Tuesday, May 08, 2007

Where There's Farts There's Cash. Or Not.

More grown-up posting, which the header vainly attempted to belie.

I probably should hold off from writing this till tomorrow, since I'm a couple of scotches to the better, and trying simultaneously to clear my RSS, take in MC Will E.P.'s strange found sound experiments, and work my way through this New York Times article on carbon credit projects in emerging markets. But it's bugging me mightily.

Projects in developing countries that reduce or displace emissions of carbon dioxide are rewarded with certified credits that polluters in developed countries can buy to illustrate their commitment to fighting global warming, or, more likely, because they'll be fined if they don't reduce their reductions or buy sufficient credits to outweigh them.

I won't go into the whys and wherefores of the scheme right now, because I had a pretty incoherent stab at the policy a few days back. But I would like to look briefly at the rationale for the clean development mechanism, which says that we can bring cash and technology to less developed markets and reduce emissions in the developed world at the same time.

The Times doesn't set out the flaws in the system in a particularly linear fashion, partly because it spends a while doing the whole reporting and explaining and illustrating thing. But they can be laid out pretty clearly.

1) The list of developing countries was fixed ten years ago. Some have got lots more powerful (China, S. Korea), and some a little less (Argentina). So you get a snapshot of economic development of the same vintage as a Billboard chart ruled by No Doubt, the Spice Girls, the Verve, and Third Eye Blind (I know, urgh)

2) But there's an in-built flaw in the way the mechanism works, since the countries at the top of the pile, which have more dynamic economies and financial systems, are the best at developing projects that produce credits.

3) Moreover, your country can't just be rich and entrepreneurial, since in that case Nigeria, whose banks are swimming in almost as much cash as their Chinese counterparts, would be flinging money at its entrepreneurs and reaping tidy returns from credits. No, the host country also needs a relatively stable framework for supporting whatever the CDM project is doing, be it selling wind power, trapping methane from cows' bottoms, or installing sophisticated pollution control equipment at industrial premises.

4) Oh, and preventing carbon dioxide emissions is a mug's game, even though CO2 is the most common greenhouse gas by many multiples. It's expensive and time consuming. Better to focus on a nastier and rarer gas, like HCFC22, as the Times article notes. The returns are much better.

This set of barriers to poorer countries exploiting the system more effectively is almost built in. The CDM was set up as a militant market approach to global warming. The designers essentially said "I'm sick of pieties, I'm sick of half measures, let's go out and make a difference RIGHT NOW." Which is very dynamic and valuable, and the CDM does produce results quickly, jsut not equitably or on a particularly useful or widespread scale.

The CDM, while arguably a spur to the development of such technologies, has had a negligible effect on emissions to date, and is transferring wealth, via a network of carbon brokers, funds, and their financiers, to a group of countries countries that will very soon need to be brought within the system anyway, and fined for polluting and so forth. The less about the rewards to this group of middlemen the better, though I know that muscular capitalism is meant to be the virtue of this approach.

The CDM will need to be tweaked in such a way that someone, whether a foreign government, the World Bank, or another rich uncle, guarantees that projects in less promising countries, will produce their crop of credits. Because at the moment, the financing and expertise is going to countries that don't need them.


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