THE THEORY
By Felicia Jackson

We know we have to cut greenhouse gas emissions, but why is carbon trading the way to do it?

We have to start placing an economic value on the environment, but we can’t wait for the perfect solution. We need to act now, and that means using the market tools at our disposal to create the most flexible approach.

Changing the behaviour of governments and industry is likely to have a more immediate impact on emissions than encouraging individuals to buy low-carbon products and services. And to make countries and companies cut emissions quickly, we need to put a price on them. Doing so is not just about motivating polluters to reduce emissions; it is also about enabling politicians and bosses to keep track of the costs and benefits of emissions-cutting measures and make long-term investment decisions.

What are the chief advantages of carbon trading?

It imposes a limit on emissions, which shrinks over time. Trading in emissions — technically called “carbon offsets” — also makes sense as greenhouse gases are a global problem: it doesn’t matter where emissions are cut, as long as they come down. The cost of funding projects that result in lower emissions is immense, and we have to find a cost-effective way to manage this transition. Carbon trading fits the bill as it is economically efficient. As quotas get ever tighter, it becomes harder to generate credits and the cost of emissions becomes more onerous.

In that case, why is there so much international disagreement on tackling climate change?

The Kyoto Protocol was the first legally binding international framework to restrict greenhouse gas emissions, enshrining the concept of “common but differentiated responsibilities” for developed and developing nations. It is how these responsibilities should be enshrined in law that is causing disagreement.

The industrialised world has grown rich on the exploitation of the world’s natural resources. Developing countries are aggrieved to be told that they cannot follow the same path because of the threat of climate change. It does not help that, despite not having ratified Kyoto, the US is among countries insisting that the largest developing economies must accept binding emissions targets.

Offsets have been strongly criticised as a means for developed nations to outsource their responsibility for cutting emissions to the developed world. There is clearly a need to help the developing world to deal with the environmental impact of climate change, but there is little agreement on how this should be funded internationally.

So will carbon trading benefit the developing world?

The Clean Development Mechanism and Joint Implementation provisions of the Kyoto Protocol should act to encourage investment in new, clean technologies and, in the case of the CDM, generate flows of global finance and knowhow from rich to poor.

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