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The Corner House on Carbon Trading

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The Corner House on Carbon Trading

A series of new reports about climate and finance is available on The Corner House website. The papers illustrate the dangers of attempting to find “solutions” to climate change through carbon trading. “There are close parallels between the rampant financial innovations behind the current financial crisis and the innovations feeding carbon trading,” writes Larry Lohmann in a new Corner House Briefing.

Prof. Michael Dove, at Yale University’s School of Forestry and Environmental Sciences, has described Corner House publications as “medicinal doses of complexity against the plague of simplicity.” Here, then, are 10 more doses of Corner House medicine against the plague of carbon trading:


The climate crisis and the financial crisis highlight the need to organise for social change – and also open unprecedented opportunities for doing so. But to prevent a destructive return to business as usual, the roots of both crises need to be understood, together with the nature and limitations of elite responses to them. As a contribution to this discussion, 10 new documents have recently been added to The Corner House’s extensive collection of free books and articles on climate change and finance.

(1) Corner House Briefing Paper No. 40
When Markets are Poison: Learning about Climate Policy from the Financial Crisis

Around the world, progressive groups have linked the unfolding financial crisis with concurrent crises of climate, food, energy, health care and militarism, and have called for integrated popular movements to assert greater democratic control over financial and economic institutions so that economic recession and global warming can be tackled together.

But governments and business elites also claim to be tackling global warming and economic reversal. Talk of ‘Green New Deals’ is constantly in the air; investments are being made in agrofuels, geoengineering, carbon sequestration and synthetic biology; and Wall Street is looking forward to seeing global carbon markets expand to a multi-trillion dollar scale following the Copenhagen climate conference in December and promised new US legislation.

This briefing paper critiques one of these elite responses by detailing the close parallels between the financial innovations behind the current
financial crisis and the marketing innovations associated with carbon trading – the dominant official approach to climate change.

Both the new financial markets and the new carbon markets involve the construction of similar abstract commodities. Both heighten systemic dangers, necessitating movements of societal self-protection. Both involve regressive redistribution and the erosion of crucial knowledge. Both are vulnerable to bubbles and crashes. Both erode notions of transparency and conflict of interest. And both call into question the easy assumption that all markets can be successfully regulated, no matter what type.

Drawing on the insights of grassroots communities on the receiving end of the new trade arrangements as well as financial and carbon market practitioners and theorists, the paper urges that failures of both markets need to be investigated and understood before a coherent and effective response can be formulated to the problems that both were supposed to have tackled.

A first section describes the enormous growth in financial derivatives markets since the 1970s – a process involving the increased commodification of certainty and uncertainty, security and risk, safety and danger, determinacy and indeterminacy – and the associated huge expansion of credit. It is highly misleading, the paper argues, to describe the new financial practices as ‘casino capitalism’: they were so hazardous that no casino could have followed them and stayed in business.

A second section analyses the concurrent invention of carbon markets, which involved the increased commodification of the earth’s carbon-cycling capacity. Some of the same theorists and practitioners responsible for the new financial markets helped create the carbon markets and, unsurprisingly, carbon markets rely on the same sort of abstractions and faith in quantification that brought down the financial markets. In particular, carbon markets abstract fatally from the question of how industrialised countries can eliminate their dependence on fossil fuels.

With all its acronyms, calculations, credits, monitoring and legal requirements, carbon trading rivals the trade in financial derivatives in its obscurity – and in its dangers. As one carbon trader has said, ‘I guess in many ways it’s akin to sub-prime. You keep layering on crap until you say, ‘We can’t do this anymore’.’ This briefing paper attempts to bring into the open the ways in which the complexity of both carbon and uncertainty markets have hidden their hazards, both from many market players and from the general public.

(2) Climate as Investment

Proposals for Green New Deals aimed at tackling both global warming and global recession are streaming forth worldwide. Yet, as this article forthcoming in the journal /Development & Change/ argues, many such proposals are incoherent in that they overlook the need for an immediate start to a programme of phasing out both fossil fuels and purported fossil fuel substitutes such as nuclear power and industrial-scale agrofuels. They also tend to rely on Northern-biased conceptions of technology transfer and intellectual property that the climate crisis has helped make obsolete. To overcome these problems, future climate movements will have to focus increasingly on the democratization of research, planning and finance.

(3) Neoliberalism and the Calculable World: The Rise of Carbon Trading

Carbon permit prices flashing on electronic screens in Wall Street trading rooms reflect a complex political movement to reorganize and redistribute power and knowledge. The carbon markets associated with the
Kyoto Protocol, the EU Emissions Trading Scheme and the US’s Waxman-Markey Act constitute perhaps the last great class project of a waning neoliberal regime – the ill-fated attempt to privatize the climate itself.

Carbon trading resembles other neoliberal movements of recent decades that have invented new possibilities of accumulation through the creation of fresh objects of calculation and intensified commodification. Such movements include the hugely expanded derivatives markets responsible for the financial crisis, global intellectual property rights regimes, and attempts to transform health, health care and even biological species into measurable, tradeable commodities. Generating both profits and crisis, the ambitious abstraction and commensuration that are vital to such schemes can never be completed. This draft chapter for a forthcoming book on the rise and fall of neoliberalism outlines the contradictions inherent in the attempt to form a viable climate commodity.

(4) Unregulatability in Financial and Carbon Markets

Can the financial derivatives markets be regulated? Can the carbon markets be regulated? The questions are parallel, according to this article from the June 2009 issue of Carbon & Climate Law Review. Both markets have involved new attempts at commodification: in the case of the financial markets, commodification of an unprecedented range of uncertainties, and in the case of the carbon markets, commodification of climate benefits or the earth’s carbon-cycling capacity. Regulatory responses inspired by neoclassical economics, which assume that any problems can be handled by ‘internalizing externalities’, are unlikely to succeed. A more pragmatic approach looks to decommodification in both markets. Both approaches, interestingly, have attracted supporters from wide ranges of the political spectrum.

(5) Regulation as Corruption in the Carbon Offset Markets: Cowboys and
Choirboys United

The civics-class formula ‘no matter what the market, it will always be possible to regulate it’ is not a useful principle for constructive social action in the real world. In markets that cannot distinguish between fraud and non-fraud, that undermine the rule of law, and that are based on conflict of interest, attempts at regulation can be worse than useless. ‘Governance’ itself becomes part of corruption.

The carbon offset market is one such market; the market for certain complex credit derivatives is another. Both these markets, argues this draft chapter for a forthcoming book on carbon trading in Africa, should teach us the need for new, more nuanced and practical approaches to issues of corruption and regulation.

(6) Mausam: Issues 2-5 of the Indian Climate Change Magazine

This is the long-awaited latest issue of a magazine aimed at returning the dialogue about climate change and its solutions to the ‘public space.’ Featured are pathbreaking articles uncovering the reality of UN-sanctioned ‘carbon saving’ projects in the metals, hydroelectric, wind power, chemicals, waste management and electricity generating sectors, as well as analyses of the political economy of the scientific controversies over the monsoon and over Asia’s so-called ‘brown cloud’ of pollution.

(7) Uncertainty Markets and Carbon Markets: Variations on Polanyian Themes

New markets in uncertainty and in carbon are advertised as making both finance and climate action more cost-effective. Both fail to do so, argues this article forthcoming in the journal New Political Economy. Creating the commodity framework necessary to make sense of the notion of ‘cost-effectiveness’ causes both markets to lose touch with what was supposedly being costed. One consequence is systemic crisis.

The new financial markets expanded credit and multiplied leverage by isolating, quantifying, slicing, dicing and circulating diverse types of uncertainty; an unchecked pursuit of liquidity led to a catastrophic drying up of liquidity. The carbon markets, meanwhile, by identifying global warming solutions with reductions in an abstract pool of tradable emission rights and commensurating them with ‘offsets’ manufactured by ‘quants’, ended up blocking prospective historical pathways toward less fossil fuel dependence and thus exacerbated the climate problem. Unsurprisingly, both markets have provoked strong, if diverse and confused, movements of societal self-defence. This pattern of action and reaction is similar to the one seen in movements to commodify land and labour.

(8) Imagining Climate Solutions

These days, being a climate activist can easily get you arrested – or worse. But the bigger danger – especially for activists in industrialised countries – may be that of being seduced into expending your imagination on ‘solutions’ that turn out to be bogus.

(9) The Trouble with Carbon Trading: A Short Debate

In this brief exchange from ClimateChangeCorp’s website, The Corner House rebuts claims from a Wall Street carbon trader that: (a) the climate problem is a problem of quantity of emissions; (b) carbon trading lowers costs; (c) putting a price on carbon in Europe helps Southern countries reduce emissions; and (d) carbon markets can work in concert with other policies and measures.

(10) Hold the Applause: A Critical Look at Recent EU Climate Claims

The European Union has recently congratulated itself for being ‘on track’ to meet its Kyoto Protocol emissions targets. But is it? And, more importantly, is the EU ‘on track’ in the effort to wean itself off fossil fuels – which is the point of the Kyoto Protocol and other climate change mitigation efforts? The answer to both questions is no. Misleading accounting has produced an illusion of effective action; the reality, as a careful examination of the figures shows, is more complicated and disturbing.

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  1. How about government regulation? How about a carbon tax? How about a Tobin tax? How about changes in consumption patterns? How about changes in the international trading regime? How about increases in aid flows?……

    As much as the ‘technical’ reasons why carbon trading is probably not such a good idea for forests, the most damaging impact that I have noticed already from this entirely ideologically driven market approach has been that, as with any dogmatically applied ideology, it has stunted and suffocated creativity, imagination and true entepreneurship in finding real workable solutions.

  2. After my last, brief post and some more wine I started on a long rant aiming to answer each of the above points. At point number four i got sleepy, then I had another wine and extended the beginning of my rant.

    I don’t like markets, I’m not a big fan of the fraud or the risk vs profits game played on the sharemarket. I do think the carbon market has a place, but I tend to look at it from the voluntary side rather than a compliance mechanism. From a voluntary side, using myself as an example, hopefully without sounding like a holier than though %&/ -apologies if I do, I use 3 kWh of electricty/day, I ride a bike to work, I’m vego, catch the train rather than flying etc. Rather than purchasing a solar panel for my 3kWh/day and riding for three weeks instead of catching a bus can I not pay a fraction of the cost of a renewable energy power plant somewhere in a developing country? Or is that subjecting myself to the evils of the market solution?

    I do like watching the redistribution of the money to the developing nations using this method – it’s better than a world bank loan.

    Anyway, seems like you’ve done a nice summary of the corner house’s

    1) The climate market has not had the crash of the financial market simply because the levels of ‘abstraction´and derivatives don’t exist.
    2) A lot of the ‘new green deal’ packages had some form of ‘weaning’ off fossil fuels in them, mainly through energy efficiency which tends to employ more people, and pays for itself. A lot of it went into coal and other ·$% , but that’s not the green deal’s fault, it’s just greenwashing.
    3) Markets that cannot distinguish between fraud and non-fraud? What market is this? The carbon market is not a single market and there are various schemes with various credibility out there but there are certainly many, many people who understand the rules and logic behind them. It is not nearly as complex as derivatives and derivatives of derivatives or whatever other scheme was used to skim money off people for the last ten years. A carbon credit is one tonne of carbon dioxide removed or not emitted from the atmosphere that would not have been removed or would have been emitted without the project creating that carbon credit occuring. There are many methodologies and schemes, but that underlying principle is simple and is the backbone of every reputable scheme. REDDs, in general, do not align with this principle.
    4) the carbon market is more like the gold market than a derivatives market. Can you regulate the gold market? yes.

    skip to number 9)
    a) Obviously the climate problem is a problem of concentration of greenhouse gases in the atmosphere, not emissions. How do you want ot tackle this without measuring and focussing on emission levels? The rest of the greenhouse gases are already there, and we put them there.
    b) Larry doesn’t offer much of an argument in his article against this point. Small targets and carbon trading do nothing, but small targets without carbon trading also do nothing. Get enough political will to set the targets high enough and fossil fuels will phase themselves out.
    c)Again, not much of an argument there from Larry. Purchasing CDM credits from ‘Southern’ countries assists projects from across a large range of sectors. There’s a lot of energy efficiency, a small amount of renewable energy and thankfully hardly any refrigerants anymore. Larry argues that these projects have emissions? Of course they do. Living a life using wind powered electricity has more emissions than sitting in a field eating grass all day, unless your a ruminant, but I would still rather use the wind power.

    10) I agree wholeheartedly. I’m Australian and we are doing much worse than the EU is. Imaginative accounting about the amount of trees we DON’T cut down anymore and we might meet our target of 108% of 1990 levels. Blah! and now they aim for only a 5% reduction on 1990 levels by 2020 with up to 45% of the credit money raised going to the large polluters as compensation, and tell the public here that we’re leading the world in this stuff? rubbish

    i hope that all made sense… There’s a thousand carbon offsets i wouldn’ buy, but I feel the ones i would buy do have place in the grand ‘solution’ that has been critiqued in the above blog post.


  3. Then what are we going to do? Business as usual? It would have been better if the authors come up with some new ideas that minimize the unfairness of the market: discrepancies between those who have the technologies and familiar with the methodologies and those who don’t have both but only the resource.

  4. @Yoseph Assefa – thanks for this. The Corner House is not suggesting that business as usual is a solution, obviously. What the above linked reports are doing is providing a critique of the mainstream market-based “solutions” to climate change. I can only suggest that you read the reports. The first one, for example, which “attempts to bring into the open the ways in which the complexity of both carbon and uncertainty markets have hidden their hazards, both from many market players and from the general public”. I think it’s crucially important to expose and understand these hazards. Reports 4 and 5 question whether a carbon market can be regulated at all. I disagree, by the way, with Andrew’s comment that carbon market is more like a gold market than a derivatives market. To point out three rather obvious differences: 1) you can see gold; 2) if you buy gold, you know exactly where it is and 3) no one claims that the gold market will help solve climate change. The carbon market is being created by some of the same people that brought us the derivatives markets. Similarities between the two markets are therefore no coincidence.

    Bolivian president, Evo Morales, spoke yesterday in New York about climate debt: “In Copenhagen we should enter into a thorough analysis of what countries are the ones that are hurting the environment the most. And we should consider those damages and focus on the countries that bear a major responsibility for the payment of this climate debt, this obligation.” That seems to me like a reasonable suggestion. (Morales comes about 6 mins 30 secs into this Democracy Now! video.)