stabilise the rising concentration of carbon dioxide [CO2] and other greenhouse gases [ghgs] in the global atmosphere, in order to avoid dangerous rates of global climate change.

Because the atmosphere has been accumulating as ‘stock’ the flow of our emissions to it for the last two hundred years, stabilisation of ghgs there now requires very deep cuts in emissions of up to 80% globally.

Considering the 20% of people living in the industrial countries have caused 80% of this build-up and have generated most of the global purchasing power off this, global relations between these countries and the rest are not very promising for making the global arrangements necessary to avoid climate change.

However, to make a start the Kyoto Protocol to UNFCCC was negotiated. Presented as a ‘market-friendly’ contribution to achieving the treaty’s objective, emissions-trading was put forward as having the virtues of flexibility and choice and lowering the costs of regulation to avoid pollution. The idea was that as they ‘save money’, markets are ‘efficient’.

The fundamental and unavoidable requirement in this particular market is the ‘capping’ of carbon emissions – such as CO2 – that arise to the global atmosphere as a result of fossil fuel burning. This means that these carbon emissions have to be unitised as the tradable resource only comes into existence – and theoretically acquires a ‘price’ – as a result of this innocent seeming detail of ‘measurement’.

The detail is anything but innocent because the big-picture is diabolical. The combustion of fossil fuel means two things; the benefits of wealth creation and the costs of climate change caused by its pollution. The trends of climate change that over the last 200 years we have already caused with this economy has raised CO2 concentration in the global atmosphere by 40%, temperature by one degree Celsius and economic damages from un-natural weather related events to a rate that is twice the rate of economic growth.

Theoretically, if the market is to balance the benefits of wealth creation with the benefits of avoided climate change, the equilibrium price of carbon consumption in this market cannot be different from the equilibrium of stable global climate. With people already dying in millions all round the world in increasingly un-natural weather-related events, droughts and famines leading to climate change, this equilibrium between carbon and climate looks increasingly like a pipe dream.

This begs the core question: – can the pollution causing climate change be avoided while the creation of wealth is maintained? The value of the permits created by capping emissions and the reason for there being a market at all, are only credible if the whole process is rationally linked to achieving the objective of the climate treaty.

The problem here is that we don’t have a whole process. The treaty and its objective are global and for success, require a whole process by definition.

The bit of it we have is the Kyoto Protocol which is anything but whole and more than rhetorically linked to the treaty’s objective. As it excludes most countries and their emissions control, and includes countries, mostly in Europe, that repeatedly realize that they cannot fairly or effectively compete with those that are excluded, the European Emissions Trading Scheme is in deep trouble.

The scheme has been part of an attempt to ease the rites of passage towards what is projected as ‘a low carbon economy’. The carbon commodity or ‘tradable emissions permits’ and the price of these relate fundamentally to the measurement challenge of how these are conceived and allocated.

Now, as part of an attempt to persuade reluctant entities into this market, permits were both given away and over-allocated within it. Apart from the very questionable issue of effectively paying polluters to join, supply exceeded demand, the price dropped and conditions were created for what one might call aggravated carbitrage or carbon-carpet-bagging.

The dimensions of the Enron scandal on the same issue seem small by comparison.

In November this year the UN climate negotiations resume in Nairobi. The hot-topic is now what comes after 2012 when Kyoto ‘expires’. The question is do we still have time to recover from the wobbly period with Kyoto and establish a rational full-term and inclusive global framework that is ghg concentration-target-based as called for by the UK Prime Minster.

The Africans already take the bulk of climate damages. The Africa Group at the UN negotiation have advocated such a framework for ten years based on universally equal rights to emissions subject to the global limit that secures the equilibrium ghg concentrations that safe and stable climate require.

It is known in the process as “Contraction and Convergence” (C&C) and observes that for emission trading to work this is the framework needed for some hope of success.

Here is an example:

The UK government has finally said this month that they will respond positively to this call in November. It is widely supported including in the UK parliament, where a C&C Bill will be read in July.

With this we have the beginnings of a political process around what is really the UNFCC&C in the UK that may yet re-establish the equilibrium needed for our survival.

C&C definition statement and Bill is here.

Zoomable global past/future C&C map.

Animated C&C demonstration is here.

C&C pledge statement is here.

C&C support and background is here.

C&C history is here.

C&C news-service is here.

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