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Two very different perspectives on carbon emissions trading
carbon emissions trading

By Jeongseok Seo
September 27, 2015

In an effort to address climate change, carbon emissions trading schemes (hereafter, ETS) have been widely championed as an instrument for mitigating greenhouse gas (GHG) emissions. Currently there are about 40 countries where a regional or national scheme is in operation, including 31 countries in Europe. Several states in the United States, the world’s second largest emitter of GHGs, are participating in state- or regional-level ETS, such as Regional Greenhouse Gas Initiative (RGGI) or Western Climate Initiative (WCI). The world’s biggest emitter, China, also plans to roll out its national ETS in 2016, which is expected to dwarf the EU ETS [1].

Despite its popularity, however, there are concerns about whether ETS is an effective vehicle to reduce carbon emissions as many have claimed. As evidenced in the EU ETS, emission trading has so far failed to meet the core objective of effective emission reduction. For example, recent empirical study finds that the share of emission abatement due to the EU ETS is a mere one-eighth of the total reduction recorded by the EU-25 Member States from 2005 to 2012, but the rest of the region’s emission reduction attributable to the 2008 global financial crisis [2].

With growing risks arising from climate change and the coming 2015 Paris climate change negotiations, it may be timely to evaluate the effectiveness of ETS, potentially its impact on equity and sustainability. To effectively address an unprecedented crisis involving every country, social equity and ecological sustainability would be critical factors to incorporate into our strategies or tools.

Environmental economics is often cited as a supportive theory behind existing carbon emissions trading platforms. Central concepts of this framework are externality and cost efficiency [3]. Externalities occur when a choice made by one person affects other people in a way that is not accounted for in market prices. From an environmental economics perspective, climate change is an example of externalities and a result of market failure. Therefore, this school of thought argues that externalities like climate change can be solved through an efficient market mechanism, and reductions in carbon pollution could be achieved at least cost in carbon markets where polluters can sell and buy their emissions [4][5].

On the other hand, some criticize the ETS model. Byrne and Glover argue that ETS has been used to reinforce the commodification of nature [6]. By treating the atmosphere as a commodity and trading it in the form of pollution permits via a marketplace, i.e. carbon markets, ETS turned the part of the global commons into saleable pieces of property [see also 7]. Heavy polluters like the steel and cement industries often escape the need to actually reduce carbon emissions through mechanism, such as grandfathering or free allowances. This school of thought argues that an institutional reform or ‘techno-fix’ approach wouldn’t be sufficient to address the problems inherent in ETS [8]. Instead, some propose that climate change requires us to tackle the root causes of climate change, such as modernity’s pursuit of “economics first” ideology.

A new global climate regime requires strategies and tools to address the crisis as effectively as possible since we may have limited time [9]. In this vein, there are valid concerns about the social and ecological effectiveness of ETS. Hopefully the Paris talks open the dialogue about such concerns and identify timely and more appropriate actions.

Notes
[1] Reuters (2014). China’s National Carbon Market to Start in 2016 – official. Accessed on 12-06-2014. http://uk.reuters.com/article/2014/08/31/china-carbontrading-idUKL3N0R107420140831
[2] German Bel and Stephen Joseph (2015). Emission Abatement: Untangling the Impacts of the EU ETS and the Economic Crisis. Energy Economics Vol 49, May 2015, pages 531-539
[3] John Dixon, et al. (1994). Economic Analysis of Environmental Impacts (London: Earthscan Publications). Page 27
[4] EEA (2006). Application of the Emission Trading Directive by EU Member States. Technical Report No. 2/2006, European Environment Agency (EEA), Denmark, p. 54
[5] UNFCCC. Accessed on 2014-11-30. http://unfccc.int/kyoto_protocol/mechanisms/items/1673.php
[6] John Byrne and Leigh Glover (2000). Climate Shopping: Putting the Atmosphere Up for Sale. TELA: Environment, Economy and Society Series: 28 pp. Melbourne, Australia: Australian Conservation Foundation.
[7] Martin O’Connor (1994). “On the Misadventure of Capitalist Nature,” in Martin O’Connor, ed., Is Capitalism Sustainable?: Political Economy and the Politics of Ecology (New York: The Guilford Press). Page 126
[8] John Byrne and Noah Toly (2006). Energy as a Social Project: Recovering a Discourse. In John Byrne, Noah Toly, and Leigh Glover, eds. Transforming Power: Energy, Environment, and Society in Conflict. New Brunswick, NJ and London: Transaction Publishers. Pp. vii-xii.
[9] IPCC (2014). Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change

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