Carbon trading

Carbon trading is an approach used to control carbon dioxide (CO2) pollution by providing economic incentives for achieving emissions reductions. It is sometimes called cap and trade or carbon emissions trading.

Carbon trading is administered by a central authority such as a government or international organization which sets a limit or cap on the amount of CO2 that can be emitted. Companies or other groups are issued permits that require them to hold allowances (or credits) in order to emit an equivalent amount of CO2. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their allowance must buy credits from those who pollute less. The transfer of allowances is referred to as a trade. The buyer therefore pays to pollute, while the seller is financially rewarded for reducing CO2 emissions. In theory, those that can easily reduce emissions most cheaply will do so.

History
Carbon trading began in response to the Kyoto Protocol, signed by 180 countries in 1997. The Kyoto Protocol, signed by 180 countries in 1997, called for 37 industrialized countries to reduce their greenhouse gas emissions between the years 2008 to 2012 to levels that are 5% lower than those of 1990. Article 17 of the Kyoto Protocol established emissions trading by allowing countries that have emission units to spare (emissions permitted to them but unused) to sell this excess capacity to countries that are over their emissions limits. In effect, this created a new commodity in the form of emissions and created a carbon market. Since CO2 is the principal greenhouse gas, emissions trading effectively became carbon trading.

The units which may be transferred under Article 17 emissions trading, each equal to one tonne of CO2-equivalent, may be in the form of:


 * An assigned amount unit (AAU) issued by an Annex I Party on the basis of its assigned amount pursuant to Articles 3.7 and 3.8 of the Protocol.
 * A removal unit (RMU) issued by an Annex I Party on the basis of land use, land-use change and forestry (LULUCF) activities under Articles 3.3 and 3.4 of the Kyoto Protocol.
 * An emission reduction unit (ERU) generated by a joint implementation project under Article 6 of the Kyoto Protocol.
 * A certified emission reduction (CER) generated from a clean development mechanism project activity under Article 12 of the Kyoto Protocol.

Transfers and acquisitions of these units are to be tracked and recorded through the registry systems under the Kyoto Protocol.

Carbon Market
Carbon emissions trading has been steadily increasing in recent years. According to the World Bank's Carbon Finance Unit, 374 million metric tonnes of carbon dioxide equivalent (tCO2e) were exchanged through projects in 2005, a 240% increase relative to 2004 (110 mtCO2e). In 2008, the carbon market was valued at $47 billion, while in 2009 the World Bank estimated its value at $126 billion.

On June 9, 2005, twenty-three multinational corporations from the G8 Climate Change Roundtable released a statement advocating market-based solutions to climate change. The group, including Ford, Toyota, British Airways, BP and Unilever, called on governments to establish "clear, transparent, and consistent price signals" through "creation of a long-term policy framework" that would include all major producers of greenhouse gases. By December 2007 this group had grown to encompass 150 global businesses.

Criticism
Opposition to carbon trading has grown due to the belief that such approaches do little to help climate change and instead provide substantial profits for corporate greenhouse gas polluters. Critics point out failures in accounting, dubious science, and the negative impact of the carbon market on local communities. In addition, critics contend that carbon trading does not solve the overall pollution problem since net reduction would require fewer allowances rather than permitting groups that pollute less to sell their allowances to the highest bidder.

Protest at Chicago Mercantile Exchange
On December 5, 2011, 25-30 climate justice and food sovereignty activists from Family Farm Defenders, Occupy Chicago, Rising Tide North America and other groups gathered outside the Chicago Mercantile Exchange to protest against carbon trading. John Peck of the Family Farm Defenders spoke to John Sheehan of Dogstar7 YouTube channel about the problems with carbon trading and food as commodity (video at right).

Carbon Trade Watch
Carbon Trade Watch have documented how the European Union Emissions Trading Scheme, the world’s largest carbon market, has consistently failed to "cap" emissions, while the UN’s Clean Development Mechanism (CDM) routinely favours environmentally ineffective and socially unjust projects. They have also criticised voluntary offsets for placing disproportionate emphasis on individual lifestyles and carbon footprints, rather than addressing the larger, systematic changes and collective political action required to successfully address pollution and climate change. According to Carbon Trade Watch's Kevin Smith, "Effective action on climate change involves demanding, adopting and supporting policies that reduce emissions at the source as opposed to offsetting or trading. Carbon trading isn't an effective response; emissions have to be reduced across the board without elaborate get-out clauses for the biggest polluters."

California Environmental Justice Movement
In February 2008, the California Environmental Justice Movement issued a declaration against the use of carbon trading to address climate change. The coalition of groups believe that market based initiatives such as carbon trading cannot adequately address climate change and are designed to benefit corporate interests rather than affected communities and the environment. They state, "[C]arbon trading is undemocratic because it allows entrenched polluters, market designers, and commodity traders to determine whether and where to reduce greenhouse gases and co-pollutant emissions without allowing impacted communities or governments to participate in those decisions." The group criticized carbon trading for creating a commodity market that privatizes the disposal of greenhouse gases and pollutants into the environment and gives billions of dollars worth of credits to the biggest corporate polluters without proper monitoring and penalties. Instead of carbon trading, the group advocates policies that move away from burning fossil fuels.

Protest at offices of Environmental Defense Fund
On December 1,2008 climate activists took over the Washington, DC office of Environmental Defense Fund (EDF) to protest EDF's support and promotion of carbon trading. The activists awarded EDF a "Corporate Greenwash Award," a three-foot tall green paintbrush, and rearranged the office furniture to demonstrate how marketing carbon is "like rearranging the deck chairs on the Titanic." Dr. Rachel Smokler, whose father was one of the founders of EDF, read a statement noting the failure of the Kyoto Protocol, the European Emissions Trading Scheme and other market initiatives for reducing emissions. Leo Cerda, an indigenous activist with Rising Tide Ecuador, put the matter in terms of environmental justice: "EDF wants to turn the atmosphere and forests into private property, and then give it away to the most polluting industries in the form of pollution allowances that can be bought and sold. Not only is this an ineffective way to control emissions, it is also a disaster for the poor and indigenous peoples who are not party to these markets and are most impacted by climate change."

EPA lawyers
In May, 2008, Laurie Williams and Allan Zabel, two lawyers at the Environmental Protection Agency, wrote a public letter opposing cap-and-trade solutions to greenhouse gas emissions and supporting a federal moratorium on new coal plants that don't sequester their carbon dioxide emissions. The letter, "Urgent Plea for Enactment of Carbon Fees and Ban on New Coal-Fired Power Plants without Carbon Sequestration," was written in their capacity as citizens rather than in their capacity as EPA employees.

Relation between carbon trading and renewable portfolio standards
In an editorial published in the New York Times, Entergy CEO J. Wayne Leonard argued that renewable portfolio standards (RPS) should be abandoned in favor of a cap-and-trade system. According to Leonard, the type of conventional energy displaced as the result of an RPS requirement is more likely to be expensive gas-fired generation rather than "comparatively cheap" coal-fired generation.

Credits stolen
In January 2011, it was reported that hackers in Eastern Europe siphoned $60 million in carbon credits and then sold them. The culprits penetrated registries in five European Union countries, prompting the European Commission to suspend spot trading at all 30 of the region's national registries until it could track down the missing credits. Spot trading resumed at several registries by early February 2011, although some of the largest exchanges remained inactive or thin. The January theft followed a scandal in March 2010, in which used credits were re-traded, prompting a temporary halt to spot trades on two exchanges. The market for E.U. Emissions Trading System (ETS) credits has steadily grown in value from its inception in 2005, reaching $118.5 billion in 2009. as of 2011, the ETS is the world's largest compliance emissions trading program.

California adopts cap-and-trade law
The California Air Resources Board on October 20, 2011 unanimously adopted the nation's first state-administered cap-and-trade regulations. The market system for the puts a price on heat-trapping pollution by allowing California's energy industry to trade carbon credits. Cap-and-trade is the centerpiece of Bill (AB 32), California's climate change law that mandates a reduction in carbon pollution to 1990 levels by 2020. By 2013 the state's largest carbon emitters will be required to meet the caps or buy credits if they are not able to meet standards.

Related SourceWatch articles

 * Cap and dividend
 * Carbon offsets
 * Emissions trading
 * Environmental justice and coal
 * Electric Utility Cap and Trade Act
 * Food Sovereignty