A DANGEROUS OBSESSION THE EVIDENCE AGAINST CARBON TRADING AND FOR REAL SOLUTIONS TO AVOID A CLIMATE CRUNCH Urgent action is needed to bring down The report fi nds that carbon Relying on carbon trading to tackle global greenhouse gas emissions and trading is not delivering the urgent climate change is gambling with the avoid catastrophic climate change. cuts in emissions needed to prevent future of billions of people. The report on which this summary catastrophic climate change, is A completely different, faster and is based evaluates whether carbon failing to realise promised incentives more strategic approach is needed – trading can deliver these emissions for investment in new low-carbon one that relies on simple, direct and reductions quickly, strategically, and in technology, and is a dangerously proven policy tools such as taxation, a just and equitable way. It also looks unstrategic approach to making the regulation and public investment. At at what alternative tools are available transition to a low-carbon economy. the same time, governments must to governments. Carbon trading schemes rely on tackle the underlying drivers of uneven offsetting, a controversial, ineffective development which prevent developing and increasingly discredited countries from tackling climate change mechanism. They also risk a repetition themselves, while promoting poverty of the subprime mortgage crisis, reduction and sustainable development. and provide a smokescreen for rich developed countries’ failure to provide developing countries with adequate support to tackle climate change. 7 Dangerous obsession / Friends of the Earth Tackling greenhouse gas emissions greenhouse gas emissions or ABOUT THIS SUMMARY to prevent dangerous climate provide this much-needed fi nance This is the Executive Summary change is one of the most pressing to the developing world. of a report prepared by Friends challenges facing humanity. The In this context carbon trading is of the Earth England, Wales chance of keeping global average increasingly being put forward as and Northern Ireland for its temperature increases below the a tool for tackling climate change. 1 Demand Climate Change critical threshold is fast slipping Proponents of carbon trading argue campaign. The full report is away. It requires a peak and that it helps to reduce emissions, and being distributed to decision decline in global emissions by that it does this at the lowest cost, makers, media and campaigners 2015. Rich developed countries stimulates investment in low-carbon ahead of the UN climate talks in are responsible for three quarters infrastructure and can help generate Copenhagen in December 2009. of emissions historically despite fi nance for developing countries to For the full report, visit: http:// representing only 15 per cent of tackle climate change. www.foe.co.uk/resource/reports/ the world’s population. They have Friends of the Earth’s report on which dangerous_obsession.pdf a legal and moral obligation to this summary is based evaluates make the biggest reductions and to whether carbon trading can provide fi nance and technology to deliver the necessary emissions Author developing countries to compensate reductions quickly, strategically, Sarah-Jayne Clifton for climate impacts and support and in a just and equitable way. It clean development. But developed Editor also looks at what alternative tools are countries have largely failed to available to governments. Martin Cullen take suffi cient action to reduce Editorial Advice Professor Steve Rayner, Oxford University; Larry Lohmann, The Corner House; Professor Gwyn Prins, London School of Economics; Dr Yacob Mulugetta, University of Surrey; Oscar Reyes, Transnational Institute. Photo:iStockphto.com 1 G8 countries have agreed on the need 3 See estimates on mitigation and adaptation to prevent global average temperature fi nance from The Africa Group of Nations increase of 2 degrees Celsius over pre- and the United Nations: Africa says poor industrial times. This would still threaten need $267 bln/yr in climate fi ght. Reuters, the existence of low-lying small island 20 April 2009: http://www.reuters.com/ states. The Alliance of Small Island States article/latestCrisis/idUSLK631928; and (AOSIS) is calling on the global community Fighting climate change: Human solidarity to aim for a 1.5 degree target: http://www. in a divided world, Human Development presstv.ir/detail.aspx?id=106831&section Report 2007/2008: http://hdr.undp.org/en/ id=3510212. reports/global/hdr2007-2008/. 2 Meeting Carbon Budgets – the need for a 4 See reference 3. step change. Progress report to Parliament Committee on Climate Change October 2009, p70: http://hmccc.s3.amazonaws. com/21667%20CCC%20Report%20 AW%20WEB.pdf. 2 Dangerous obsession / Friends of the Earth CARBON TRADING The basics The global carbon market • Carbon trading is the buying and selling of an artifi cial • ETSs are already operating or planned in 35 countries commodity – the right to emit carbon dioxide. around the world. • It is a market-based mechanism and is an indirect • The European Union Emissions Trading Schemes (EU tool for tackling emissions, in contrast to more direct ETS) is the world’s largest carbon trading market. tools available to governments such as investment and • The global carbon market has roughly doubled in size regulation. every year since 2005 and was worth US$126 billion in • Emissions trading schemes (ETSs) are created by 2008. government regulation with the following steps: • It has been predicted to grow to a market value of 1. An upper limit – or cap – is set on emissions from a US$3.1 trillion per year by 2020. sector or sectors of the economy. • UK businesses are the biggest investors in carbon offset 2. Businesses in those sectors are given or auctioned projects globally. permits for a proportion of those emissions. • The UK Government and the European Union are major 3. Businesses that don’t use all of their allowances proponents of carbon trading. They are pushing for can sell their surplus to others that exceed their the extension of the schemes to developing countries allowance. and the inclusion of new international carbon trading mechanisms in international climate negotiations. • All existing and planned ETSs allow for the inclusion of offsetting. • A wider variety of actors including banks and investment funds are active in the carbon markets and there is increasing use of complex fi nancial instruments known as derivatives. PROBLEMS WITH CARBON TRADING The report identifi es six central problems with carbon trading, namely that it: 1. Is ineffective at driving emissions reductions. 2. Fails to drive technological innovation. 3. Leads to lock-in of high-carbon infrastructure. 4. Allows for, and relies on, offsetting. 5. Creates a risk of subprime carbon. 6. Provides a smokescreen for lack of action on climate fi nance by the developed world. Dangerous obsession / Friends of the Earth 3 The report fi nds that: 3. Carbon trading risks a carbon 5. Proposals to reform carbon subprime crash trading are unrealistic 1. Carbon trading fails to deliver The complexity of the carbon markets, Powerful vested interests from industry necessary carbon cuts or technical and the involvement of fi nancial and fi nance have exerted a signifi cant innovation speculators and complex fi nancial infl uence over emissions trading Carbon trading is not achieving the products, carries a risk that carbon schemes. Given these interests’ emissions reductions promised, nor trading will develop into a speculative historical impact and continued is it driving the major technological commodity bubble that could provoke infl uence it is likely that the sweeping innovations that are needed to shift our a global fi nancial failure similar in changes needed to emissions trading economies to low-carbon pathways. scale and nature to that brought about schemes to address these problems The fi rst phase of the EU ETS (2005- by the recent subprime mortgage and increase their effectiveness would 2007) has failed and Phase II (2008- crisis. Such a crisis would risk further meet powerful resistance. Wholesale 2012) looks on course for a similarly undermining the effectiveness of reform of carbon trading in the time dismal outcome. The perverse trading as a tool for delivering cuts in available looks unrealistic. incentives created by the trading emissions, and a far greater chance of mechanism itself – particularly the catastrophic climate change if carbon 6. Proposals to extend carbon focus on low-cost solutions – is further trading is adopted as the primary tool trading are dangerous locking us in to high-carbon pathways. for delivering emissions cuts globally. It is implausible that a global cap and The UK’s respected Committee on trade system could be established Climate Change recently confi rmed 4. Carbon market finance is a within the time available to avoid this: “We cannot therefore be smokescreen for inaction dangerous climate change, even if confi dent that the EU ETS will deliver Carbon markets are failing to generate it could be agreed and made just, the required low-carbon investments the fi nance that is urgently needed equitable and operationally effective. for decarbonisation of the traded for developing-country mitigation and Pursuing carbon trading as a key 3 sector through the 2020s. Given this adaptation. What’s more, developed tool for tackling climate change at risk, the Committee recommends that countries are using the prospect of the expense of more effective policy a range of options