Changing the Rules of the Carbon Game
Mark Schapiro’s article Conning the Climate in the latest February issue of Harpers provided a well-written overview and critique of the carbon markets. Shapiro argues that cap-and-trade schemes fail to live up to their raison d’être. His argument may be summarized best by the statement: “[the carbon]”market is, in essence, an elaborate shell game, a disappearing act that nicely serves the immediate interests of the world’s governments but fails to meet the challenges of our looming environmental crisis.”
Indeed, cap-and-trade schemes today have their set of problems. It’s difficult to ascertain whether a CDM project has actually contributed to reducing levels of CO2 given phase lags and complexity of the environment system, or whether the project would have been possible without the help of CDM-generated funds, the concept of additionality. Furthermore, the number of fraudulent CDM projects is increasing. Regulating projects can be an unwieldy task given the number of projects across the globe.
Shapiro raises many valid points, the aforementioned, with which I agree. However, his implied comparison of cap-and-trade to its alternative, a carbon tax, is somewhat naïve and idealistic. He takes uncritically the effectiveness of a carbon tax in reducing CO2 impacts and subtly dismisses the momentum that the former has gained across the globe. This in my opinion doesn’t productively advance the dialogue on the goal with which he’s after — solving the world’s CO2 problems.
Surely a carbon-tax on all emitters would transparently create a cost for the environmental externalities of carbon emissions. However, I tend to share the position that it burdens industries that not economically able to adopt change quickly as others. More importantly, such a system removes the incentives for innovation. Competitiveness amongst firms fuels the creativity and innovation that drives disruptive technological and business model innovations. It’s a reality of the capitalist and profit-driven society that should be embraced.
Given the direction the world is heading in with regards to carbon trade, it would be difficult and perhaps foolish to row against the tides of change. More energy should be directed towards improving the regulatory structure around CDMs and adding proper governance to monitor improvements to CO2 reduction. Mandating domestic regulation of CDMs and markets might create and extend the rhetoric of “buy American” to funding domestic CDM projects and measuring impact on a country level vice global.
