Thursday, April 26, 2007

Ahem. Grown-Up Post Alert

In between bashing out little nuggets of day job wisdom, I managed to take in the front page of the Financial Times. Placed rather prominently on the front page is a story, by Fiona Harvey, entitled "Industry caught in carbon smokescreen". It's a necessary corrective to some of the hype surrounding carbon finance.

But it's slightly muddy. I think it's important to separate the voluntary consumer compliance market, which is the victim of a bewilderingly diverse set of standards and schemes, and the compulsory corporate compliance market, which has a fairly clear set of rules and mechanism.

To be fair, Harvey's page 4 article does go into some of the differences between the two markets. The voluntary market allows consumers and businesses to offset the emissions of carbon and other greenhouse gases that they create in the course of their lives and businesses. They can buy these from brokers, who in turn hunt down projects that they believe will reduce or offset greenhouse gas emissions.

The compulsory market is a product of the Kyoto climate change treaty, which commits signatories to specified greenhouse gas reductions. The government of each country allocates acceptable emissions reduction targets to the big polluters, and these then either have to meet them, or buy offsets. These offsets have to be produced at qualifying, and fairly stringently monitored, projects in the developing world.

The voluntary market, on the other hand, consists of declaring oneself carbon neutral, and then going out and buying offsets from whoever seems most reliable to you at the time. Real human beings can do this too, especially if you are worried about your own carbon footprint (mine is pretty good, apart from my habit of going to stupid conferences, and burning the old jet fuel doing so). All you have to do is hand over money to someone who says he will spent it on carbon offsets. Feel better? I hope so.

So should the government step in and regulate the process of verifying these offsets? Protect us from the Or should it just tax carbon emissions? The FT says "markets are bound to be more complicated than taxes," lest we forget they've been Labour supporters for a while. But to recap, this is suggesting that a carbon tax makes sense because the small-scale offsets is not working.

The large-scale compulsory market is broadly working, and would be working better if emissions caps had not been set at an absurdly low level and prices of compliance credits hadn't plummeted. The only people cheering in this market are brokers that managed to persuade buyers to sign fixed-price contracts at high prices, or buyers that held on till the last moment.

Felix Salmon notes that the cap-and-trade system, even with the emissions rights auctioned rather allocated, is a little different in operation to a carbon tax. He notes, entirely sensibly, that a carbon tax would not automatically cut emissions, which, rather than maximising government revenue, is the whole point of the exercise.

But there's no reason why a carbon tax could not be set at levels that change behaviour, although it would be incumbent on politicians not to spare electricity consumers and drivers from the pain of this. Which they probably won't do. A cap and trade system, as Felix noted earlier, does not command a huge amount of support in the US, and a straightforward set of bans on emissions technologies would more likely pass.

But, rather like a voluntary personal carbon compliance market, it doesn't really get the consumer to confront the costs involved with climate change, which is also probably the way to galvanise mass movement on climate change.

So after all that wittering, where do I stand. With the taxes, if only because I really don't like the weird mixture of greed and sanctimony that animates the carbon brokers.


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