Carbon Pricing Problem: It Doesn’t Work

It’s an article of faith among capitalist economists that the best solution to “market failure” is “more markets.” Convert the problem into a commodity, and the market will magically solve it. John Bellamy Foster writes:

“For orthodox economists, ecological degradation is evidence of market failure. The market is unable to guide firms in the efficient use of environmental assets if they are not already fully incorporated within the market system by means of a rational price structure. The first task of environmental economists therefore is to transform ecological assets into marketable goods. For example, if clean air is not a marketable good with a price, then the market places no value on it…. The answer to this, from the standpoint of neoclassical environmental economics, is to create markets in clean air, thereby internalizing such external costs within the market. The overall logic is one of bringing the earth within the balance sheet.” (Ecology Against Capitalism, p.27)

Articles asserting that putting a price on carbon will cut emissions appear frequently in the business press — in last Friday’s Financial Times, for example. Canada’s liberal left agrees — check out the environmental programs of the New Democratic Party (“A cap and trade carbon market”) and the Green Party (“Expand the proposed National Emissions Trading System”).

Let’s leave aside the ethical issues that arise when the earth’s atmosphere is treated as a commodity for sale to the highest bidder. A Reuters article published today says that “put a price it” policies simply don’t work.

The article, “Carbon price is poor weapon against climate change,” notes that while lip service is paid to other approaches, efforts to reduce CO2 emissions have focused overwhelmingly on setting a price for carbon.

“the vital incentive is supposed to be provided by achieving a high price for carbon, from which all else would follow. Neither has happened and time is running out.”

There are two key components in the “price carbon” strategy, both central to the Kyoto Accord: Emissions Trading (letting corporations buy and sell “credits” for cutting emissions); and Clean Development Mechanisms (letting polluters invest in emissions-cutting projects, mainly in the Third World).

The climate change axis of evil (the U.S., Australia and Canada) have refused to participate in either scheme, but European countries have embraced them, and have won plaudits from some environmentalists for doing so.

The problem is, says Jeremy Lovell of Reuters, that neither scheme is actually doing what it was supposedly designed to do.

“The European Union’s carbon emissions trading scheme got off to a shaky start due to over-allocation of permits, but has now established a price of about 20 euros a tonne of carbon dioxide.“There is also the Clean Development Mechanism of the Kyoto Protocol on cutting global carbon emissions, under which developing nations effectively get paid for emissions foregone.

“Together, these two have generated a global carbon trade worth billions of dollars and handed vast profits to some key players, but had little measurable effect on carbon emissions. ….

“’The price of carbon has had virtually no effect on the market so far and virtually no effect on climate change,’ said Oxford University economics professor Dieter Helm.”

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One Response to Carbon Pricing Problem: It Doesn’t Work

  1. Clean Development Mechanism October 1, 2007 at 10:39 am #

    Great post. Thanks for the informative information.

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