Whatever one may think of the whole concept of carbon trading and however flawed one believes existing trading systems are and believe me this site has frequently criticized both the fact remains that carbon trading is almost certainly here to stay and will have a major impact on business and our personal lives in the decade to come.
The global carbon trading market is at a cross roads this month. If the US can be persuaded to join the system at the Copenhagen Climate Change Conference the market would explode in terms of projects subsidized and credits traded over the next five years. The United Nations Clean Development Mechanism (CDM) program is in tatters, widely criticized on all sides it is under funded, under staffed, slow, complicated and seen by many as ineffective. Indeed reform of the system will almost certainly be one of the US demands if they are to get on-board.
The world market in greenhouse gases has grown from nothing in 2005, when the Kyoto protocol came into effect, to about $125bn last year, despite the financial crisis, according to Point Carbon, quoted in an FT article. If the US were to participate in carbon trading, which it does not because it has not ratified the Kyoto protocol, the analyst firm estimates the total value of the market would rapidly rise by several hundred billion dollars, and could reach $3,000bn by 2020.
The UN’s CDM carbon trading program faces two major problems. The first is the absence of the US, the largest per capita emitter of carbon, and the other is structural. The CDM cannot cope now with the number and complexity of project applications. If the US joined they would be swamped. As it is the system has come under widespread criticism for granting credits to projects, particularly in China and India that would have gone ahead anyway and should not be qualifying for carbon subsidies. This is the concept of “additionality that says any project should only qualify for subsidy if it would not otherwise be taking place, or put another way it is an additional opportunity for carbon reduction. But millions in subsidies have flowed to Chinese wind-farms that would almost certainly have happened anyway. To the UN’s credit, they have recently put a moratorium on subsidy for new Chinese wind farm projects while they review the criteria.
The worry is the UN is looking at ways to resolve the current problems in typical politicians ways by removing per project revue to setting wide benchmarks that cover industries or even countries and then award credits based on how well industries or countries do against a benchmark. The opportunity for falsification of results and fudge sound like they would become rife.
Meanwhile, major corporations are in Copenhagen trying to influence governments thinking on carbon trading and the impact regulation could have on business. Coming back to our opening comments, regardless of our view in various ways the outcome of this week will impact us all in the years to come.