Information on Carbon Trading

“So we have a choice to make. We can remain one of the world’s leading importers of foreign oil, or we can make the investments that would allow us to become the world’s leading exporter of renewable energy. We can let climate change continue to go unchecked, or we can help stop it. We can let the jobs of tomorrow be created abroad, or we can create those jobs right here in America and lay the foundation for lasting prosperity.”

-US President Barack Obama, March 19, 2009

U.S. President Barack Obama’s speech shares the sentiment that many global climatologists and environmentalists agree upon. Immediate action needs to take place in order to reduce the damaging effects of global warming. The facts about global warming and its detrimental effects are irreversible. Scientists have provided greater evidence that humans are largely to blame for global warming in the last two centuries. As the world is growing and the developing world is catching up to the industrialized world, more resources and energy reserves are being tapped as demand for energy keeps rising. As people started to take notice that the world was heading to a less sustainable future, the cap and trade program came into fruition which has since produced a number of other efforts and proposals for the future. The cap and trade program laid down the framework for a more effective and efficient program, but it still remains a work in progress. The coalition of nations that produced the Kyoto Protocol among other directives has shown that nations are working together to tackle global warming. With almost all countries signed onto the UNFCCC, there is sign of unity in the commitment towards producing cleaner technologies around the world.

Some of the commitments that the U.S. government has made include putting more than $80 billion in clean energy investments that will jump-start the economy and build clean energy jobs. The budget is broken down into:
o $11 billion for a bigger, better, and smarter grid that will move renewable energy from the rural places it is produced to the cities where it is mostly used, as well as for 40 million smart meters to be deployed in American homes.
o $5 billion for low-income home weatherization projects.
o $4.5 billion to green federal buildings and cut our energy bill, saving taxpayers billions of dollars.
o $6.3 billion for state and local renewable energy and energy efficiency efforts.
o $600 million in green job training programs – $100 million to expand line worker training programs and $500 million for green workforce training.
o $2 billion in competitive grants to develop the next generation of batteries to store energy.

Other plans are:
* Increasing, for the first time in more than a decade, the fuel economy standards for Model Year 2011 for cars and trucks so they will get better mileage, saving drivers money and spurring companies to develop more innovative products.
* The President issued a memorandum to the Department of Energy to implement more aggressive efficiency standards for common household appliances, like dishwashers and refrigerators. Through this step, over the next three decades, twice the amount of energy produced by all the coal-fired power plants in America will be saved in any given year.
* Supporting the first steps of a legally-binding treaty to reduce mercury emissions worldwide.
* On Earth Day 2009, the President unveiled a program to develop the renewable energy projects on the waters of the Outer Continental Shelf that produce electricity from wind, wave, and ocean currents. These regulations will enable, for the first time ever, the nation to tap into the ocean’s vast sustainable resources to generate clean energy in an environmentally sound and safe manner.

There are several other cap and trade programs that are taking place in the U.S, a notable one took place in December 2009, a memorandum signed between Governor Arnold Schwarznegger of California and Interior Secretary Ken Salazar for streamlining siting and approval of renewable energy facilities on public lands. It was the first memorandum to be signed between state and federal government involving energy production. It aims to expedite about 30 solar, wind and geothermal projects on track to break ground by the end of 2010 and become eligible for more than $15 billion in federal stimulus funds. In addition, the California governor intends to rely one-third of the state’s energy’s needs on renewable sources by 2020. This and many other pacts formed state-wide are coming into effect in the near future.

In December 2009 at the Climate summit held in Copenhagen, Denmark, the EU has committed to investing money into cleaner energy technologies in developing countries. More than eleven and a half billion dollars was pledged for the following three years to help poor countries combat rising seas levels, deforestation, water shortages and carbon emissions. It is now expected other industrialised nations will also pledge many more billions. Also announcing the decision the British Prime Minister, Gordon Brown, said the EU would also push to reduce its emissions by 30 per cent by 2020. Meanwhile a document prepared by the summit’s chairman calls on developed countries to cut their emissions by between 25 and 45 percent from 1990 levels by 2020.

Carbon trading is not without fault and there are many critics of carbon trading as a control mechanism. People arguing against carbon trading fall under a wide spectrum which include environmental justice nongovernmental organizations, economists, labor organizations and those concerned about energy supply and excessive taxation. There is much room for human error and the system isn’t perfect.

First, the methods in measuring offsets and ensuring removal of carbon dioxide emissions is not precise and there is room for abusing the system. The Kyoto Protocol established the Clean Development Mechanism (CDM) which validated and measured projects to ensure they produced authentic benefits and are genuinely “additional” activities that would not otherwise have been undertaken. Today, many developing countries that are part of the UNFCC are encouraged to build cleaner technologies and many investments from industrialized nations use them to offset their emissions. The primary concern is determining whether or not the offset is truly an “additional” activity. Some of the newer and perhaps cleaner methods of producing energy could have eventually been developed without their assistance. Some types of offsets that are also questionable and unverifiable are seen mainly in developing countries. Reforestation, which is a certified offset is of debate, since trees take decades to grow and permanence of trees is not guaranteed. Gas flaring in Nigeria from oil companies has brought devastation to local farmers and communities. Now, they are producing plants which will harness the natural gas. The oil companies will continue to pollute more, and the electrical plants win offset credits. One other example of abuse in the system occurred in China where a manufacturing company of refrigerants built HFC incinerators to produce credits. This provided the incentive to build more polluting factories, and then receive credits for eliminating their emissions afterwards. Business profit greatly, and the environment lose in each scenario.

A quote from The Financial Times discussing cap-and-trade systems argues that “Carbon markets create a muddle” and “…leave much room for unverifiable manipulation”. It depicts the unfortunate reality of cap and trade. There lacks transparency during trading and the government places a lot of dependence on each industry to produce honest results. For instance, critics argue that some groups that do not pollute sell their allowances to the highest bidder. This goes against the ultimate goal of the cap and trade system. It sets a high price for carbon, but doesn’t encourage reduction of carbon emissions. Critics argue that carbon emissions should be eliminated at the source and a sufficient reduction of allowances available in the system could also help. It has been shown in the past, such as in the EU ETS (Emissions Trading System) Phase I program, regulatory agencies ran the mistake of issuing too many emission credits, which diluted the effectiveness of regulation. The practice of ‘grandfathering’ is still present where polluters are given free allowances by governments instead of paying for them. Instead of allocating allowances, people have argued for the auctioning of allowances instead.

The accountability asked for by the government is one matter, but to invest in greener technologies is another huge demand. Heavily polluting industries are hard-pressed in this situation. They can meet certain goals short-term, but to lower their emissions drastically as expressed in the Kyoto Protocol will be a huge feat. It will be nearly impossible, since it would ask them to abandon their technology altogether.With that said, the market will choose the easiest means to save a given quantity of carbon in the short term, which will ignore the importance of sustained and sizable reductions over a longer period. A market-led approach is likely to reinforce technological lock-in. Critics of carbon trading, such as Carbon Trade Watch, argue that it places disproportionate emphasis on individual lifestyles and carbon footprints, distracting attention from the wider, systemic changes and collective political action that needs to be taken to tackle climate change.

With the cap and trade in effect in some countries, hundreds of companies will be shut down and leave thousands of people without jobs which will affect the already weak economy. The extent of the damage is still to be determined. Still, there needs to a gradual conversion to renewable and cleaner sources of energy. Sudden changes may damage the fragile economy especially those in poorer areas.

Setting a carbon tax is an alternative approach, but could perhaps also used alongside cap and trade. The issue is a carbon tax by itself cannot guarantee any particular level of emissions reductions. However, the revenue generated could go towards investing in cleaner technology and taxing will punish heavy polluters directly. One drawback is that this could hurt poorer nations, who don’t have the money to invest in cleaner sources of energy and will be unfairly penalized.

A cap-and-trade program alone is not sufficient to meet the challenge of climate change and still far from establishing a true low-carbon economy. The government must implement parallel policies such as the carbon tax to ensure development and deployment of the full range of clean technologies. These policies involve stronger energy efficiency policies and incentives for investments in low-carbon technologies.