The ‘carbon market’ – trading in an invisible gas which cannot be used – has involved the redistribution of resources to unproductive green pursuits and the creation of a vast bureacracy. Let’s bring it down before it gets any bigger.
Adam Smith and Karl Marx disagreed about many things, but they would surely have concurred that the very idea of a ‘carbon market’ is bonkers. Carbon dioxide is an invisible gas and a naturally occurring substance. When it is produced as a waste product from another process, like burning fossil fuel, it cannot be used for anything else. How on earth could carbon dioxide, as waste product, have a value and be subject to exchange? How could it become the gaseous analogue to money or gold, an atmospheric ‘universal equivalent’ into which other gases can be converted?
The carbon market in 2007 was worth $64billion: how could this be? A market is supposed to be the exchange of products that are the result of somebody’s work, for the satisfaction of somebody else’s needs. Smith stated that the value of the product is proportional to the amount of work expended in it: ‘The real price of everything’, he wrote in the Wealth of Nations, ‘is the toil and trouble of acquiring it’ (1). This goes for markets in bread or tables, iTunes or diamonds, no matter what nature the ‘work’ or how frivolous the ‘need’. But a market in carbon: quoi?
Quietly and without fuss, all the rules of classical economics are being torn up – in a way that could be very foolish indeed. As we approach the deal-making at the UN conference on climate change at Copenhagen, it is worth thinking about exactly what we are doing here.
What is a carbon market?
At present, there are several fragmentary carbon markets. The biggest by far is the European Emissions Trading Scheme, tied to EU-wide carbon targets (worth $50 billion in 2007) (2); then the much smaller Australian New South Wales Greenhouse Gas Abatement Scheme, and voluntary Chicago Climate Exchange. What these markets trade is not carbon dioxide itself, but carbon dioxide emissions reductions – either unused carbon credits, or certified ways in which carbon dioxide production has been reduced.
In addition to these, there are project-based carbon markets – under the headings of ‘Joint Implementation’ (JI) or ‘Clean Development Mechanism’ (CDM). These were created under the Kyoto Protocol of 1997, and essentially allow industrialised countries to invest in a carbon-reducing project elsewhere, in order to meet their carbon targets (JI is investment within Kyoto countries; CDM invests in developing countries).
This is nothing compared to the plans of green economists – the most megalomaniac of whom must be Britain’s Lord Nicholas Stern of Brentford, currently issuing thoughts for the day on everything ranging from world diet (everyone should go vegetarian) to the desired world total carbon emissions two generations’ hence (20 gigatonnes by 2050) (3). Stern envisages a global carbon market – which encompasses world economic production and consumption, as well as the ‘work’ of trees in removing carbon dioxide from the atmosphere – and hopes that Copenhagen will take us a step in that direction.
(Valuing trees’ photosynthetic processes might sound a bit mad, but Australia has shown that this can be done with its set-up of ‘carbon rights’, which allow the owner of a plot of land to have ‘rights’ over carbon-removing and producing capacity (4). So if you plant more trees, your investment goes up – if you chop down trees or they burn down in a bush fire, the carbon rights investment goes up in flames, too.)
Stern, of course, was the guru who gave the economic justification for carbon emissions reductions, spelling out in his 700-page UK government report in October 2006 that it would be well worth it to sacrifice one per cent of world GDP to reduce carbon emissions, because the risk of non-reduction would be consumption plummeting by up to 20 per cent (5). Every subsequent alteration in Stern’s calculations has been announced with grave fanfare, as if expecting economics ministers of the world to hurriedly adjust their budgets in line with his latest thinking. In June 2008, for example, he revised his estimate to two per cent of world GDP that should be sacrificed in carbon mitigation (apparently this is still a bargain).
Now Stern has condensed and revised his thoughts in the book, Blueprint for a Safer Planet. Of all economists, Stern has done the most to theorise the idea of carbon value, and his theories are already being put into practice in the UK government’s carbon budgets, under the 2008 Climate Change Bill. The headaches for UK civil servants trying to put Stern’s kooky theories into practice should act as a warning against any further expansion of these ideas.