Op-Ed: Carbon trading, the new futures market?

When you’ve got a problem, don’t solve it, make an industry of it. A bit of applied accountancy has discovered that Australia’s hard pressed farmers could make a few billion a year in carbon credits trading. Good for farmers, globally, maybe. But..

According to ABC Australia the possible cash benefits would do a lot for the sector, about $3 billion a year. Certainly wouldn’t hurt. If it helps the rural sector, great, but there’s a dilemma with this idea, and it’s a systemic problem with the idea of carbon trading. First the basics. Carbon trading is selling the “right to pollute” by those who have carbon credits to those who pollute above emission targets. In theory, it's a disincentive to polluters. In practice, there are other factors at work, and they're all financial, not environmental. The potential cash values are enormous. Think of the smokestacks in the picture as money in the bank for someone. As American Chronicle relates: “To sell these credits as individual companies, you need to register your energy-saving and carbon-suppressing projects with the United Nations and get U.N. certification. Therefore, the U.S. companies cannot do that yet directly. That's why London is right now the busy hub of the $25 billion carbon credit trading market where 60% of all transactions take place – compared to only 10% in the U.S.” The article goes on to enthuse about the idea, and indicates that states like California are pressuring Washington to sign the Kyoto Protocol: “However, the U.S. investors already take part in this new exciting market through various hedge funds that deal in the 200-member Chicago Climate Exchange, Inc.” Exciting new market… hedge funds… yeah, that sounds like a maximum level of altruism, sensitivity, responsibility and understanding is at work. The theory is that as the levels of permissible emissions are reduced, the pollution becomes more expensive. Fine, but it also makes carbon credits much more valuable. There’s a lot of ways around it, and it does nothing directly about the massive amount of highly chemically active carbon in the atmosphere, people’s lungs, and their food. Carbon is not a passive chemical. It has a double bond, and would be better considered to be as active as oxygen, the other double bonded maverick molecule, in terms of its presence in people's bodies. The stuff is dangerous, because it can bond with practically anything. Think of it as like petrol. Put a few drops on any protein, and watch what happens. Ironically, C02 is relatively stable, and chemically harmless. To be broken down, it has to be processed, (like plants do) or it just stays as it is, inert. Raw carbon is highly volatile. So finding reasons to keep emitting it, let alone make money out of it, is a rather debatable series of ideas. There’s another damning indication: the markets haven’t come up with objections. Nor have the polluters. There’s been a thunderous, monastic silence on any possible drawbacks to carbon trading. In theory, it costs them money, so why no whining? This is how it works: 1. Farmer Jones has a renewable energy source. 2. He has a carbon credit of 25% in the form of royalties, as per the ABC article. 3. Carbon credits are required by WXYZ Inc. 4. Instead of cutting emissions, which requires some retooling and related costs, WXYZ Inc buys carbon credits, allowing the extra emissions. It figures out cheaper. On the other side of the equation, it supposedly encourages people to create marketable carbon credits by generating clean energy. 5. WXYZ, however, doesn’t care where it buys the credits. The market buys up carbon credits and sells them to polluters on the same basis. 6. At no point is the polluter required to actually cut emissions, at least not by the carbon trading system itself. 7. A lot of money is likely to be made, the bigger the differential between emissions and emission targets. In theory, lower targets would mean the market makes more money. No incentive at all for lower emissions, in that direction. So you can have as many toxins as you like, provided someone’s prepared to pay for them. That’s not the intention of the idea, but it will be the likely result. Ever here of a market being keen on putting itself out of business? Because the markets are apparently all in favor of carbon trading. Actually the pity of it is the people do deserve to be rewarded for making the effort to reduce emissions, and this would be a financial reward with practical uses for people like the Australian farmers. The rural sector, generally, has the space to include a lot of valuable ecological innovations, and definitely shouldn’t be discouraged from doing that. The carbon trading system additionally suffers from the fact that it could become so big it would be impossible to track, if it went global. Since there are trade treaties which permit trade of practically any sort, it’d be hard to prevent. So any local benefits of a country’s carbon quotas might just get up and leave. It is possible to legislate “locals only”, but the minute a foreign company incorporates, it has rights. You’d also have a hard time finding a law which says a company can’t deal in its own property, and related rights. If carbon trading is to work at all, the end result must be a reduction in pollution, not an increase in a form of investment in pollution. It’s like saying you can prevent broken legs by making more crutches. Normally, I’d be only too happy to support anything that puts money back in the pockets of our farmers. But this idea needs a lot more thought, and a lot fewer parasites.