A short post to note the Friends of the Earth report critiquing carbon trading, “A Dangerous Obsession” (opens in pdf).

In summary, these are the problems:

  • It is  ineffective at driving emissions reductions.
  • It fails to drive technological innovation.
  • It leads to lock-in of high-carbon infrastructure.
  • It allows for, and relies on, offsetting (rather than promoting carbon reductions).
  • It creates a risk of subprime carbon.
  • It provides a smokescreen for lack of action on climate finance by the developed world.

The reasons, they suggest, are because the policy has been captured by financial and industrial interests – not so much “the polluter pays” but “let’s pay the polluter”. Some of the financial instruments created on the back of the trading scheme match derivatives for complexity.

Friends of the Earth is not alone. The report quotes the UK’s Committee on Climate Change:

“We cannot therefore be confident that the EU ETS [emissions trading system] will deliver the required low-carbon investments for decarbonisation of the traded sector through the 2020s. Given this risk, the Committee recommends that a range of options such as regulation and taxes for intervention in carbon and electricity markets should be seriously considered.”

FoE argues that it would be more effective to use carbon taxes to create behaviour change; direct regulation and standard setting to reduce emissions from heavy polluters; and public investment in energy efficiency, renewable energy and transport, potentially funded by a financial transaction tax such as the Tobin tax.