DEVELOPING A LEGITIMATE CARBON TRADING PROGRAM

Stephen M. Sachs, IUPUI, “Developing a Legitimate Carbon Trading Program To Appropriately Abate Global Warming”

Carbon Trading, as an approach to global warming, is a controversial issue. It involves setting permissible levels of carbon emissions and requiring those who wish to emit carbon to have permits to do so, which can be traded – or sold – so that an entity wishing to emit carbon into the atmosphere can purchase permits to do so from other carbon emitters, or obtain them, as offsets, in return for acting to take carbon dioxide out of the air, such as by planting trees or other plants that transform CO2 into oxygen and carbon, or protecting existing forests or other carbon reducing plants, or by supporting other means for taking carbon out of the air.

In my view, there are two aspects to of Carbon Trading and offsetting that need to be considered in making policy about them. Supporters argue that this can be an effective method for reducing carbon pollution. By providing incentives for compliance, which in cases of offsetting, may have additional positive benefits, such as protecting rain forests (including providing incentives for protecting them – which in some cases may be necessary for insuring their preservation). Objectors point out, that carbon trading and offsetting do not directly reduce carbon emissions, as they allow those who purchase carbon credits to continue their pollution. Moreover, they correctly point out that some of the organizations, such as the World Bank, who run and favor such programs, have very bad records of promoting the increase of carbon pollution, and have fostered development in forests which both reduces their carbon absorbing capacity and often is destructive of the rights and lives of Indigenous people.1

Both views need to be taken into account in deciding what to do about carbon trading and offsetting. As Osborne and Gaebler have pointed out,2 there are limits to how much regulation can be achieved by simply ordering compliance. Providing incentives, such as in pollution credit trading, can increase compliance, while reducing the costs of regulation, as has been illustrated with controlling pollution a in a number of cases, particularly in limiting acid rain causing pollution in U.S. power plants in the 1970s.3 Moreover, offsetting can produce desirable results, in itself, such as preserving rainforests and encouraging development of appropriate carbon absorbing technologies. Similarly, carbon trading can result in reduction of C02 in the atmosphere if it operates so that for you to continue operating you carbon polluting power plant at its current level, you have to pay me to close my coal powered plant, and replace it with a wind farm. The key is to operate such programs, legitimately and appropriately, by people who are trustworthy (and many would not consider the World Bank to be so), so that carbon pollution is actually sufficiently reduced, with the achievement of other desired benefits at a sufficient level, while keeping negative side effects (any action has at least some negative and some positive effects) within acceptable parameters, an indeed, enhancing, rather than destroying the rights and well being if Indigenous peoples.

An appropriate carbon trading and offsetting program, as part of a broader carbon emissions reduction policy, would require a number of elements, including the following: 1) The regulating/administering body or bodies must function to assure they are trustworthy, have adequate information – and ability to collect information - (both for determining regulation and enforcement/application of policy) to operate effectively, and to have the power (with a fair adjudication-appeals process) to enforce/carry out policy.

2) The levels of total carbon pollution permitted – and the amount of carbon pollution credits given each and any entity – would have to be appropriate. Since time will be required to make the carbon reduction without undo cost, the allowable levels will need to be reduced over time. In calculating the appropriate levels, it must be realized that the need for reduction is so high that appropriate reductions cannot be achieved without significant cost – and there must be a willingness to pay them, as investments, to avoid later catastrophic costs.

3) It must be insured that the trading – offsetting is real, and only continues in the program so long as the actual trade or offset actually functions in practice. For example, if a tribe and nation are paid to preserve or expand a forest, the offset remains in effect only so long as the forest continues to exist (or expand) at the transaction level. If that forest is reduced below that level (or fails to grow at the transaction rate), for whatever reason, the offset credit must simultaneously be reduced at the same rate (and similarly the measuring involved must be accurate, with no double counting – for example a new tree grown as an offset can only count once, and not used in another offset as well). This should create a pressure for leaving forests undeveloped, and help stop mining, lumbering, farming and other activities within them, which would reduce their carbon absorbing capacity.

4) There must be fairness in who receives the benefits of carbon trading and offsetting. For example, if a forest in a carbon trade is in the territory of an Indigenous people, they should receive the benefit of the offset, which if it were in monetary terms, would have a secondary benefit for the country their territory is in. If in the Indigenous people concerned’s view, the nation’s action is needed to assist in protecting or expanding the forest – or if some incentive is needed to insure the national (or sub-national) government’s appropriate action – a reasonable and small portion of the benefit received might go to the state.

5) As in any trading arrangement, nothing should be done without the consent of the parties involved. For example, if the trade or offset involves Indigenous territory, that Indigenous people must be a full partner in the negotiation. Moreover, where the forest concerned is in the land of an Indigenous people, the arrangements for management and control of the forest must rest with those people. If they need assistance, they can contract for it, if necessary using a portion of the payment they receive for the offset.

6) As in any other program – especially one involving the environment – since everything is connected (but each location is different), a carbon trading and offsetting program must be set up and operated on the basis of properly and carefully considering the full range of relations that are involved, and taking into account the full range of impacts of the functioning of the program, making appropriate adjustments for new developments and new information obtained, over time – especially as not all conditions and impacts can be foreseen). One set of those relationships involves the people concerned. Where Indigenous people are involved, the arrangements of such programs must enhance their rights and welfare, and not diminish them.

7) Carbon trading and offsetting can only be one part of a much larger greenhouse gas reduction effort. To begin with, there simply are not enough available offsets to meet the need. Much more has to be done, and rapidly accomplished, to meet the great need for lowering the levels of carbon dioxide and other greenhouse gasses in the atmosphere, while minimizing negative side effects. Public regulation, and public and private investment are needed in reducing emissions with existing technology (e.g. higher efficiency standards, substituting green technology for polluting technology, expanding efficient public transportation, and encouraging less energy using and polluting life styles and actions), and in developing and applying new appropriate technologies.
It is important to note that, in its three years of operation, the European Union carbon trading system has experienced major difficulties because it has not met all of these standards, resulting in a rise in the levels of carbon dioxide released into the atmosphere, instead of a reduction.4 Reports indicate that this occurred because two many carbon trading permits were allocated (violating the second requirement for a valid system) at the beginning, and then further increased, as a result of national governments – who had the responsibility for issuing permits within their jurisdiction – succumbing to lobbying by industries (violating the first requirement). EU regulators are now attempting to overhaul the dysfunctional aspects of the market, reducing the number of permits and charging more for polluting. The EU is considering moving permit issuing from national governments to the EU, which it is hoped will be less susceptible to lobbying pressure from industry. Energy intensive industries are resisting the changes, as are some of the poorer EU nations who are concerned that reducing carbon emissions will undercut their economic development.

The EU carbon trading program is also under attack from environmentalists who object to EU – and other – atmospheric carbon emitters from using large numbers of permits from the UN offsetting program, which sends funds to developing countries, supposedly to reduce their airborne carbon output. Serious questions have been raised about the effectiveness of that program. Clearly, the UN offsetting system needs to be fixed, or shut down.

All perspectives in the debate over carbon trading and offsetting have important contributions to make in developing an appropriate trading-offset program that can play a positive role in a comprehensive climate change policy, if all the concerns and factors are properly taken into account, both at the beginning and as the policy unfolds. This includes wealthier nations and regions assisting poorer ones in fighting climate change and other environmental degradation. For Indigenous forest people, a proper carbon trading and offsetting program can increase their rights, assist in preventing imposed development in their territory, and enhance their welfare. It all depends how the program is established and operated, Clearly no trading and/or offsetting program should be allowed to operate that does not function properly, in terms of adequately reducing carbon emissions, avoiding creating other environmental degradation, fairly distributing costs and benefits, and respecting the rights and welfare of the people involved, including Native people.

FOOTNOTES

1. RED Declaration (Reduced Emissions from Deforestation) FYI, REDD means (Reduced Emissions from Deforestation and Degradation), “Protecting the World's Forests Needs More Than Just Money,” Indigenous Policy, Vol. XIX, No. 1, Spring 2008). See also the statements of Indigenous and Environmental groups on the proposed World Bank Carbon program in the same issue of IPJ in “Ongoing Activities: International Activities.”

2. David Osbourne and Ted Gaebler, Reinventing Government: How the Entrepreneurial Spirit Is Transforming the Public Sector (Reading, MA: Addison-Wesley Publishing Co., 1992), Ch. 10.

3. For early examples see, Citizens Power, Vol. 18, No. 2, Fall 1992, published by Citizens Action Coalition, 3951 N. Meridian St., Suite 300 Indianapolis, IN 46208, which contains several articles on this topic. Osborne and Gaebler Reinventing Government, pp. 299-395 touches on this issue in environmental regulation and discusses some other incentive based approaches to environmental regulation.

4. James Kanter, “The Trouble with Markets for Carbon,” The New York Times, June 20, 2008, pp. C1 and C5. From 2005 to 2006, factories engaged in carbon trading in the EU increased their carbon emissions by .04%, and from 2006 t0 2007 by .07%. In Brittan, the energy intensive iron and steel sector over the three years increased CO2 pollution by more then 10%, while the cement industry raised carbon output by over 50%.