ECONOMICS EXPLAINED

While emissions trading began 25 years ago with SOx and NOx (sulfur and nitrogen oxides) trading in the United States, the greenhouse gas market is a relatively recent phonomena, and it was only since the move toward the ratification of the Kyoto Protocol began that the rush to commodify airborne pollutants gained momentum.

Emissions trading is an administrative, market-based approach for achieving reductions in the emissions of pollutants, by providing economic incentives to polluters to encourage compliance in cap-and-trade regimes.

The logic of emissions trading is that polluters require an economic incentive to switch to less polluting practices. By commodifying pollution reduction, polluters will be more inclined to meet their pollution reduction obligations.

This strategy exists in contrast to other approaches that would force polluting industries to reduce or stop their polluting activities outright.

The Kyoto Protocol is an agreement by countries to reduce their emissions of greenhouse gases, or engage in emissions trading if they increase their emissions. Kyoto is a ‘cap-and-trade’ system, in which polluters that control their emissions by reducing them to levels under the ‘cap’, may monetize the ‘unemitted’ difference as carbon credits. These credits can be sold to other pollutors in Annex I nations that don’t meet their targets during the first period of Kyoto, from 2008-2012, or sold speculatively by traders.

The system is haphazard, as for example, there could be a creation of credits resulting from the collapse of a country’s economy. However, conversely, in this model, a country might have to pay for the environmental costs of waging war.

While the Kyoto Protocol doesn’t come fully into force until 2008, there are now emissions markets operating for buying and selling pre- and extra-Kyoto compliance and noncompliance offsets.

Who benefits? Perhaps private investors via the World Bank Prototype Carbon Fund, which along with the Dutch Government’s ERUPT/CERUPT ‘carbon tenders’ accounted for over half of the volume of deals closed in 2002. (Souce: PWC).

And in 2006, a £1bn windfall for carbon trade firms is likely from the EU Carbon Emissions Trading Scheme “because many firms have benefited from increases in electricity prices brought about by the scheme without needing to make any extra investment in return. Peter Bedson, from IPA Consulting, confirmed to the BBC that the unwarranted profit could reach around £1bn. Part of the problem, he said, is that firms have been given, free-of-charge, the carbon emissions permits on which the scheme is based. This, he explained, is like the government giving energy firms free money.” (Source: BBC)

Ultimately, as the logic of privatization points to the commodification of all common pool resources, a reduction model based on trade is contradictory to a socially just solution to global air pollution. We need to propose another model.

In the meantime we have PUBLIC SMOG, a way for the global public to buy back the air we breathe on the open market.