Kyoto Protocol…

The Kyoto Protocol came into force a little while ago, and while the protocol is much watered down from what it was originally intended, it’s generally considered a step in the right direction. Currently the Kyoto Protocol asks industrialised countries to reduce greenhouse gas emissions to at least 5 per cent below 1990 levels by 2012. That’s not much of a reduction really, but it’s better than nothing. Unfortunately the US, which is the #1 polluter has not signed the accord yet. And neither has Australia. They will sign in due course, I guess. But the fact that they haven’t is symptomatic of how we continue to treat the enviornment as a resource to exploit as long as we can.

Anyway, the thing is the reductions in greenhouse gas emissions are not going to actually happen in the Developed World. Or at least, not in any significant way. That’s because they have too much of the CO2 oriented infrastructure already in place, and replacing them with less polluting, renewable energy fuel sources is highly uneconomical to entrenched interests. So, instead, what we have is what the market calls “carbon trading”, wherein companies & countries trade “carbon credits” with each other. Participants in carbon trading buy and sell contractual commitments or certificates that represent specified amounts of carbon-related emissions that either:

* are allowed to be emitted;
* comprise reductions in emissions (new technology, energy efficiency, renewable energy); or
* comprise offsets against emissions, such as carbon sequestration (capture of carbon in biomass).

People buy and sell such products because it is the most cost-effective way to achieve an overall reduction in the level of emissions, assuming that transaction costs involved in market participation are kept at reasonable levels. It is cost-effective because the entities that have achieved their own emission reduction target easily will be able to create emission reduction certificates “surplus” to their own requirements. These entities can sell those surpluses to other entities that would incur very high costs by seeking to achieve their emission reduction requirement within their own business. Similarly, sellers of carbon sequestration provide entities with another alternative, namely offsetting their emissions against carbon sequestered in biomass. More details here

Carbon Trading is considered the next big opportunity for developing countries like India. That’s because we don’t have such a big “installed base” of CO2 emitting infrastructure. And since our energy demands are only going to grow exponentially, theoretically, this means that it is better (and presumably, easier) for us to move to a “lower emission” regime. The market for hybrid cars, hybrid everything is India. This movement to a lower carbon emission regime, in turn, helps us get Credits from the Carbon Market, i.e. a few billion dollars of Forex. So, say the experts.

What I see is a huge opportunity for the Big 4 type consultants to make big bucks by acting as the monitoring agencies, many more accounting malpractices as firms write in carbon credits into their balance sheets which are going to be awfully difficult to verify. If I were the academic sort, I would say, Carbon Trading must be one of the most fantabulous trading strategies ever devised. But since I am not, what I will say is, the very idea of Carbon Trading is revolting.

It is a pity that the ideas of environment as a resource, and human self interest over all else (both a direct consequence of fundamentalist capitalism) have become so ingrained in our collective consciousness that we refuse to see the writing on the wall, even when it is in Font Size = 44. A market for trading emissions? Lol, the depths to which we descend to keep a flawed philosophy and a flawed structure in place.

I hope the bloody Carbon trading market collapses, even if we don’t gain the Forex.

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Posted on February 22, 2005, in Uncategorized. Bookmark the permalink. 2 Comments.

  1. Very interesting da… So at a very high level, this works because of least cost principles? Its basically cheaper for American companies to pay off companies in India by purchasing a an emission certificate than it is to reduce their own emissions.

    If that’s correct, then its globalization at its best! Revolting indeed.

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