rsc esee 2013

8/13/2019 RSC ESEE 2013

1/24

The High Cost of Cost-EfficiencyA Critique of Carbon Trading

Ricardo Sequeiros CoelhoCenter for Social Studies, University of Coimbra

ESEE !"# Conference"$-"% &une, 'ille, (rance

8/13/2019 RSC ESEE 2013

2/24

Outline

)* )ntroduction))* Constructing carbon commodities to ma+e climate change

governable)))* (ive normative ideals disregarded by carbon trading)* ossibilities and 'imitations of .esign Changes/ AnArgument 0ith Environmentalists* Conclusions

8/13/2019 RSC ESEE 2013

3/24

Introduction

The 1yoto rotocol to the United 2ations (rame3or+ Convention onClimate Change 4U2(CCC5 set binding targets for carbon emissions forindustriali6ed countries* These targets can be met through the use oft3o fle7ibility mechanisms/ ca8 and trade and offsetting*

8/13/2019 RSC ESEE 2013

4/24

Introduction

9oth instruments, 3hich 3ill be a88roached here using the umbrellaterm :carbon trading;, are

8/13/2019 RSC ESEE 2013

5/24

Constructing carbon commodities tomake climate change governable

)n Environmental Economics, instrument choice is seen as choosingbet3een instruments that deliver a certain environmental goal*

This reasoning follo3s from an 4utilitarian5 consequencialist ethic, 3hich

assumes value commensurability, and an instrumental vie3 ofrationality*

A88lied to climate change, this im8lies choosing the instrument thatminimi6es the cost of com8liance for a given level of emissionsreductions to regulated industries*

8/13/2019 RSC ESEE 2013

6/24

Constructing carbon commodities tomake climate change governable

(or a carbon mar+et to e7ist, it is necessary to create boundariesof tradability, 3ithin 3hich a ton of carbon is measured, valuedand understood in the same 3ay any other ton of carbon* These8rocesses of emissions commensuration, are radical for 3hat

they ma+e invisible 4'evin and Es8eland "%%5* This is becausethey rest on carbon accounting techniques 3hich al3ays involvea betrayal, as information not considered as :8hysical; accordingto the classification standards ends u8 being left out 4'i88ert!"5*

Reducing climate change to its quantitative dimension isessencial to ma+e the 8roblem :governable;, according tostandard management 8rinci8les*

0hile this mode of governance may lead to a minimi6ation ofcom8liance costs, it also creates im8ortant social costs of its o3n*

8/13/2019 RSC ESEE 2013

7/24

Five normative ideals disregarded bycarbon trading

1- Accountability

Every regulatory 8olicy needs to have a system of chec+s andbalances to evaluate com8liance* (or a quantitative climate 8olicybased on carbon mar+ets, this im8lies that is it necessary to

create a carbon accounting system that allo3s the measurementof flo3s of carbon from each source and sin+, according to acommon standard of technical commensuration* The bestscientific evidence available, ho3ever, does not deliver astandard 3ith a reasonably high degree of accuracy*

8/13/2019 RSC ESEE 2013

8/24


1- Accountability

Estimations of uncertainties in carbon accounting for 0esternEuro8ean countries range from = to ! 8er cent for inventoriesand > to = 8er cent for the trend 4Ry8dal and 0ini3arter, !!"5*

?ne im8ortant source of uncertainty is the conversion of a bas+etof si7 greenhouse gases into a common metric, the C?-equivalent, using the @lobal 0arming otential 4@05methodology* )ts relation to tem8erature change or to damages

from climate change is indirect and has to be derived fromclimate models 4(uglestvedt et al, !!#5* Re8lacing C?reductions 3ith non-C? reductions 3ill lead to lo3ertem8erature reductions to3ard the end of the "!!-year timehori6on 4)CC, !!$5*

8/13/2019 RSC ESEE 2013

9/24


1- Accountability

Carbon trading does not distinguish bet3een real emissionsreductions and :8a8er; emissions reductions* There are t3osources of :8a8er; reductions/ :hot air; and non-additional C.

8ro

8/13/2019 RSC ESEE 2013

10/24


2 - Environmental and Climate Effectiveness

An effective climate 8olicy can be defined as one that facilitatesthe transition from a high-carbon develo8ment 8ath to a lo3-carbon develo8ment 8ath* This 8aradigm shift 3ill certainly

require that most fossil fuel reserves are left underground*Carbon trading cannot deliver such a transition, as it focuses onthe achievement of small reductions in :abstract carbon;emissions*

8/13/2019 RSC ESEE 2013

11/24



)ndustrial economies face 3hat Unruh 4!!!, !!5 called carbon loc+in, that is, the loc+ in of high-carbon technological systems and the loc+out of alternative technologies*

Technological innovation 8lays an im8ortant role in overcoming the8ath-de8endent 8rocess of carbon loc+ in, as it allo3s emissionsreductions to be achieved at a lo3er cost* The role of carbon trading in8roviding incentives for technological innovation in 8ollution control,ho3ever, is uncertain, as it delivers a lo3er incentive to innovate than

emissions standards to 8ermit buyers 4alueg, "%B%5* oreim8ortantly, carbon trading 3ill discriminate against the +ind ofinnovation needed to esca8e carbon loc+ in*

8/13/2019 RSC ESEE 2013

12/24



9y giving the same value to all emissions reductions, carbon tradingdrives abatement investment a3ay from fundamental technologicalchanges, 3hich effectively decarboni6e the economy and ma+e it

easier to further reduce carbon emissions in the future, in favor ofinvestment in end-of-8i8e technologies, incremental innovations andother :chea8 fi7es;, entrenching fossil fuel de8endence 4.riesen,!!$5*

ore generally, it is fundamental to recogni6e 8ath de8endencies in

8ollution control costs*

8/13/2019 RSC ESEE 2013

13/24



Carbon emissions are al3ays released into the environment mi7ed 3ithemissions of other 8ollutants* any of these co-8ollutants have not onlya direct effect on air quality but also have an indirect effect on radiative

forcing, de8endent on chemical, 8hysical and meteorological variables,3hich leads to a significant geogra8hical differences in climate effectsfrom a given reduction in carbon emissions 49erntsen et al, !!5*

These issues are com8ounded by the introduction of offsetting in1yotoDs carbon mar+ets, as :bad; credits tend to drive a3ay :good;

credits* Em8irical evidence from the Clean .evelo8ment echanismsu88orts this claim, by sho3ing ho3 it has allo3ed 8olluters to com8ly3ith 1yoto by buying carbon credits from 8ro

8/13/2019 RSC ESEE 2013

14/24


3 - ocial and Environmental !ustice

A socially and environmentally

8/13/2019 RSC ESEE 2013

15/24

8/13/2019 RSC ESEE 2013

16/24


3 - ocial and Environmental !ustice

@iven societiesD de8endence on fossil fuels, access to carbon isessential for individuals to cover basic needs and for nations to achieveeconomic develo8ment* Carbon trading leads to an e7tension of

e7isting e7treme inequalities to the domain of access to carbon 4Aldred!"5*

Carbon mar+ets also lead to shifts in the distribution of incomede8endent on ho3 emissions 8ermits are distributed across 8olluters*The :grandfathering; of 8ermits effectively transfers income from

consumers to 8olluters, through 3indfall 8rofits, 3hile the relativelyla7er ca8s a88lied to energy-intensive industries, relative to labor-intensive industries, lead to a transfer of income from the latter to theformer*

8/13/2019 RSC ESEE 2013

17/24


" - #emocratic $artici%ation in #ecision-&aking

A democratic climate 8olicy should allo3 citi6ens to 8artici8ate indecisions regarding 3here and ho3 to reduce emissions* A climate8olicy based on carbon trading, conversely, effectively gives 8o3er over

these decisions to traders, industries and other carbon mar+ets actors*Citi6ens, through their democratically elected institutions can, at most,have a voice on the aggregated level of emissions reductions 4the:ca8;5 and the rules for regulating the allocation and trade of 8ermitsand the creation and use of credits*

8/13/2019 RSC ESEE 2013

18/24


" - #emocratic $artici%ation in #ecision-&aking

Evidence from the allo3ance allocation decisions in the euro8eancarbon mar+et sho3s that these follo3ed 8olluters 3ants more closelythan scientific and technical evidence or considerations of fairness and

8/13/2019 RSC ESEE 2013

19/24


' - ustainability Ethics

A climate 8olicy 3ill have an effect on 8eo8lesD environmental morale,motivations, values and ethics* This im8lies that an effective,

8/13/2019 RSC ESEE 2013

20/24


' - ustainability Ethics

Carbon trading turns fines into fees, removing the moral stigma that is8ro8erly associated 3ith 8ollution 4Sandel !!=5* This ends u8 having astrongly negative effect on environmental morale 4(rey and Stut6er

!!B5*Another moral ob

8/13/2019 RSC ESEE 2013

21/24

$ossibilities and (imitations of #esignChanges) An Argument *ith

Environmentalists

That some of the 8roblems mentioned above can be mitigated throughdesign changes in e7isting carbon mar+ets is unquestionable*

Reforms such as these are frequently advocated by environmentaliststhat vie3 carbon trading as a :3or+able; 8olicy* 9ut a discussion on the

8ossibilities of design changes is incom8lete 3ithout due considerationof 3hat these changes im8ly for transaction costs*As cost-efficiency,narro3ly defined as the minimi6ation of the cost of reducing emissionsborne by 8olluters, is the 8illar of carbon tradingDs su88osed su8eriorityover other regulatory instruments, the reformist 8ro8osing designchanges has to deal 3ith the contradiction of advocating a carbon

trading system that is not cost-efficient on its o3n terms*

)t is not even clear if these solutions, if they 3or+, 3onDt

8/13/2019 RSC ESEE 2013

22/24


Environmentalists

Another line of defense for a carbon trading 8ro8onent could be toargue that 3e could design com8letely different system of carbontrading, in 3hich 8ermits 3ould be given to citi6ens, 8erha8s on anequal 8er ca8ita basis 4e*g* (a3cett, !"!5* The over3helmingcom8le7ity of such a system, ho3ever, is enough to understand ho3

the administrative costs of im8lementing 8ersonal carbon trading 3ouldbe far su8erior to other regulatory instruments* (urthermore, it is leftune78lained by 8ersonal carbon trading 8ro8onents ho3 it 3ould hel8societal transition to a lo3-carbon develo8ment 8ath, 3hen individualciti6ens do not have the 8o3er to affect 8atterns in infrastructureinvesments through their sho88ing habits* )n other 3ords, 8ersonalcarbon trading 3ould

8/13/2019 RSC ESEE 2013

23/24


Environmentalists

A final line of defense could still be made by arguing that carbon tradingis

8/13/2019 RSC ESEE 2013

24/24

Conclusions

The discussion 8resented here sho3s ho3 the cost-effectiveness claimattached to carbon trading rests on a very narro3 definition of cost,

3hich only incor8orates the cost of abatement by 8olluters* Carbontrading cannot deliver the accountability, fairness and effectiveness thatclimate 8olicies should reasonably have* )t also undermines democratic

decision-ma+ing and conflicts 3ith fundamental 8rinci8les fromsustainability ethics* These shortcomings can be seen as the socialcosts of carbon trading*

Rescuing carbon trading from these shortcomings 3ill 8rove to beim8ossible* oreover, even if a :8erfect; carbon trading system could

be ideali6ed, transaction costs 3ould be high enough to ma+e it anundesirable o8tion for regulating emissions* Carbon trading cannot fitinto an accountable,

rsc esee 2013

Documents