Carbon emissions trading schemes – do they work?

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Kevin Rudd’s plan to scrap the carbon tax in the name of an emissions trading scheme has spurred debates over which carbon reduction system is better. I use the term ‘better,’ as discussions seem to be focusing on costs to Australian families rather than which system is more effective at actually reducing carbon emissions.

The new emissions trading scheme will reportedly ‘ease the pressure’ on Australian families. But the average Australian family pays only $380/year with the carbon tax, less than a standard mobile phone bill for a single person. Rudd should, therefore, be focusing on the bigger picture – the effects of carbon in the atmosphere and which system will actually reduce carbon emissions.

Pollution trading was first suggested in the United States in the 1960’s, becoming popular in the US during the 1990’s Acid Rain program, a cap and trade scheme that successfully reduced sulphur dioxide (SO₂) emissions. The success of the SO₂ program is frequently cited as ‘proof’ that carbon markets will also be effective at reducing Green House Gases (GHG), and was a key driver behind the United States push for market mechanisms to be the main mechanisms in the Kyoto Protocol.

Most emissions trading schemes are cap-and-trade. Cap-and-trade works by quantifying emissions, assigning a set number licences to pollute (emit carbon), then incentivising businesses to meet their cap the cheapest way. Businesses can pay for technology to reduce their emissions, adopt cleaner practices, or purchase licences to emit from other businesses. According to neoliberal market ideology, the market will effectively allocate permits, therefore market based mechanisms are the most efficient way to reduce emissions. For example, Businesses A and B both have 20 permits. Business B finds it cheaper to reduce emissions and only needs 10 permits. It then sells its left over 10 permits (for a profit) to business A. Business A now has 30 permits, Business B 10 permits. Emissions haven’t been reduced, they have just shifted.

In theory, the number of permits will gradually be reduced, forcing business to ‘clean up their act’. This has been shown to work, but only in examples like the SO₂ trading scheme where trading was only allowed within one country, was easy to monitor and only involved one pollutant. When trading is global, emissions are often not reduced, and can even increase.

Kyoto is a prime example. Instead of reducing emissions, the international trading schemes just shifted them around, moving emissions from wealthier nations to poorer ones. How? Businesses simply outsourced their polluting activities to poorer nations in the Global South – India, China, Africa, where environmental laws are less strict and labour cheaper. Businesses also purchased offsets – popular because it is cheaper to pay for emissions savings in the Global South than for abatement costs in the Global North. However offsets themselves have received even more criticism than carbon trading. Offsets are vague, the ‘savings’ in carbon reductions often unprovable and unquantifiable, summarised neatly by journalist Dan Welch as “an imaginary commodity created by deducting what you hope happens from what you guess would have happened.” (Ethical Consumer Magazine, 2007).

So where does this leave the Australian emissions trading scheme? Hopefully Rudd will have the foresight to follow suit from the U.S. SO₂ trading scheme of the 1990s. He will limit trading to within Australia, not allow ‘offsets’, and create a series of strict reduction targets. This, it seems, is the best chance of actually reducing emissions, not just moving them elsewhere.

For further reading on carbon markets see:

• Böhm, S., Misoczky, M.C., and Moog, A. (2012) ‘Greening Capitalism? A Marxist Critique of Carbon Markets’ Organisation Studies. 0(0) p. 1 – 22.
• Davies, N. (2007) ‘The inconvenient truth about the carbon industry’. [Online] The Guardian Available from: http://www.guardian.co.uk/environment/2007/jun/16/climatechange.climatechange
• Gilbertsen, T. and Reyes, O. (2009). Carbon trading: how it works and why it fails.  Critical currents Dag Hammarskjöld Foundation Occasional Paper Series, No. 7
• Newell, P. & Paterson, M. (2010) Climate Capitalism: global warming and the transformation of the global economy. Cambridge: Cambridge University Press