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The Endless Algebra of Climate Markets

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“The Endless Algebra of Climate Markets”, is the title of a recent paper by Larry Lohmann of the UK-based NGO the Corner House. That’s him on the left holding up an “I love emissions trading”, T-shirt that Fortis Bank (now part of BNP Paribas) was handing out at a UN climate conference.

Lohmann has written a huge amount on the subject over more than a decade, collected on the Corner House website. His most recent paper (which is also available in Spanish) starts by answering the question, “Who built the hundred-billion-dollar carbon markets, . . . and why?”

Lohmann’s answer is that the development of carbon markets straddles the financial sector, NGOs, think tanks, university economics departments, government lawmakers, certain business sectors, law and consultancy firms and the United Nations system. He provides examples of some of the individuals involved, such as Ken Newcombe, who was in charge of the World Bank’s Prototype Carbon Fund before moving to a merchant bank called Climate Change Capital, then to Goldman Sachs’ carbon-trading desk and setting up carbon-trading firm C-Quest Capital. Before Christiana Figueres was appointed Executive Secretary of the UNFCCC in 2010, she was senior adviser to C-Quest Capital (among other carbon trading positions).

Just as there is no single person or institution that created the carbon markets, neither is there a single answer to Lohmann’s next question, “What are carbon markets for?” One answer is that carbon markets save costs in mitigating climate change. If one industry finds reducing emissions expensive, it can buy pollution rights from other industries that can reduce emissions cheaply. Lohmann outlines six more justifications for carbon trading and then tears them to shreds one by one. For example, on the carbon price, allocation of pollution rights, and the “efficiency” of markets, Lohmann writes:

Influenced by the need to make concessions to owners of many fossil-fuelled infrastructure as well as a host of other factors, carbon prices oscillate around a derisory level, powerless to incentivize a transition away from fossil fuel use. Indeed, many fossil-fuelled industries use the generous handouts of pollution rights they have been given to entrench carbon-intensive business-as-usual even more firmly.

Also meeting an untidy end is the narrative of a lean, clever, muscular market lifting the climate action burden from the shoulders of a clumsy, wheezing, out-of-shape, overbearing state. Carbon market requirements for state measurement calculation, monitoring, enforcement, certification, registration, regulation, and creation of property rights (not to mention the constant diplomacy required to keep up confidence that international markets are on track) turn out to be enormous.

Lohmann turns his attention next to a thought experiment by Yale law professor Douglas Kysar. What would a climate market look like if it rewarded actions that left fossil fuels in the ground? “Rather than bribe fossil fuel companies to stop flaring natural gas, why not reward indigenous groups that entirely block new exploration activities?” Kysar asks in an article in the Guardian.

Lohmann points out that creating such a market would be fiendishly complicated. It would require quantifying the various part of the movements against burning fossil fuels, in order to create a commodity that can be traded. How many tradable units does a march against a government’s energy policy create? Signing a petition? Living on a tree platform for six months? And would Goldman Sachs really sell securities based on a commodification of the Occupy Wall St protests?

The alternative, Lohmann writes, “is to construct a market based on the enclosure and commodification of pollution sinks, whose extent the state defines in terms of limits on the quantity of molecules that can be emitted.” Molecules can be counted, owned and are standard since they are the same the world over. This is the model that the carbon markets follow.

Lohmann then works his way through a series of equations on which carbon markets are based starting with:

a better climate = a reduction in CO2 emissions

While this may appear obvious (particularly to most people who have been following the UN climate negotiations for any length of time), the equation masks several problems. The financial crisis in 2008 led to an industrial slowdown that resulted in more CO2 emissions than all climate markets. That should mean “a better climate”, according to the equation. It doesn’t, of course, because the financial crisis made no impact whatsoever on structural dependence on fossil fuels.

By the time we’ve gone through a series of equations that are pretty much taken for granted in many discussions about addressing climate change, we end up in the strange situation where the majority of Kyoto carbon credits are generated by destroying HFC-23. As Lohmann notes this is very lucrative. For example, by destroying a few thousand tons of HFC-23, Quimobasicos, a Mexican chemical company, is set to sell more than 30 million tons of CO2 pollution rights to Goldman Sachs, EcoSecurities and J-Power, a Japanese electricity generator.

Lohmann explains that throwing REDD into the mix, allows forest conservation projects,

to generate carbon credits even if they allowed an increase in deforestation, as long as the increase was “less than would have happened otherwise”. . . . Thus offset investors make money by, in effect, cleaning up nonexistent extrapolated pollution and taking credit (literally) for it not having become reality. The dirtier that experts can convince regulators that such nonexistent extrapolated pollution scenarios are, the more capital can be accumulated.

Lohmann notes the impact that this sort of thinking can have on forest peoples. REDD proponents visited Aritana Yawalapiti an indigenous leader in the Upper Xingo area of Brazil, promising money if his community stopped forest burning. In an interview in 2010 with Rebecca Sommer, Yawalapiti explained that,

“we always burn at a place where we fish, hunt or open a small farmland area . . . we open a space to farm, we plant, we collect manioc, after some years everything recuperates again . . . the forest grows back, while we plant at another place.”

Watch the interview here:

Lohmann explains that the principle of free prior informed consent of affected becomes useless with carbon offset projects:

A forestry project in Australia selling pollution licenses to ConocoPhillips, for example, would have to obtain the consent not only of the affected community in Australia, but also of communities affected by Conoco operations in Oklahoma, Libya, Peru, Viet Nam, Kazakhstan, Greenland, and other parts of the world – clearly an impractical requirement.

Lohmann’s conclusion is that,

Carbon markets are a particularly disastrous example of what can happen when the cluster of processes commonly associated with neoliberalism is let loose on environmental crises. But the lessons are more general. Commodity solutions always reinterpret and transform the social and environmental challenges that they confront. Their goals are never exogenous but are incessantly reshaped by the very process of addressing them. Hence the “internalization of environmental externalities” associated with market environmentalism is better conceived not as a (successful or failed) attempt at “environmental problem-solving” but rather as a continuous changing of the subject. In order to be “internalized,” environmental harms of any complexity must be simplified, reformatted, made abstract, quantifiable, and transferrable in a process that obscures many of their characteristics while introducing fresh problems.

Which is as good a description of any I’ve seen of the current state of UN-level discussions on REDD.


PHOTO Credit: A still taken from the video, “Carbon Markets: Trading our Future, that was released during COP17 in Durban.

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