Climate Justice Research Project

Carbon markets do not reduce emissions.

The EU ETS has systematically failed to induce investment in low-carbon technologies. This is true in both phases, and it has been true both during and before the euro crisis.

The EU ETS has been repeatedly subject to fraudulent practices, not simply by fringe or criminal elements but also by financial actors at the center of carbon trading. The European Commission recently accepted there would be inevitably some stolen allowances circulating in the markets, and made provisions to legally protect traders. The EC and national law enforcement have been unable to recover the vast majority of stolen credits or lost tax revenue.

Before the euro crisis, the glut of allowances in the ETS was projected to be over 1.1 billion tons of emissions at the beginning of phase 3 in 2013. The price of carbon is far below the cost of implementing new technologies for reduction. Financial actors are quickly abandoning carbon markets due to their dysfunction.

The ETS is highly susceptible to widespread lobbying, with the effect of completely unrealistic market pricing, windfall profits for industrials, political imbalances in who receives free allowances, and inability to include new sectors, such as airlines, into the market.

Carbon markets have especially failed to reduce CO2. Markets treat all GHGs as equivalent even when they are not, and subsequently avoid the real problem of reducing reliance on fossil energy. The ETS is simply an industrial subsidy for polluters, a fact which helps explain why the economic recovery has increased CO2 emissions to record levels.

Among other perverse incentives, the ETS has provided a major incentive distortion in favor of new dirty power plants, while the CDM has provided a major incentive to generate HFCs.

Environmental integrity is systematically undermined in the rule making surrounding carbon markets. The only partial exception is when NGO actors, using their own funds, research and initiative, are able to forcefully criticize specific market failings. There is no internal process to maintain or even verify the environmental integrity of carbon markets.

Carbon offsets are rights to pollute. The CDM is a market formally organized to transfer a new ‘natural’ resource asset from the developing world to Europe.

Carbon offsets create more problems for poor people, and make marginalized groups and developing countries bear the climate burden.

The CDM does not reduce emissions and is not designed to reduce emissions. At best, it produces a net zero balance of emissions, but with any error it actually increases emissions.

Widespread error in additionality requirements virtually guarantees that a very high proportion of CDM projects actually increase emissions, while concentrating wealth among a financial elite.

CDM investment is not ‘development,’ but cash payments to existing elite. Its idea of development is highly reductive, focused only on indices of FDI and GDP, with little awareness of the factors that encourage broad social development on an equitable basis. In some cases, CDM projects actively harm the lives of already marginalized groups.

Renewable energy standards have been far more important than carbon markets for investment in China and in Europe.

Forestry offsets are essentially law enforcement programs designed to kick marginalized groups and indigenous people off their land, often by enriching some local elite, promoting plantations and consolidating land grabs. They are incapable of curtailing commercial logging.

Private sector investment in ‘low-hanging fruit’ uses up the most valuable opportunities for developing countries to participate in carbon reduction activities. If and when developing countries have reduction commitments, they will be obligated to pay for far more expensive reductions.

The CDM Executive Board is unable to make necessary changes when environmental integrity of carbon offsets is against the interests of individual member states. Its inability to curtail HFC-based offsets is an excellent example.

The political organization of the CDM perpetuates the marginalization of smaller developing countries.

Instead of acknowledging the problems with carbon markets, the World Bank and related financial bodies have worked to create more carbon markets with lower standards and less transparency. The use of tools like Programme of Activities (PoA) and creditable NAMAs, and the proliferation of Pacific Rim domestic markets stand to make markets ungovernable.

Land use and forestry credits are systemically faulty and highly dangerous. Biospheric carbon cycles are not equivalent to geological carbon cycles, and the substitution of agricultural and forestry projects for fossil fuel extraction is a failure to confront the climate problem.