Overview

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• Overview
• Emissions trading in trouble
• CDM, JI (and offsets generally) in trouble

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• The trouble is different in kind and additional
  to that of public investment, subsidy-shifting,
  conventional regulation, standard-setting, taxes,
  etc.
• Emissions trading and offset trading often are
  not compatible with, or slow down or interfere
  with, other measures.
• Beyond market design problems.

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• Emissions trading in trouble
• CDM, JI (and offsets generally) in trouble

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• Potential AAU demand 3 Gt
• Potential AAU supply 7-8 Gt
• but there are reservations/technical
  problems about using hot air, helping to
  bring into prominence
• Potential CDM credit supply 1-3 Gt?
• ( although these can equally be regarded as
  hot air)

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• plus . . .
• JI credits
• Voluntary market project-based credits

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• Emissions trading in trouble beyond market
  design problems
• measurement
• structural change innovation
• property rights

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• Measurement
• Technology and political culture
• No parallel with SO2 trading
• There is no reason to expect that countries will
  reduce their greenhouse gas emissions to comply
  with quotas that cannot be effectively monitored
  and enforced.
• Daniel Cole, Indiana University

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• Structural change innovation
• Incentive for short-term changes, low-hanging
  fruit
• Disincentive for immediate start on difficult,
  long-term structural changes
• ? both the immediate start and the structural
  nature of the changes required are esp.
  significant with global warming (cf. SO2).
• ? contradiction between 2 objectives of market
  does the market complement long-term structural
  policy measures or interfere with them?
• ? many practitioners of innovative shifts aimed
  at the long term see carbon market as
  irrelevant.

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• There is so much carbon buried in the worlds
  coal seams alone that, should it find its way
  back to the surface, it would make the planet
  hostile to life as we know it.
• Tim Flannery, 2005

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• CARBON POOLS (billion tonnes)
• Atmosphere 720-760
• Oceans 38,400-40,000
• Rock 75,000,000
• Land biosphere
• living biomass 600-1,000
• dead biomass 1,200
• Fresh water 1-2
• Fossil fuels 4,130
  (?)
• coal 3,510
• oil 230
• gas 140
• other 250
• Source Falkowski et al., Science, 2004

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• Property rights

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Quasi-Privatization of Existing Global Carbon
Dump by the UK Proposed National Allocation under
the EU Emissions Trading Scheme, 2005
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• ? Conflicts
• N-S colonialism
• within business community
• between business and government ?
  overallocations ? no scarcity ? price crash
• between trading proponents and
  environmentalists and the public

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• ? corporations encouraged to lobby for
  overallocations and to (mis)interpret
  competitiveness as requiring overallocation

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• The big six UK electricity generators are getting
  around US1.2 billion per year in windfall
  profits from the EU ETS.
• Metals manufacturers threaten to stomp out of
  Germany over having to pay for the EU pollution
  allowances German utilities got from their
  government for free.

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• CDM, JI (and offsets generally) in trouble beyond
  fixable design flaws
• incoherence
• measurement
• change and innovation
• property rights

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• Reduction

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• Offset

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• Measurement

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• Risk
• Uncertainty
• Ignorance
• Indeterminacy

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• Risk
• Uncertainty
• Ignorance
• Indeterminacy

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• There is no technically correct answer
  Never has so much been said about a topic by so
  many without ever agreeing on a common
  vocabulary.
• Mark Trexler, 2006

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• Measurement
• Many carbon project proponents tell their
  financial backers that the projects are going to
  make lots of money at the same time they claim
  to CDM officials that they wouldn't be
  financially viable without carbon funds.
• James Cameron, Climate Change Capital
• There is a lot of relabelling of business as
  usual as additional. Up to 50 per cent of
  projects are not really additional.
• Michael Schlup, The Gold Standard
• CDM carbon-accounting methodology will create
  other Enrons and Arthur Andersens.
• Bruno vanderBorgh, Holcim Cement

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• prone to fraud and fluctuations beyond the
  control of the developer or the CDM Board.
• O. P. R. Van Vliet et al., 2003
• If theres an eight-fold difference in price,
  we cant be talking about the same product.
• Francis Sullivan, HSBC, 2005
• What, exactly, are we trading in?
• Environmental Data Services Report,
• 2005

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• Risk
• Uncertainty
• Ignorance
• Indeterminacy

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1000
527 682
Kyoto Target
High growth
Net flux, million tons C
Low growth
0
1990
2010
Year
Source IIASA
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• Kyoto Protocol biotic offsets are completely
  unverifiable, making Kyoto a cheats charter.
• International Institute for
• Applied Systems Analysis

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• Not to mention social displacement and
  innovation effects that cannot be quantified, etc.

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Uncertainty Revealed Year by Year

• 1998 German ACGC cautions against counting
  growth of forests as emissions reductions.
• 1998 - Technocrats and NGOs propose
  discounting or insuring carbon credits
  derived from biospheric dumps.
• 1999-2002 IIASA says Kyoto Protocol completely
  unverifiable due to accounting uncertainties.
  Proposes quantification and pricing of
  uncertainties.
• 2000 VERTIC says forestry and land use must not
  be used to meet emissions reductions commitments
  since changes to carbon stocks will rarely be
  verifiable.
• 2000 IPCC land use panel assumes without
  evidence that emissions and removals by sinks
  can be aggregated quantitatively.
• 2001 R. A. Houghton suggests carbon errors as
  large as 500 per cent in the forest inventories
  of northern mid-latitudes.
• 2001 Royal Society cites urgent need to reduce
  uncertainties before land carbon sinks are used.
• 2001 World methane sources found to be uncertain
  by 20 to 150 per cent.
• 2003 UN, consultancy and NGO discounting and
  insuring proposals continue to leave uncertainty
  unquantified or to ignore it.

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Ignorance Revealed Year by Year

• 1990s-2003 Missing terrestrial sink of 110
  80GtC, or 3GtC/yr ( half of annual fossil fuel
  emissions), remains unfound.
• 1990s Scientists warn that ocean warming could
  result in sudden catastrophic releases of methane
  from methane hydrates on sea floor
• 1998 German ACGC warns that complex nonlinear
  dynamics of terrestrial ecosystems sets them
  apart from energy-related processes.
• 2000 Review article in Science warns that
  unanticipated feedback effects between carbon
  and other biogeochemical and climatological
  processes will lead to weakened sink strength in
  the foreseeable future.
• 2001 UK Met Office calculates tree-planting in
  boreal regions would heat planet rather than cool
  it due to albedo effects.
• 2001 Met Office reveals lengthening of dry
  seasons could abruptly result in catastrophic
  releases of carbon through fires in Amazon,
  pushing temperatures up 6-8 º C. in 100 years.
• 2003 UN, consultancies and NGOs continue to
  speak as if discounting and insurance can
  cover the possibility of unanticipated findings.
• 2003 CDM Methodological Panel rejects
  methodology for Plantar project which was based
  on assumption of stable exchange rates between
  US and Brazilian Real.

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Indeterminacy Revealed Year by Year

• 1999 Michael Grubb concedes impossibility of
  measuring or defining climatic difference between
  with- and without-project scenarios but then
  reinterprets this indeterminacy as uncertainty
  or difficulty.
• 2000 Yamin and Haites admit there is no
  correct account of what would have happened
  without a project but propose settlement by
  committee.
• 2002-3 Project certifiers express concern that
  UN rulebooks inability to screen out business
  as usual CDM projects put them in a difficult
  position.
• 2002-3 Developers, brokers and government
  ministers counterattack, scorning the idea that
  carbon projects must be better for the climate
  than what would have happened without investment
  in them, and reinterpreting the Marrakech
  agreement accordingly.
• June 2003 PCF forced to concede that this is a
  misinterpretation of Marrakech.
• May 2003 CDM Methodological Panel rejects
  methodology used to claim that Brazilian avoided
  fuel switch project is not business as usual.
• June 2003 CDM forced to reject all 12 mitigation
  projects proposed to it to date on the ground
  that they could not be proved to be activities
  which would not have happened anyway.
• 2003 Project proponents begin to admit that some
  projects rejected by CDM are going forward
  anyway, meaning that they are indeed business as
  usual.
• June 2003 NGOs with a stake in CDM begin arguing
  that such projects are not necessarily business
  as usual e.g., that they were not BaU at the
  time of application but later became so, or that
  initial CDM interest enabled them to find other
  finance.

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• No verifiable climatic equivalence between Cu
  and Cb ?
• No commensuration ?
• No hybrid commodity (Cu Cb) ?
• No exchange ?
• No climate market

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• In lay language . . .
• Carbon offsets do not offset.

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• Carbon neutrality cannot be verified.

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• There is no such thing as additionality or
  nonadditionality.

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• The use of the word emissions reductions to
  designate CDM (or offset) project-based credits
  is unsupported is mere rhetoric although
  enshrined at the heart of the Kyoto Protocol, the
  Linking Directive of the EU ETS and various
  voluntary offset schemes. It assumes what is to
  be proved.
• CDM and other offset investors are not investing
  in emissions reductions.

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• Structural clean energy transition through CDM?
• In the North? No.
• Making housing carbon neutral through offsets
  elsewhere is not what we aim for . . . If we
  want to make a difference, we will use our
  strengths to drive policies into a low-carbon
  economy. James Beale
• In the South? Also no.

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of CERs generated/yr (April 2006)
E
R
NR
LH
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• The CDM is not working.
• CDM Gold Standard staff member
• It is not encouraging companies to devote funds
  to renewable energy sources . . . to the extent .
  . .hoped
• Wall Street Journal, 11 August 2005
• It is widely recognized that . . . the
  end-of-pipe developments that so far constitute
  the bulk of CDM projects have no direct
  development benefits.
• Holm Olsen, UNEP
• While there were high hopes that the CDM would
  usher in climate-friendly FDI . . . this remains
  largely to be seen.
• R. A. Alburo Guarin,
• Development Bank of the Philippines

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• Property rights
• Concern within business community (legal staff,
  NZ forest owners, etc., etc.)
• Conflicts with grassroots
• Few in the market can deal with
  communities . . . We ran into a big storm . . .
  we had a lot of permanence rocks thrown at us.
• . . . It was like stepping into a stream full
  of piranhas. Rabobank official
• Property ownership in purported new carbon dumps
  dependent on command of expertise.

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• Closure orders were slapped on several of these
  plants for pollution violations in December 2006.
• Similar plants in Karnataka have
  already-registered CDM projects that are
  described by even an ex-member of the CDM Meth
  Panel as blatantly business as usual.

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• Complementarity between credit trading and
  constructive measures on climate change?

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Demonstration against deserto verde, Espirito
Santo, Brazil, 2005.
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Plantars CDM Project

• Part of the World Bank Prototype Carbon Fund
  (PCF)
• Carbon credits will finance expansion of already
  vast eucalyptus plantations by another 23,100ha
• After approx. 7 years trees will be cut to make
  charcoal produce pig iron make steel
  manufacture cars allow more CO2 in the
  atmosphere

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Charcoal
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• The argument that producing pig iron from
  charcoal is less bad than producing it from coal
  is a sinister strategy . . . What about the
  emissions that still happen in the pig iron
  industry? What we really need are investments in
  clean energies that contribute to the cultural,
  social and economic well-being of local
  populations.
• Letter from 50 trade unions, local
• groups and academics, Minas Gerais, Brazil

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• Again, does giving carbon a price (partly
  through project-based mechanisms) complement
  other environmental policies, or interfere with
  them?

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• The eucalyptus planted over here is meant for
  charcoal. It is a disaster for us. They say it
  provides jobs, but the maximum is 600 work places
  in a plantation of 35,000 hectares. And, when
  everything has been planted, one has to wait for
  six years. So, what work does it generate?

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• We used to produce coffee and pasta and cotton.
  Several different little factories in their
  suitable regions. Nowadays, there is only the
  eucalyptus. It has destroyed everything else. . .
  . Why do they come to plant in the land suited
  for agriculture instead of most suitable areas?
  Because it takes ten to 20 years and over here
  only seven. All the best pieces of land went to
  the eucalyptus plantations, pushing the small
  producers away and destroying the
  municipalities.

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• Jorge, former Plantar
• worker When I started
• working at Plantar I was
• OK. One day I fainted
• after lunch. I was already
• applying the insecticides,
• fungicides. Then there
• were headaches, weakness.
• My superior told me,
• I am firing you because
• you do not know if you are
• sick or not. Six or seven
• people died. Plantar said it
• was heart failure. Now I
• dont dare eat the fish
• from the streams here.

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What people in the Uganda forest department said

• We just have to admit that we know nothing
  about the trade in CO2, neither how it will
  function nor how much the foreign investor will
  profit from it.

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• Again, is the carbon market complementary to
  other measures?

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• The carbon market doesn't care about
  sustainable development. All it cares about is
  the carbon price.
• Jack Cogen, Natsource

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• The Sandor Sequence
• 1. Structural change needed demand for capital
• 2. Uniform commodity standards
• 3. Legal instrument providing evidence of
  ownership
• 4. Informal spot/forward markets
• 5. Emergence of exchanges
• 6. Futures, options, etc.
• 7. Proliferation of OTC markets, etc.
• Were at stage 6.
• Well, yes and no. Stages 2 and 3 are
  unachievable, so are succeeding stages
  sustainable? Cant measure, cant manage. Let
  the market do it? Garbage.

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• In India, people see their land taken away and
  destroyed both for big and sustainable
  developments, for large dams and small hydros
  (Uttaranchal), new carbon sinks (ITC, Andhra
  Pradesh), environment-friendly wind mills
  (Maharashra, Satara), and liquid and gaseous
  filth from the clean and green companies poison
  their soils, rivers and air. Beyond boundaries of
  their everyday lives and knowledge, climate games
  go on with baselines, BAUs, additionality and CER
  vintages. The Himalayan glaciers meanwhile
  continue to melt, cloudbursts and flash floods
  wipe away whole villages, prolonged droughts and
  extremes of temperature create havoc with
  agriculture, and cyclones devastate fisherfolk
  villages. The real and perceptible danger of
  climate change is offset by the illusion of the
  most absurd and impossible market human
  civilization has ever seen.
• Soumitra Ghosh,
• National Forum of Forest Peoples
• and Forest Workers

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Two kinds of climate action

• Continue extraction but find
  new CO2 dumps.
• Overuse?
• Cut extraction.
• Entrench inequalities through Unequal use?
  privatization so big users can keep using
  most dump space.
• Find ways of using dump more equitably.

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• What does the offset market teach?
• Emissions are due to individuals.
• We can exercise our social responsibility by
  individual consumer action.
• Fundamental change is really hard (offsets cant
  change the fundamentals of energy use no
  large-scale social change has ever been achieved
  by consumer choice).
• Climate action is highly technical.

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• I am astonished I have been such a monster.
• Executive trainer Charlotte Robson, on learning
  that her personal carbon dioxide footprint was
  24 tonnes per year
• A cost of 156 is nothing. Think of the money
  you spend on lipstick and magazines.
• Charlotte Robson, on learning that a payment to
  CNC would neutralise her emissions.

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• What does the offset market NOT teach?
• Climate change is a problem of historical power
  imbalances and large-scale social/technical
  processes and has to be tackled by political and
  social organising.
• Even what offset companies present as
  unavoidable emissions are avoidable through
  social action.
• There are limits to using unseen Southerners to
  assuage middle-class individual Northern guilt.
• The emerging climate movement has many
  encouraging precedents, not in consumer choice,
  but in other social movements against inequality
  and exploitation.

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• For more information
• http//www.thecornerhouse.org.uk
• http//www.sinkswatch.org
• http//www.carbontradewatch.org
• http//www.wrm.org.uy
• Download Carbon Trading A Critical Conversation
  on Climate Change, Privatisation and Power from
  http//www.dhf.uu.se.
• Contact Larry Lohmann at larrylohmann_at_gn.apc.org.