Carbon Trading – Are Financial “Wizards” Cooking Up Another Scam?

Published in Gateway (Malaysia) in February 2010

Carbon TradingBy Kalinga Seneviratne

In the aftermath of the Copenhagen climate change summit fiasco many accusing fingers have been pointed at China, particularly by the western media, for not been conducive to come to the party to save the world from global warming. But, the truth of the matter may be that it is the western powers that are refusing to come to the party and in fact have been plotting to undermine the Kyoto Protocol which set clear targets for them to reduce greenhouse gases, instead they are trying to pass the burden to developing countries, which both China and India sees as part of.

Behind this plot is a scheme to promote a ‘carbon trading’ regime to mitigate global warming which the Malaysia-based Third World Network (TWN) has described in a briefing paper prepared for the Copenhagen summit as “derivate trading” which are “sold as simple futures contracts”.

While today’s carbon markets are small, if the United States succeed in adopting a carbon trading regime as a major plank of the world’s answer to curbing green house markets, within a few years of being launched, the US carbon market could reach US$ 2 trillion, according to the US Commodity Futures Trading Commissioner Bart Chilton.

“As the global financial crisis has shown, derivatives are not well regulated, and regulations are practically non-existent at a global level” noted TWN.

In a policy brief for developing countries released just before the Copenhagen summit, Martin Khor, the Executive Director of the Geneva based South Centre warned that at the two preparatory meetings held in Bangkok in October and Barcelona in November, almost all the developed countries indicated that they have decided to abandon the Kyoto Protocol (KP). They apparently want to join the United States (who refused to sign the KP) to establish a new agreement, which is likely to be a climb down from the legally binding regime that is the KP.

Thirty two industrialised countries who are members of KP have made internationally legally binding commitments under the KP’s first commitment period to cut their emissions by an aggregate of 5.3 percent by 2012 as compared to 1990 levels, and each country has its own targets to meet. Negotiations have been going on since 2005 under KP’s working group to set these targets for the second commitment period starting in 2013. These were to be completed for signing at the Copenhagen summit. Instead in the lead up to it some developed countries have been spreading misinformation in the media that KP expires in 2012.

Led by the US and now joined by the European Union (EU) and other developed countries, they want to negotiate a new agreement which will be a climb down from legally binding agreement to a loose national pledge and review system. The group of developing countries known as Group of 77 and China have made it clear that this will not be acceptable to them.

Developing countries want the developed countries to cut their emissions by 40 percent by 2020, but figures released by the UN Framework Convention on Climatic Change (UNFCCC) in Barcelona in November indicated that when added up, developed country emission cuts have been between 16 to 23 percent, and if the US is included in the statistics it will aggregate to between 11 to 18 percent.

“Developing countries are aghast at such low levels of commitments,” notes Khor. “Even then these national announcements and pledges are over-stated because a significant part of the reductions will not be done domestically by the developed countries, as they plan to have developing countries undertake some of the emission reductions for them through offsets”.

This is where carbon trading comes in, which is a complicated system that allows developed countries which does not want to make emission reduction domestically to trade away these commitments for the promise of emission reductions in other countries, so that the earth achieves an overall balance in its greenhouse gas emissions.

There are 2 types of carbon trading ‘cap and trade’ and ‘offsetting’. The first refers to schemes implemented by government or intergovernmental organizations such as the European Commission, which hands out licences (carbon permits) to major industries. Instead of cleaning up its act, one polluter can then trade these permits with another who might make ‘equivalent’ changes more cheaply. The European Union’s Emission Trading Scheme (EU ETS), which adopts this, was worth US$ 63 billion in 2008 and continues to expand. In the ‘offsetting’ trade, instead of cutting emission at the source, companies, and sometimes international financial institutions, governments and individuals, finance emission-saving project outside their capped area. This may include building hydro-electric dams, paying developing countries not to clear forests or capturing methane from industrial livestock facilities.

Researcher Dan Welch in the book ‘A Buyer’s Guide to Offsets’ says “offsets are an imaginary commodity created by deducting what you hope happens from what you guess would have happened”.

Michelle Chan, a researcher at the Friends of the Earth, US, who authored the TWN briefing paper argues that carbon trading would create windfall profits for Wall Street banks and it also has the potential to create a ‘subprime carbon’ market which will lead us to a similar financial crisis like the ‘subprime mortgage’ scandal.

“As carbon markets grow, Wall Street banks will not simply broker in plain carbon, but they will create complex new financial products based on carbon commodities … ‘financial innovations’ will likely outstrip the ability of regulators to keep up” she warns. “Subprime carbon particularly can become a problem because sellers can make a promises ahead of time to deliver carbon credits before the credits are issued, or even sometimes before greenhouse gas emissions have been verified”.

Marianne Lavelle an investigative reporter for the US-based Centre for Policy Integrity in a recent article noted that by the beginning of 2009 Wall Street bankers had 130 lobbyists on Capitol Hill to influence lawmakers to shape climatic change policy in their favour. “Wall Street interests see themselves as brokers, project developers, financiers and consultants in an emission ‘permit’ market, that one federal regulator estimates could reach $2 trillion in value within five years making carbon the world’s most widely traded commodity” she says.

Tom Goldtooth, Executive Director of the Indigenous Environment Network laments that the potential threat of climatic change has turned into an opportunity for profit making. He views this as a new form of colonialism where developing countries will be targeted for rich countries to make profits in the disguise of assisting “development” in poor countries.

“They (carbon credits) rely upon hypothetical baselines that can be manipulated to produce credits for imaginary reduction” Goldtooth warns, adding, “this shifts the responsibility to act from those who have contributed most to the climate problem to those who have contributed lease”.





Author: lotuscommnet

Dr Kalinga Seneviratne, who was born and educated in Sri Lanka has spent 20 years in Australia and is currently based in Singapore. He is a journalist, a radio broadcaster, television documentary maker, media analyst and an international communications lecturer. Currently Kalinga teaches Asian regional media systems and journalism and news media at Nanyang Technological University in Singapore. From 2004 to 2012 he was the Head of the Research division at the Asian Media Information and Communication Centre (AMIC) in Singapore. He has also taught international communications at the University of Technology Sydney and Macquarie University (Australia). He has authored and edited many books on media and communications issues. His expertise are in development communication, journalism and feature writing, community radio and alternative media, and international communications. He has won an United Nations Media Peace Award (1987) and the Inaugural Singapore Airlines Educational Award (1992) from the Community Broadcasting Association of Australia for services to the Australian community radio sector. He was the Australian and South Pacific correspondent for the Inter Press Service (IPS) news agency from 1991-1997 and still writes for them IDN IN-Depth News on a freelance basis. He has done reporting assignments for IPS from a number of countries in Asia, Africa and the Middle East. Kalinga was a member of a research team from 1991-1993 at the University of Technology Sydney looking at ‘Cultural Diversity and Racism in the Media’ in Australia. Kalinga is still a practicing journalists who writes for many publications across Asia and also produce radio and television documentaries.

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