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Carbon markets don't work

by DoDo Sat Apr 13th, 2013 at 07:14:31 AM EST

[Hoisted from the Weekend Newsroom]

Europe's carbon market EU-ETS, as well as the UN's CDM, are currently hampered by low carbon prices due to an over-abundance of free carbon credits. However, in an op-ed in The Guardian, University of Essex professor Steffen Böhm argues that the market-fundamentalist approach to managing carbon emissions is doomed to fail even if carbon prices would be high.

Carbon markets have lost us more than 15 years in the battle against climate change yet we continue to plough forward with scaling them up. Why?

Some hope that this global expansion of carbon markets will revive their fortunes, helping to raise billions for investments in low-carbon and climate change mitigation technologies. Others, including myself, take a more evidence based approach, arguing that this hope of the pro-market lobby is unfounded, given the inefficient and even corrupt nature of carbon markets so far.

Böhm sees the following three systemic failures:

  1. You can earn money off the carbon market without actually reducing emissions. One way is to apply with a project that would have been built anyway, another is to build a plant to eliminate specific greenhouse gases and then produce that greenhouse gas just to be able to benefit from carbon credits (see HFC-23 scam).
  2. As in other recent bubble markets, there is lack of oversight and transparency.
  3. Carbon credits fuel unsustainable practices, primarily through the conflict between biofuels and food production.

Böhm gives examples for each and points out that they are endemic, not the exception.


Regarding #1, one way is to apply with a project that would have been built anyway, another is to build a plant to eliminate specific greenhouse gases and then produce that greenhouse gas just to be able to benefit from carbon credits (see HFC-23 scam).

Regarding #2, the lack of an independent check on the validity of credits sold allowed the festering of a fraudulent consultancy business with revolving doors.

Regarding #3, it's not just about arable land: even if it's just 'waste' that gets burned, that 'waste' may have been used previously as fertilizer.

Display:
Whether it's carbon markets, financial markets, privatisation and deregulation of essential infrastructure, the popularity of these models around the world is totally divorced from knowledge of practical experience.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sat Apr 13th, 2013 at 07:19:38 AM EST
But sadly not from knowledge of fraud and greed.

'Markets' are a synonym for 'self-destructive greed.'

A lot of (unserious) people understand the greed. I'm not sure how many understand the self-destruction.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Apr 15th, 2013 at 03:40:57 AM EST
[ Parent ]
Unregulated markets.
by Colman (colman at eurotrib.com) on Mon Apr 15th, 2013 at 03:56:47 AM EST
[ Parent ]
Over time, all markets become unregulated.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Apr 15th, 2013 at 04:50:34 AM EST
[ Parent ]
Until they fail and they are nationalised again.

It's a pendulum swing: if I'm not mistaken, public transport started out in London as an unregulated market of private providers. When this crashed, due to the social usefulnesss of the concept the government nationalised it and created a public service. It has not been fully privatised: rather the public authority contracts out the service to a private provider. But it remains effectively a public monopoly since it was nationalised.

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper

by Migeru (migeru at eurotrib dot com) on Mon Apr 15th, 2013 at 04:54:33 AM EST
[ Parent ]
The only tube line that made money was the metropolitan, and only because it had the right to develop property on the line.
by Colman (colman at eurotrib.com) on Mon Apr 15th, 2013 at 06:14:46 AM EST
[ Parent ]
How about the bus services?

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper
by Migeru (migeru at eurotrib dot com) on Mon Apr 15th, 2013 at 06:19:56 AM EST
[ Parent ]
I think you're confusing 'monopoly' with 'market' - which is fair enough, because everyone else does too. Essential services are rarely a mature market without state aid - which is possibly a good thing, because if you leave freebooting capitalism to run things it invariably bubbles and implodes. q.v. the number of railway companies which went bust after the UK's booms.

In fact markets only exist as a rhetorical concept, not an economic one. And you typically find idiot economists trying to scale up barter-with-cash and pretending that people making, buying and selling pins are somehow relevant to international politics and finance.

The reality is that 'markets' are an executive feature of a certain kind of political system which uses financial tyranny, debt, and strict rationing of information and political power to control and intimidate its population.

So the idea that markets can somehow be 'regulated' for periods on the order of decades is laughably naive, because the tyrants own the state and 'the markets' will change the rules of both and/or manipulate them as they choose to.

Or if they temporarily fail to have control, they'll work hard to make sure they recover it within a generation or two.

If you're lucky you'll get some token oversight. But you're not going to get much more than that without an outright ban on excessive concentrations of power and money without accompanying oversight and penalties for misbehaviour - not to be confused with the idea that if you set some boundaries around markets you can leave them alone and they'll mostly be a good thing for everyone.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Apr 15th, 2013 at 06:41:30 AM EST
[ Parent ]
Nothing can be regulated on the order of decades. Your ban on excessive concentrations of power and money will be subverted as well, leading to some other type of tyranny.

Which isn't to say that we don't have to fight the battles we need to fight today, just to say that there will always be battles to be fought: there are no panaceas

by Colman (colman at eurotrib.com) on Mon Apr 15th, 2013 at 07:25:08 AM EST
[ Parent ]
I think you're confusing 'monopoly' with 'market' - which is fair enough, because everyone else does too. Essential services are rarely a mature market without state aid - which is possibly a good thing, because if you leave freebooting capitalism to run things it invariably bubbles and implodes. q.v. the number of railway companies which went bust after the UK's booms.

I thought that's what happened to private mass transit in London over the 19th century. I may have to visit the London Transport Museum again, though.

guaranteed to evoke a violent reaction from police is to challenge their right to "define the situation." --- David Graeber citing Marc Cooper

by Migeru (migeru at eurotrib dot com) on Mon Apr 15th, 2013 at 09:10:49 AM EST
[ Parent ]
And all government become tyrannies and all anarchies become dictatorships.
by Colman (colman at eurotrib.com) on Mon Apr 15th, 2013 at 06:13:47 AM EST
[ Parent ]
Clearly, evidence says otherwise.

Oh - wait. No it doesn't.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Apr 15th, 2013 at 06:23:13 AM EST
[ Parent ]
Given the history of human beings what else would you expect? There's always people ready to game the system to their own narrow advantage. Will continue to extinction. Too bad. Beer anyone?

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Sat Apr 13th, 2013 at 08:32:22 AM EST
This article gives some food for though about "growth coalitions" (of various scales) and possibly other interests.
by das monde on Sat Apr 13th, 2013 at 08:39:08 AM EST
[ Parent ]
Shale gas "production" in the US:

and in Dombas (the Dontezk area in Ukraine):


   
   
Эта скважина находится в 5км. от первых жилых домов. Со слов жителей очень ощутимы были гидроудары, как физически, т.е. была сильная вибрация, так и в шумовом виде. Работы велись круглосуточно - люди не могли спать и находиться на улицах! Гул и шум, который не прекращался, был слышен всем!В поселке упал уровень воды в колодцах! Всех рабочих для работы привезли, даже повар не наш был. На этом проекте из села работали только сторожи, медсестра и кух. работник. Вот вам и рабочие места... Воду нашу тоже не пили иностранцы и их работники, привозили свою...Едем к скважине №2. Работы приостановлены. Возобновить обещают в апреле.Пока такая картина.Опять все на сх поле. Рядышком растет озимая родимая пшеничка. Площадь, отведенная под саму скважину, примерно 2 га.This borehole is located 5 km from the nearest village houses. The residents told that the hammerring was very perceptible, both for physically, i.e. a strong vibration, and in the sound form. The work was done around the clock - people could not sleep and be on the streets! Hum and noise, which did not stop, was audible to everyone. The water level in wells of the village dropped! All workers were brought from outside, even the cook. Only keepers, a nurse and a kitchen assistant were taken from from the village for this village. That much job creation... The foreigners and their employees did not drink our water, brought it of their own... We're driving to hole #2. The work here is suspended. Promissed to renew in April. This picture so far. In the middle of an agricultural field again. Winter wheat is growing nearby. The well area takes about 2 hectares.
by das monde on Mon Apr 15th, 2013 at 02:19:14 AM EST
I won't attempt a detailed rebuttal, but declaring that "carbon markets don't work" is akin to declaring "Communism doesn't work".

Whereas with the evidence available, what we can actually conclude is "poorly-designed carbon markets don't work".

The EU version is broken, and appears destined for the scrap heap. Nevertheless, a few years ago it had an active, positive role in restructuring Europe's energy markets. It not only gave a competitive advantage towards renewable electricity (difficult to quantify) but demonstrably, propelled a shift away from coal and towards gas, which has since reversed with the collapse of the carbon price. This (which I will dig up numbers for some other time if I really have to) is enough to falsify Böhm's assertion :

Why are carbon markets failing? | Guardian Sustainable Business | Guardian Professional

to date there have been few, if any, measurable reductions in greenhouse gas (GHG) emissions that can be attributed to these measures.


It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Mon Apr 15th, 2013 at 04:15:16 AM EST
If it has been reversed, then it wasn't a lasting effect.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Apr 15th, 2013 at 05:03:57 AM EST
[ Parent ]
However, the effect would have been lasting if the market had been well-designed. The obvious mistake is that (like so many mechanisms in our collapsing economies) it was predicated on continuous economic growth (real growth, in energy consumption in particular : not just nominal growth). That would have been easy to get right : quotas could have been indexed to some measure of overall energy consumption in the EU.

In practice, the fixing of the system is being blocked by the most energy-hungry members, led by Poland. This is understandable. If EU carbon reduction policy had been based on a carbon tax, for example, instead of quotas (which would have been preferable, to my mind), this opposition would still exist, and would probably have led to a lowering or abolition of the carbon tax.

The simple fact is that the environment comes last. Costly measures are seen as luxuries when other economic problems seem more pressing. Had the EU carbon market never existed, Böhm might well now be writing about the failure of carbon taxes.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Mon Apr 15th, 2013 at 05:43:23 AM EST
[ Parent ]
quotas could have been indexed to some measure of overall energy consumption in the EU.

That would solve a specific cause of a drop in carbon prices only. But an economic re-structuring (for example an accelerated exodus of heavy industry to the developing world), a change in conventional energy technology (for example a boost to fracking), or the temporary greater-than-planned success of the very energy sources you want to promote can have the same result. One might attempt to design a very complex carbon market that takes all of these and other eventualities into account, but the basic fact remains that you have a clear goal (reduction in emissions) but approach it in a very indirect and roundabout way, and got yourself the natural INstability of markets.

Had the EU carbon market never existed, Böhm might well now be writing about the failure of carbon taxes.

In my mind, carbon markets are the failure of carbon taxes: they are in effect nothing more than a fig leaf for the failure to agree on carbon taxes, a welcome excuse for a proper emissions reduction policy for a few years at least.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Apr 18th, 2013 at 04:33:55 PM EST
[ Parent ]
Communism doesn't work
by cagatacos on Mon Apr 15th, 2013 at 03:23:00 PM EST
[ Parent ]
Carbon bubble will plunge the world into another financial crisis - report | Environment | The Guardian
The world could be heading for a major economic crisis as stock markets inflate an investment bubble in fossil fuels to the tune of trillions of dollars, according to leading economists.

"The financial crisis has shown what happens when risks accumulate unnoticed," said Lord (Nicholas) Stern, a professor at the London School of Economics. He said the risk was "very big indeed" and that almost all investors and regulators were failing to address it.

The so-called "carbon bubble" is the result of an over-valuation of oil, coal and gas reserves held by fossil fuel companies. According to a report published on Friday, at least two-thirds of these reserves will have to remain underground if the world is to meet existing internationally agreed targets to avoid the threshold for "dangerous" climate change. If the agreements hold, these reserves will be in effect unburnable and so worthless - leading to massive market losses. But the stock markets are betting on countries' inaction on climate change.

The stark report is by Stern and the thinktank Carbon Tracker. Their warning is supported by organisations including HSBC, Citi, Standard and Poor's and the International Energy Agency. The Bank of England has also recognised that a collapse in the value of oil, gas and coal assets as nations tackle global warming is a potential systemic risk to the economy, with London being particularly at risk owing to its huge listings of coal.

I mean, who would bet on countries respecting their "binding" treaty targets? Laughable.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Fri Apr 19th, 2013 at 07:48:26 AM EST


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