Why Carbon Trading Won’t Save Us From Catastrophic Climate Change


But the policy debate in Washington around the issue of climate change has been entirely confined to a discussion of cap-and-trade. Any other approach – for instance, a straightforward carbon tax, or a ban on burning coal (which is the biggest source of atmospheric CO2) – has not even been apart of the conversation. Environmental groups, too, have hung their hats on cap-and-trade legislation, largely because it is believed that it will be cap-and-trade or nothing at all. On June 12, 2009 the U.S. House of Representatives narrowly passed new legislation that would put in place a carbon trading scheme for the regulation of greenhouse gas emissions.

It is remarkable that there is still such faith in the ability of the market to solve our problems, after this faith has created such havoc in the global economy. This time, we will be cashing in all our chips, because the stakes could not be higher. Whatever approach we take, we cannot afford to fail, as there will be no second chances. And yet we are investing all our hopes in an approach that has already been tried and tested in Europe, and has been a colossal failure.

“Beware,” warns James Hansen, the eminent climate researcher from NASA, “of approaches such as ‘percent emission reduction goals’ and ‘cap and trade.’ These are subterfuges designed to allow business-as-usual to continue, under a pretense of action.” Rather than setting real limits on greenhouse emissions, cap-and-trade establishes mechanisms for avoiding them. This approach, Hansen asserts, “will practically guarantee disastrous climate change.”[1]

In theory, a cap-and-trade scheme would place ceiling on emissions levels; if companies wish to exceed those limits then they are required to buy permits to do so. This would mean that a price has been placed on carbon pollution, which would create an economic incentive to pollute less; industries dependent upon fossil fuels would become more costly, and therefore greener energy sources and industries would become more economically competitive. A trading scheme, as opposed to a straight forward emissions limit, gives industries the “flexibility” they need in order to make the transition to cleaner energy.

The effectiveness of such a scheme would naturally depend on where the emission limits are set, and on the price of emissions allowances. If emissions limits are high, and if permits are given away, then it is not going to work. Under the House bill, eighty-five percent of the permits, amounting to $60 billion dollars, will be given away; the remaining fifteen percent will be sold at $11 to $15 dollars per ton of carbon. (One ton of carbon is the amount emitted by burning a thousand gallons of gasoline, or an equivalent 5,000 KW of electricity, which is more than the average American uses in a year. If the average American were required to reduce her electricity use by more than one hundred percent, unless she chose to pay an $11 dollar fee, which do you suppose would be the more convenient choice?)

In Europe, carbon prices crashed in 2006 because too many permits were given away, and in the last year have plummeted again, by sixty percent, this time because of a faltering economy. The Guardian reports that up to one billion dollars worth of carbon emissions permits, which are not needed because of lower production, have been sold in recent months, giving these companies an influx of cash and the opportunity to bolster their balance sheets in the middle of an economic recession.[2]

But the biggest problem with both the European Trading Scheme, as well as the United State‘s proposed cap-and-trade program, is that there isn’t really a cap, because companies may evade the requirement of limiting their emissions. They can, instead, purchase “offsets.”

This is why it is, in the words of James Hansen, a subterfuge. How is it possible to reduce emissions, without actually reducing emissions? Well here’s how: rather than reduce its greenhouse pollution at home, under a carbon trading scheme, a company can invest in a project abroad – say a hydroelectric project in Brazil – that will somehow “neutralize” its own emissions, but there is no requirement that this project actually replace an equivalent coal burning plant, only that it produce less emissions than “what would have been emitted otherwise” – which is inherently unverifiable.[3]

The principle is this: there are two ways to control pollution- one way is to stop the flow from its source, the other is to clean up the mess at the other end. Carbon trading is a fine example of the latter approach, with the attempt to stop the flow of carbon pollution at its source all but abandoned. This approach, however, cannot work simply because the world is not a big enough sponge to soak up the billions of tons of carbon dioxide that the industrialized countries emit every year, and there is no technology that can “scrub away” carbon from the air.  The earth’s above-ground carbon-cycling capacity is limited, and cannot be endlessly extended to mop up the continued flow of fossil carbon into the atmosphere. (America‘s forests are estimated to sequester about two-thirds of a billion tons of carbon, and are already saturated with the carbon released by human activities over the last few decades. The scale of the reforestation that would be needed is staggering: to reduce America‘s contribution to climate-changing gases by seven percent, new forests would need to be planted over an area the size of Texas.[4])

As James Hansen reminds us, we are already in the danger zone, at atmospheric concentrations of carbon at 380 parts per million, without any additional emissions of carbon to the atmosphere, a massive reforestation program is already needed to begin to bring these levels down to 350 parts per million, which is the maximum concentration that most life on the planet can tolerate. Can we then expect that the planet is big enough, and empty enough, for a reforestation effort that would accommodate additional accumulations of emissions? And can we expect to expand the world’s forest cover, while at the same time we rely more heavily on biomass and biofuels, which are alternative energy sources that will qualify as “offsets,” and which the world will increasingly depend upon for fuel as petroleum and natural gas become scarcer?

There is, in fact, no scientific basis for the view that a tree plantation can “compensate” for burning fossil fuels. Carbon stored in trees, unlike carbon stored in underground coal deposits, is temporary; there can be no guarantee that the trees will not be burned down (tree plantations are prone to catastrophic fires, particularly eucalyptus, a favorite species of the timber industry), blown down, or cut down. In a full world, these land uses will inevitably compete with local uses, and there is no way to verify that a plantation is a more beneficial use than alternative land uses that “might have been,” such as sustainable farming. Carbon credit projects have already caused social conflicts in Guatemala, Brazil, Thailand, Ecuador, Uganda, Sri Lanka, South Africa, and other countries, and many of them have been ecologically disastrous.[5]

In December 2009 world leaders will be meeting in Copenhagen to negotiate a new phase of the Kyoto treaty on the regulation of greenhouse gases. Not a single signatory country has succeeded in meeting its targets (with the exception of countries in the former Soviet block that saw their economies collapse). Canada, for instance, has actually increased its emissions by a spectacular one hundred percent. Because member states have failed to actually reduce their own emissions, in order to meet their targets for emissions reductions, European countries intend to use “offsets” -by investing in tree plantations, and in renewable energy projects in other countries, without curbing their own emissions. The developing world will serve, effectively, as the industrialized world’s carbon dump. Meanwhile, European countries do not have to actually reduce their carbon pollution at all. This way the European Environmental Agency claims that Europe is still on track toward meeting its Kyoto targets.[6]

“There is so much carbon buried in the world’s coal seams [alone]” writes Tim Flannery, author of The Weathermakers, “that, should it find its way back to the surface, it would make the planet hostile to life as we know it.” The truth is, we cannot stop the planet from warming by building solar and wind projects, without also shutting down fossil fuel burning plants. Under a system of carbon trading, the extraction of coal and oil will continue, and as long as the world continues to extract and burn fossil fuels, the planet will continue to warm.

And yet, it will be argued, pollution trading schemes have historically been effective. The cap and trade model that is given as evidence of the success of this approach, which achieved reductions in acid rain pollution, is hardly applicable to the far more pervasive issue of greenhouse gas pollution. It did not involve the dubious mechanism of “offsets.” Industry was able to reduce sulfur pollution because a technology exists for doing so; there is no scrubber, however, for reducing carbon pollution. Reductions in sulfur emissions were measurable, and therefore, the system was enforceable. If we can imagine that a system of “offset” mechanisms had been put in place, rather than scrubbers to clean up sulfur pollution, we can be quite sure that the system would have failed.

In other words, it would not have been possible to reduce sulfur pollution without reducing sulfur pollution.[7]

The recent passage of the new energy bill by Congress has been heralded as a great victory for the Obama Administration. Most Americans, I suspect, who care at all about climate change, are intimidated by the complexity of the plan – it is rather like trying to bend the mind around concepts like credit default swaps and bilateral netting arrangements – and have resigned themselves to trusting the experts. But why choose an approach that is so enormously complicated, rather than a straight forward carbon tax? The greater the complexity, the greater the potential for failure, but also the greater the opportunity for sleight-of-hand.

Although the Obama administration promised to base its policies on sound science, this legislation is not, because science tells us that we have already passed the eleventh hour – we have reached the last five seconds before . The time is running out, scientists warn, for us to advert catastrophic disruptions in the climate system. Under the new legislation, emission cuts would not begin until 2030, which is simply too late.  In the last 650,000 years, carbon levels have never been as high as they are now, and carbon levels are consistently linked with average global temperatures. Carbon accumulates in the atmosphere like compound interest; because of the feedback mechanisms that are at work, with increased warming, climate change is speeding up, which is causing more carbon to be released into the atmosphere, which is causing the planet to warm up, and so on. Just as any attempts to reduce a credit card debt by making itty bitty payments will be ineffective, a reduction in carbon levels in the atmosphere will require us to make large cuts in the immediate future, which can then be followed by smaller cuts. But that is precisely the opposite of what Obama’s plan will do.

There is a good deal of jubilation among the major environmental groups over the passage of the House bill. Although the bill is admittedly weak, it is the best that could have been hoped for, and it is, at least, better than nothing. But is it? The press has misleadingly announced the passage of a bill that “sets emissions limits” and that allows companies to offset their emissions by investing in measures that “scrub the carbon from the sky” – neither of which is true.

The danger is that Americans will trust that, with a mechanism in place, the market will solve the problem all on its own, and that we are merrily on our way toward a “clean energy future,” without any requirements for industry to make sacrifices or to change its ways (while giving them the opportunity to make windfall profits). Neither, for that matter, will we be required to make any of those changes that would have been so inconvenient.

Meanwhile, the Republican opponents to the cap and trade bill object to any regulatory measures, which would, they argue, hurt the economy. But do they think we can have an economy at all if the planet warms to 800 F degrees? While policy makers in Washington construct their cap and trade Madoff scheme that will present enormous opportunities for profit, a planetary crisis is unfolding. Oxfam has warned that climate change will cause hunger on an unprecedented scale, and will become “the defining human tragedy of the century.”[8] There is probably no other issue that so clearly defines the divide between rich and poor nations. That we – who have so much, and who are the cause of the climate disruption – are so unwilling to make even the smallest of sacrifices, will be our enduring shame.


1.  “Tell Barack Obama the Truth – the Whole Truth,” an open letter to the President by NASA Climatologist James Hansen. www.columbia.edu/~jeh1/mailings/20081121_Obama.pdf

2. MacAllister, Terry. “Britain‘s Big Polluters Accused of Abusing Carbon Trading Scheme.” guardian.co.uk. 27 January 2009.

3. “Offset credits are an imaginary commodity created by deducting what you hope happened from what you guess would have happened,” says Dan Welsh in a report on carbon trading put out by the Durban Group for Climate Justice. Or in George Monbiot’s words, “carbon trading is like pushing the food around on your plate to give the appearance that you have eaten.”

4. “Studies Measure Capacity of ‘Carbon Sinks.'” National Geographic Magazine. 21 Jun 2001.

5. See Carbon Trading, a report by the Durban Group for Climate Justice, edited by Larry Lohmann. www.thecornerhouse.org.uk

6.  “EU-15 on target for Kyoto, despite mixed performances,” European Environmental Agency press release October 16, 2008. www.eea.europa.eu/pressroom/newsreleases/eu-15-on-target-for-kyoto-despite-mixed-performances

7. The success in controlling sulfur pollution, it should be noted, was limited; sulfur is still a major source of air pollution, and is primarily caused by burning coal

8. “Poor Face more hunger as climate change leads to crop failure.” 5 July 2009. guardian.co.uk

Photo from Flickr.