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CLIMATE CHANGE: Price of Carbon on the Rise

Analysis by Diana Cariboni

MONTEVIDEO, Feb 22 2005 (IPS) - The Industrial Revolution in the Western world, responsible for much of the pollution now threatening the planet’s very existence, was fuelled by the drive for profit.

How ironic, then, that profit motives form part of the Kyoto Protocol, which entered into force last week as a means of obliging the wealthy industrialised countries to curb emissions of the gases that cause global warming and climate change.

Carbon dioxide, one of the "greenhouse gases" that trap heat in the earth’s atmosphere, is now a tradable commodity. It is currently selling on the European market at 7.9 euros (10 dollars) a ton, and its value could quickly rise to 12 dollars, according to financial experts.

Does buying and selling gas emissions make sense? According to companies in the 35 industrialised nations that have committed themselves to reducing emissions under the Kyoto Protocol, the answer is yes – especially if it means cutting costs and boosting profits.

The heavy use of coal power beginning in the mid-19th century, the expansion of pollution-causing industries and the transportation revolution sparked by the proliferation of fossil fuel-powered motor vehicles have caused enormous amounts of toxic substances to build up at a rate that nature simply cannot tolerate.

The large economic powers, particularly the western European nations and the United States, but also others like the Soviet Union until its disappearance in the early 1990s, set the course for this destructive road to development, followed later – and lamentably – by the rest of the world.

The resulting damage did not recognise national borders. Troubling signs were soon observed around the planet. Global warming and the hole in the ozone layer, which protects the earth from damaging solar radiation, have been scientifically confirmed, measured and studied in meticulous detail since the 1970s.

The international environmental treaty that gave rise to the Kyoto Protocol – the United Nations Framework Convention on Climate Change – recognised in 1992 that this destructive model of development had to be abolished, for the good of all, although not everyone was equally responsible for mitigating the damage caused.

This reasoning was reflected in the Kyoto Protocol, signed in 1997, which divided the industrialised nations and the developing world into different categories with different obligations. This underlying principle, however, soon met with resistance.

The large corporations alleged that they would need to invest millions of dollars to switch from oil, gas and coal to cleaner, renewable sources of energy, while the powerful and influential oil and energy industries exerted considerable pressure on governments.

As a consequence, the international community eventually brought together, in the Protocol, the ethical logic of shared but differentiated responsibilities towards the environment and the profit logic of economic incentives.

The Kyoto Protocol’s so-called "flexible mechanisms" – emissions trading, joint implementation and the clean development mechanism (CDM) – will allow companies in industrialised nations, which must meet emissions reduction targets, to acquire credits for emissions reduction in other countries, thus gaining time in which to curb pollution "at home".

Through the CDM, for instance, the industrialised North can gain credits for investing in emissions reduction projects in the developing South, for which no targets are established under the Protocol. This means that companies in the wealthy countries can continue to produce excess amounts of greenhouse gases, at least for a certain period of time.

The CDM includes a commitment on the part of the wealthy nations to transfer clean technologies to the South, and aid in their development, but to what extent will this promise be fulfilled?

Spain is one of the countries that has seen the sharpest rise in greenhouse gas emissions, which grew by 45 percent between 1990 and 2004. As of this week, the country’s industries are facing precisely defined reduction quotas, set by the government.

The Spanish energy company Endesa has just announced that it will be investing 3.2 billion dollars in six hydroelectric plants in Latin America, and will use the emissions reduction credits generated to compensate for the emissions that continue to be released by its thermal power plants in Spain.

Endesa estimates that this initiative will cut carbon dioxide emissions by 400,000 tons annually over the next 20 years.

It seems obvious that investment in these developing world projects will cost less than converting the company’s thermal plants in Spain. Moreover, if Endesa is willing to make this large of an investment, it will almost certainly translate into profits for the company.

But who can measure the tens of thousands of sources of greenhouse gas emissions around the planet to determine if plans like Endesa’s will actually be effective?

"You simply can’t verify whether a power plant’s emissions can be ‘compensated for’ by a tree plantation or other project. Ultimately investors are bound to lose confidence in the credits they buy from such projects," a press release from the British-based watchdog organisation Sinkswatch stated last week.

Activist Roque Pedace from Friends of the Earth-Argentina told IPS that the CDM is essentially a way for the developing countries to subsidise the industrialised nations.

Pedace said the wealthy nations have assigned themselves "excessive emissions quotas" to begin with, while the CDM "allows them to find cheaper places to meet those quotas, at the cost of the future capacity to reduce emissions in the countries where the projects are executed."

Moreover, according to Sinkswatch, "the carbon trading promoted by the protocol hands Northern governments and corporations lucrative tradable rights to use the earth’s natural carbon-cycling capacity, effectively stealing a public good away from most of the planet’s inhabitants."

Essentially, then, the pollution created in the North is reduced in the South.

But the Kyoto flexible mechanisms have limits. Industrialised nations cannot use them to make up their full emissions reduction quotas, and must undertake genuine pollution-curbing actions before 2012, the deadline set by the Protocol.

In addition, the Climate Change Convention has standards and bodies to ensure the fulfilment of its provisions and to prevent the entire exercise from being reduced to nothing more than a carbon market working "at full steam".

By 2012, the 35 industrialised countries that have ratified the Kyoto Protocol must cut their emissions to levels 5.2 percent lower than those registered in 1990. This is an extremely modest goal, say scientists, who estimate that a reduction of 60 percent is needed to halt global warming.

In the meantime, the already visible effects of climate change will continue to worsen, with increased flooding of coastal areas, droughts, and more frequent and powerful storms.

"The costs of the damage caused by climate change and the adaptation measures to confront it will rapidly outstrip the investment required for the energy transition needed in the North and the South," predicted Pedace.

Once the Kyoto Protocol’s deadline has elapsed, the international community will need to establish an agreement that involves the world’s worst polluter, the United States – which withdrew from the Protocol – and large economies of the South, like China and India, that are exempt from emissions reduction obligations under the current treaty.

The goal will continue to be a model in which economic growth is not inextricably tied to harmful emissions. And the drive for profit will certainly not be lost along the way.