What is Carbon Trading and why isn’t it a Viable Form of Sustenance?

Industrialization was the stepping stone towards growth and development. However, it was done at the cost of utilizing fossil fuels which had long-term repercussions. Carbon Dioxide (CO2) was the immediate byproduct of burning these resources, which was given the least attention then. Over time, carbon emissions became directly proportionate to growth and development until the introduction of the Kyoto Protocol- which sought to reduce Greenhouse Gas (GHG) emissions, with being its predominant cause. The Protocol aimed to create a balance between development and sustainable living by introducing three flexible mechanisms- emission trading, joint implementation, and clean development mechanisms (CDM’s), thus forming what we call today’s carbon market1.

Carbon trading, although a nebulous concept, refers to the trading of ‘carbon credits’ or reduction in CO2 emissions2. One carbon credit is equivalent to the reduction of one tonne of carbon emissions3. John Mimikakis opines that the trade between carbon credits and offset programs like the CDM is one of the cheapest and most politically feasible ways for countries, especially industrialized ones to reduce their emissions4.

Carbon trading was influenced by the pollution scheme in 1960 when the North American economists proposed a pollution-trading mechanism to be used for lead, nitrogen oxide, sulphur dioxide, and other pollutants prominent in the 1970s and 80s5. What’s interesting to note is the two kinds of carbon trading- emission and project-based credits. While emission trading involves the buyer purchasing emission allowances created and sold by regulators under cap-and-trade regimes, project based-credits are compliance assets that have to be ‘created’ through certain high risk-inherent processes which are also significantly higher in transaction costs6. Trading is not only limited to carbon emissions, but other GHG emissions like- methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride as well. Because these gases differ in potency and lifespan, they do not necessarily represent the same threat to the environment; hence, they are not equivalent to emission reduction benefits7. For example- the emission of one ton of hydrofluorocarbons is equivalent to the global emission of 11,700 tons of carbon dioxide, thereby placing more importance on the reduction of HFC emissions8. This method prioritizes projects that target potent greenhouse gases, thereby regulating emission projects.

Despite these carefully thought-out mechanisms, rules and regulations, emissions have not gone down; rather they have increased substantially. Global warming and climate change have become bigger issues and little is being done to bring about change. Why is this the case?

Carbon Trading has proven to be a very poor choice toward sustainable living because of the following critiques; some from an objective standpoint and others from an ethical one.

1. The first and foremost issue of the carbon market is the presumption that the connection between emission and climate change is a linear one- that a one-to-one tradeoff exists between the emission and offsets, and that carbon credits are homogenous or equally valuable when carbon dioxide is emitted9. This presumption is entirely misunderstood because their relationship is the exact opposite- complex and non-linear. Various other factors are taken in while considering climate change; it’s not specific to one part. The market also assumes that the carbon credit is of the same value whenever emitted. This is not the case since it greatly differs with space and time10. Furthermore, carbon emission doesn’t cause a uniform increase of surface temperature; it is influenced by the interaction of carbon dioxide, water vapour and other atmospheric elements.

2. Secondly, carbon emissions are treated as a tradeable commodity, which reduces its moral value to a business transaction. The Protocol’s necessity to create this mechanism is lost if the allowance system is perceived as an expense/ cost to the industry11. Moreover, this works to the advantage of developed/industrialized countries since they avoid a reduction in their own emissions, by purchasing allowances from other developing countries. This undermines the goal placed by the Protocol in the first place.

3. Thirdly, the commodification leads to a “crowding-out” effect- which essentially disrupts environmental ethics by relaying the idea that participants are allowed to pollute, given that they compensate or nullify the effects caused12. The danger is higher with carbon trading since the market value pushes out the non-market values by using pollution permits as an instrument of profit thereby hollowing out the (ethical value of) respect for nature13. Additionally, this ideology does little to reduce the carbon footprint14.

4. Fourthly, carbon credit trading can cause three gaming issues- (i) create revenues that fund fossil fuel production- while CDM’s goal was to promote cleaner energy sources, few regulators have approved of fossil-fueled projects, since they fall within the CDM boundary15. (ii) Greenhouse gases can be emitted just to produce extra credits- evidence shows that some type of carbon credits have become very easy to produce such that firms emit GHG only to then stop emitting them to produce credits16. This is not only limited to carbon dioxide but other GHG emissions as well. (iii) Emission “leakages” have become quite severe- especially in areas with poor governance structures and lax regulations17. Leakages can be classified into two kinds- between locations (a chemical firm can relocate to a new country to escape regulation or have lesser compliances) or market leakage (where restrictions on emission directly impact the prices which, eventually have deteriorating effects on the climate)18.

5. Fifthly, it perceived that those who have bought carbon offsets have fulfilled their climate responsibility; this should not be the case. Carbon offset functions are a huge financial tool for certain individuals/firms that allow them to avoid fulfilling their environmental responsibility19.

These are some of the many critiques of the carbon market and trading. More than the policy, it’s the attitude of individuals and firms that have gotten us to the position we are currently in. Economic development is always given an upper hand, even if it is at the cost of destroying and utilizing our resources, but how long will that last for? Given that it is the only means of living for individuals (some more than the others), conscious change should be implemented, firstly, by those individuals who can afford to do so. By helping those in need, sustainability can be achieved, albeit slowly, but achieved nonetheless. The carbon trading system should be strictly regulated, the cap-and-trade system should be overlooked properly so that rules and regulations cannot be bent to the advantage of developed countries. The world has finally woken up, this should be our chance to finally fix the mess we have created!

1 Kamminga, Menno R. “The Protestant Dimension of the Ethical Critique of Carbon Commodification.” Philosophia Reformata, vol. 80, no. 1, 2015, pp. 57–77. JSTOR, http://www.jstor.org/stable/24710009. Accessed 8 July 2020.

2 CALDER, ALAN. Compliance for Green IT: A Pocket Guide. IT Governance Publishing, 2009. JSTOR, http://www.jstor.org/stable/j.ctt5hh4cn. Accessed 8 July 2020.

3 Ibid.

4 Johnson, Mark, and Hannah Wittman. “Carbon Trading.” Frontiers in Ecology and the Environment, vol. 6, no. 1, 2008, pp. 10–10. JSTOR, http://www.jstor.org/stable/20440785. Accessed 8 July 2020.

5 Kumar, Swatanter. “CARBON TRADING.” Journal of the Indian Law Institute, vol. 52, no. 3/4, 2010, pp. 319–331. JSTOR, http://www.jstor.org/stable/45148526. Accessed 8 July 2020.

6 Ibid.

7 Ibid.

8 Ibid.

9 Sovacool, Benjamin K. “FOUR PROBLEMS WITH GLOBAL CARBON MARKETS: A CRITICAL REVIEW.” Energy & Environment, vol. 22, no. 6, 2011, pp. 681–694. JSTOR, http://www.jstor.org/stable/43735038. Accessed 8 July 2020.

10 Ibid.

11 Kamminga, Menno R. “The Protestant Dimension of the Ethical Critique of Carbon Commodification.” Philosophia Reformata, vol. 80, no. 1, 2015, pp. 57–77. JSTOR, http://www.jstor.org/stable/24710009. Accessed 8 July 2020.

12 Ibid.

13 Ibid.

14 Ibid.

15 Sovacool, Benjamin K. “FOUR PROBLEMS WITH GLOBAL CARBON MARKETS: A CRITICAL REVIEW.” Energy & Environment, vol. 22, no. 6, 2011, pp. 681–694. JSTOR, http://www.jstor.org/stable/43735038. Accessed 8 July 2020.

16 Ibid.

17 Ibid.

18 Ibid.

19 Supra note 12.