Yesterday we published an interview with Kevin Smith of Carbon Trade Watch and Jutta Kill of Sinkswatch. In the interview, they laid out their argument against carbon trading in all its forms, claiming that it has not been, and cannot be, an effective tool in the fight against global warming. I am generally a proponent of carbon trading, and I have written about it on Celsias a number of times. As such, I thought I would continue the discussion by providing the case for carbon trading, and responding to Smith and Kill.

Let me first say that, despite our disagreements on carbon trading, I hope we can recognize that we are on the same side. We agree that climate change is an epic crisis that needs to be addressed immediately with drastic action. Where we disagree, I believe, is on the most effective, efficient, and feasible means of tackling climate change. But in the end, we want the same outcome. With that said, I'll start my response by summarizing the main points made by Smith and Kill (and please correct me if I've mischaracterized any of them):

1. The EU ETS, Europe's carbon trading system under the Kyoto Protocol, has been a failure and will continue as such
2. Carbon trading represents a "privatization of Earth's carbon cycling capacity," without a democratic process to determine where to give emissions rights
3. Tree planting is an ineffective, potentially harmful, means of reducing the planet's CO2
4. Carbon offsets reduce the need for our government to "…give us a different set of choices" and a better solution would be an amalgam of action, ranging from local movement to a national government investment program into appropriate technology

1) The EU ETS, Europe's carbon trading system under the Kyoto Protocol, has been a failure and will continue as such The first part of that argument, that the EU ETS has not achieved its goals so far, is all but undeniable. Prices for carbon under the EU ETS dropped down to just a few cents and have never made a real recovery, few countries have reached their emissions targets to date, and the biggest polluters have reaped windfall profits from the free allocation of emissions allowances. For anyone who has been involved in Kyoto, however, this has not come as a surprise. And not because they knew the EU ETS would fail, but because the first phase of the EU ETS (2005-2007) was designed as a "pilot" phase, meant to work out the (significant) kinks in the system. Phase II of Kyoto just started last week, and offers substantial differences from the pilot phase. The World Business Council for Sustainable Development released an article the same day as our interview was published, outlining many of these differences. Two of these struck me as most relevant. First, the primary reason for the EU ETS failure in phase I was an over-allocation of permits by a number of countries. These countries acknowledged the mistake and attributed it to an admitted lack of complete information at the time regarding their own countries' emissions. However, in Phase II new calculations are being used based on 2005 data, and the new assignation of permits should leave companies short around 250-260 million tons CO2 each year, requiring significant changes in environmental practice. Second, emissions targets in Phase I were voluntary. Phase II brings with it the introduction of mandatory emissions targets with international enforcement. Admittedly, this enforcement will likely extend only as far as public reprimand, but that has been an effective tool in other global environmental agreements. Janet Peace, a senior economist at the Pew Center on Global Climate Change, noted,

"Many people missed the fact that [Phase I] was the learning phase. But the first part wasn't even Kyoto. That was their warm up. This was how they figured out and got the infrastructure in place." -- WBCSD

So I do think it is fair to assume that the EU ETS has been ineffective so far. And I agree that providing windfall profits for the biggest polluters is a terrible idea. But it is not fair to write off the next stage, which has the potential to induce real, lasting change. The Kyoto Protocol isn't nearly perfect, but it should be commended as a valiant attempt at global coordination against climate change. 2) Carbon trading represents a "privatization of Earth's carbon cycling capacity," without a democratic process to determine where to give emissions rights To some degree, this is true. Introducing mandatory carbon trading, like a cap-and-trade system, places the onus on private industry. It forces polluters to do something to reduce their impact on the planet's carbon emissions, whether it is changing their own practices or helping finance projects to do so elsewhere. It is important to note that, as Erik Carlson of carbonfund.org said on National Public Radio last week, "We need a 70 percent or so reduction in emissions. And, in fact, that's all the planet actually cares about." It doesn't matter where emissions reductions come from. One pound of CO2 in Bangladesh is one pound of CO2 in Poughkeepsie. So, given the pressing nature of the crisis, we should be reducing our emissions in the places where we can reduce them the most, with least cost to our livelihood and the planet's biodiversity. This is the ultimate goal of carbon trading; to let the market determine the most efficient ways to reduce greenhouse gas emissions. I think efficiency has become something of a dirty word among activists circles, and often rightly so. Historically, the quest for efficiency has led to profit maximization at the expense of social justice, environmental maintenance, and economic equality. But in this case, it is a necessary consideration. If we do not reduce greenhouse gas emissions efficiently, we will never avoid climate change-induced disaster. Government should certainly be involved, and indeed government has been the designer and controller of existing carbon markets, but markets should play a significant role as well. As to the lack of a democratic process, I'm not sure I understand this argument. The government in control of the cap-and-trade program maintains control of the overall cap, as well as the percentage of auction vs. allocation, in any cap-and-trade scheme. These two sources of power give the government the ability to fundamentally alter the way cap-and-trade systems function. No, we don't have voter referenda for every allocation, but if our elected officials design the system, is it not part of the democratic process? 3) Tree planting is an ineffective, potentially harmful, means of reducing the planet's CO2 I actually have no argument here. I agree that tree-planting is the wrong way to reduce our greenhouse gas emissions. Its permanence is questionable, and it doesn't address the larger problem of transitioning our economy away from fossil fuel-based energy sources. However, I should note that tree-planting is not included in all voluntary carbon offsetting. According to Clean Air-Cool Planet's Consumers Guide to Retail Carbon Offsets (PDF), only about half of the leading carbon offset retailers include reforestation in their portfolio of projects. In addition, the potentially harmful effects of tree-planting on local communities in the Global South often do not extend to other investments in carbon reductions. Many of these projects, such as renewable energy generation or landfill methane capture and flaring, create new jobs in local economies. Arguing against tree-planting is completely legitimate, but it is not an argument against carbon trading on the whole. 4) Carbon offsets reduce the need for our government to "… give us a different set of choices" and a better solution would be an amalgam of action, ranging from local movement to a national government investment program into appropriate technology I understand this concern. There is a worry that governments will introduce cap-and-trade and then walk away, having washed their hands of that pesky "global warming" problem. I share that same worry, particularly in relation to the United States. My only response can be: it hasn't happened before. Take the European Union, for example. EU countries are party to the EU ETS, and theoretically are in a position to let the market deal with climate change. But in actuality, Europe is leading the way in investment in renewable energy and incentives for carbon reduction. In other words, the cap-and-trade system has not had the effect we fear. Either way, I don't see this as a reason to shirk carbon trading. It is one solution; government mandates and investment are others. They should be complimentary and coexistent, not incompatible. I said at the beginning of this article that I am generally a proponent of carbon trading. What I meant is that I'm always a proponent of a well-designed carbon trading program. I am the first to acknowledge that most existing carbon trading systems are not perfectly designed. They have tended to contain loopholes allowing polluters to profit, and do not always reduce carbon emissions as much as they were designed to. However, I do believe that carbon trading is one of many useful solutions to climate change that should be considered together. The existing carbon markets should not be discounted, but rather improved, and I am confident that the upcoming markets will have a greater impact. As Andrei Marcu, president of the International Emissions Trading Association, put it,

"We've played the warm up game. Now it's time to get into the real game." -- WBCSD

Further Reading:

• The Case Against Carbon Trading