Recently I got a mailing from Friends of the Earth. And I can honestly say that while I may not agree with every word of their lavish 60-odd page Research Report (probably funded by us as EU tax-payers), I none-the-less agree wholeheartedly with its main thrust. They discuss Carbon Trading (aka Cap’n’Trade, aka European Emissions Trading System, or ETS) as “A Dangerous Obsession”, and they present “The Evidence against Carbon Trading”, explaining that as a mechanism it is “fundamentally flawed”.
They are right. Even if you believe on Anthropogenic Global Warming (AGW) and the need to cut carbon emissions, Carbon Trading is economically illiterate, damaging to industry, hugely bureaucratic and wasteful, and an open invitation to the most egregious fraud. If, as I believe, AGW is simply a kind of collective hysteria with no basis in science or in fact, then Carbon Trading is doubly absurd – and doubly damaging.
FoE argue that Carbon Trading “Is ineffective at driving emissions reduction”; “Fails to drive technological innovation; “Leads to lock-in of high-carbon infrastructure”; “Allows for and relies on offsetting”; “Creates a risk of sub-prime carbon”. I spent some time pondering what sub-prime carbon might be. They seem to mean that widespread carbon trading could lead to a bubble and a crash comparable to the sub-prime mortgage crisis.
Broadly speaking I think they’re right. Certainly the EU’s ETS has been a bit of a disaster. It has failed to reduce emissions. It has created huge distortions between industries and between member-states. The carbon price has been all over the place, failing to create the intended incentives.
They could have added that Carbon Trading creates huge anomalies between companies, with complex issues of starting criteria and grandfather rights, and huge anomalies between countries, whether within the EU (some member-states were gaming the system with big initial allocations), or between Europe and the former USSR – which found itself with massive “carbon credits” to sell to the West. Developing countries have found ways to create fictitious credits either with false accounting, or in some cases (as the BBC has reported) even putting up highly polluting plants just to pocket the credits on subsequently closing them.
Russia, China and India must be astonished by their good luck, as Western economies rush to placate George Monbiot and the green lobby by opening their wallets and hurling money away.
Some defend Carbon Trading as “A Market-Based System”. But it is a wholly false market dealing in a virtual commodity – the right to emit CO2. It is defined by bureaucrats and can be altered by them at the stroke of a pen, and it is wide open to massive manipulation. It is not in any sense a real market.
If we must reduce CO2 emissions (and I don’t think we need to), then a simple carbon tax would be clear, predictable, and inclusive. It would create a level playing field between companies, and it would be easier, surely, to extend it internationally by agreement to achieve a level playing field between countries. It would not create barriers to technological innovation. And perhaps most important, compared to the present confused system of carbon trading plus massive subsidies for “renewables”, it would remove the damaging and outrageous bias between different low-carbon technologies, most notably between nuclear and wind. And if that were done, not a single new wind turbine would go up.