License to pollute - Carbon markets and the new economy of nature

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Emission trading systems aim to put a price on carbon, to save emissions where it is cheapest and benefit the global climate. But the approach has failed so far. In the EU, the price for carbon has dropped to a low, so producers can easily continue polluting. And they are actually making huge profits from the permits they receive.

In this episode we're talking about a complicate system of permits and credits that was supposed to establish a market to tackle climate change. Unfortunately, as you will hear from our experts, this hasn't quite worked out.             

"For our luxury emissions, we're asking people to reduce the little bit of emission that they cause, so we can feel good about carbon consumption," says Jutta Kill.                                                             

"If we think that the compensation will be creating problems elsewhere to other peoples – it’s better not to buy these sort of compensation of the CO2!" says Ivonne Yanez.                                                   

"Energy companies that are carbon majors finance a lot of groups, a lot of programs, a lot of pilot projects, all on forests. But nobody discusses actually phasing out fossil fuels," says Camila Moreno.

For a start, let’s go back a bit. Remember when you first began to count? First your fingers, then your toys, and finally more grown-up things, like money? Well, that was your introduction to one of the most basic principles of human civilization: Counting and measuring.

Now, apples and coins are pretty easy to count. But as a society, we’ve also set out to count more complex things. Like the wealth of our countries, or the carbon dioxide we emit into the air. And if you can quantify something, you can also – eventually - turn it into a commodity that you can trade on a market, right?

Carbon markets have been created as an instrument to tackle climate change. The commodity traded on a carbon market is a licence to pollute, a carbon credit. But does one ton of carbon emitted in one place, say in a coal power plant in Germany, really equal one ton of carbon saved somewhere else, like the Amazon rainforest?

Carbon trading is supposed to be a cheap and efficient way of limiting global warming. Dozens of emission trading schemes have been set up around the world. But is carbon trading really that cheap? What are the hidden ecological and social costs – and who are the people benefitting or losing from it?

In this episode, we will be looking into the new carbon economy, and the hugely controversial and ethical questions it brings up.

To learn more about carbon markets, we met with Jutta Kill. Jutta is a biologist from Germany, and author of the book “Trading Carbon: How it Works and Why it is Controversial”. She told us about the biggest carbon market in the world in the European Union.

"We see that not only has complying with emissions limits been cheap for the industry, it has been a profit maker for the largest polluters in Europe. From around 2008 until 2014, the largest polluters in the European Union have made profits worth more or less 24 billion euros from the emissions trading scheme. Twenty four billion! Polluters are not paying – they are being paid. The Emissions Trading Scheme in the EU really has turned into a corporate welfare scheme."                               

Wait a minute – isn’t a carbon market supposed to MAKE polluters pay? That was the initial idea of carbon trade. For every ton of CO2, companies are supposed to hand in a carbon permit, which costs money. To save expenses, the companies would then find ways to reduce their emissions. For example, by implementing better technology.

But carbon permits in the EU market aren’t costly at all. They have been handed out for free to the biggest polluters. The idea was to get the industry on board by first giving out free allowances. Overtime, the number of permits would be reduced, and with them, the overall emissions in Europe. But the industry was able to trick the system. Their lobbyists successfully negotiated for more permits than they would actually need.

"All of them had huge expansion plans, all of them were foreseeing that their production would go up a lot in the coming years, and that they needed therefore a lot of free permits. In the course of the years it turned out that those projections were hugely, but hugely overestimated, and that the real emissions were much lower. Then came the economic crisis and the emissions were lower even yet. But instead of the emissions trading scheme having a mechanism that says – OK, if you don't use the permits at the end of the year, you give them back, if you were wrong with that projection – the emissions trading scheme was revised so that the permits would keep being valid. And there was no expiry date, so to speak, and the companies could keep them", Jutta Kill explains.

With this huge number of extra permits, the companies were able to make billions on the EU carbon market. This turned the idea upside down. There were too many permits, the price for pollution fell, and instead of reducing or paying for its pollution, the industry even profited.

Oh, and just in case they did need extra permits, they could buy them cheaply outside the European Union – as so-called carbon offset credits. You might have run across them, for example when booking a flight. The idea is that you contribute to a project that saves the same amount of CO2 that you emit.

To evaluate this strategy, Jutta Kill visited some of these carbon offset projects with Fern, an environmental NGO devoted to forests. One of the projects, for example, was claiming to bring new climate friendly cooking stoves to local people – in the Indian state of Rajasthan.

"We were led into the kitchen and we saw a big pile of wood, tucked away in a corner, obviously not for us to see, but we happened to notice it was there. And talking to a little girl of the family, we asked her what they were doing with this wood, and she said ah, we only use them now for very special meals. And curious, as we were, we said, special meals – like what? And her response was, meals like chapattis. Now, chapattis are a staple food in Indian cooking, particularly in the Indian rural cooking," says Jutta Kill

The project had claimed to save emissions by supplying modern cooking stoves. With the new stoves, the local people could save firewood and thus trees. And since trees take up carbon dioxide, this would have saved emissions.

"So, what we realized was the woodstoves are still used on a daily basis but the consequence of this carbon offset project was that a little girl was made to lie to international visitors to pretend that the project was saving all the carbon emissions like presented in the report. And I think that was one of the sad stories. One of the sad examples. Not only was it not helping climate change. But this perversity of making a small child lie," says Jutta Kill

The project obviously didn’t fit the culture and needs of the local people. If your bread tastes better with your traditional fire, why use the new oven? And meeting the little girl in Rajasthan was not the only problem Jutta saw first hand. On another occasion, she was able to visit a project in Uganda. A carbon credit company had planted eucalyptus trees around a National Park. However, the local people considered this their territory, and refused to stop to plant their crops there:

"The result of the carbon offset project was that armed guards, that were partly guarding the National Park but also now guarding the tree planting off the offset project, destroyed the crops and even shot at people, who were entering the National Park – their land. People lost any means of providing their food, any way of growing their own food. And if you have very little, losing the little that you have really is a problem. This carbon offset project really caused misery for local communities. Again, for what? So that an audience in Amsterdam can enjoy a carbon neutral classical concert? Nothing against classical concerts – but that we pretend there have been no carbon emissions for that pleasure, because somebody somewhere else, a community that has contributed really nothing to the problem of climate change, loses the basis for its livelihood?"

After her visits and research, Jutta came to a conclusion: These carbon offsetting projects clearly cause more harm than good. But on top of that, there is a conceptual flaw in the whole idea:

"So how does a project know how many emissions it has reduced and how many carbon credits it can sell? So, it asks the consultant to calculate how big the emissions would have been in the future without the carbon project. Now, that's a very hypothetical calculation, because the future doesn't happen, because the carbon offset project happens. The consequence of that is that you never know, if the carbon credit that you're buying to compensate your emission really is backed up by a reduction that wouldn't have happened anyways."

The same problem arises with other greenhouse gases, or gasses that trap heat in the atmosphere. These can be traded as so-called CO2 equivalents. Because some of them have a global warming effect many times greater than CO2, conserving just a little bit can create huge numbers of credits and therefore profit.

It looks like this happened in the Nylon industry which was producing something called apidic acid, which also produces/leads to the emission of nitrous oxide. And nitrous oxide is a powerful greenhouse gas. For the producers, it was cheap to reduce these emissions, and to get huge numbers of carbon credits in return. This created an absurd set of business incentives.

"(And) it turns out that the value of the by-product that they were now capturing and selling the non-release as a carbon credit, turned out to become the main product, because you could make more money selling your carbon credits than you could make from producing your main product. The perverse result of that was that they increased production, not because there was demand for more apidic acid for nylon production. They increased production because they could make money from selling carbon credits," says Jutta Kill.

You’re listening to the Tipping Point. In this third episode, we are discussing the promises and failures of the carbon market. As we just learned from Jutta Kill, the attempt to offset emissions often creates problems of its own. Many of the credits given out might not really help the climate, and instead hurt the livelihoods of local people.

This also happens in South America. In Ecuador, one of the women speaking out against these practices is Ivonne Yanez, who works for the environmental organization Acción Ecologica. We reached Ivonne in her office, on a busy day in the city of Quito:

"All the creators (car horn audible) and promoters of these type of mechanisms, what they are presuming is that the non-humans, (car horn) the so-called nature, they are providers of ecosystem services. Providers of a service that can be converted in a commodity and then can be sell, buy, speculate in the financial markets et cetera. But at the same time this means that the cycles, the functions, the elements, the recreation of life become a commodity that can be put into markets."

The notion of “ecosystem services” forms the basis of much of the carbon credit market. It reduces nature to an entity that mainly serves us humans. But in Ecuador, nature has been granted its own constitutional rights to “exist, persist, maintain and regenerate its vital cycles”.

This applies to the Páramo, one of the unique ecosystems of the Andes, and home of the indigenous Kichwa people. High up in the mountains of Ecuador, the Páramo forms a green landscape of moist, low-growing vegetation. One day a Dutch company came and convinced the Kichwa to set up a pine tree plantation to generate carbon credits.

"But this was very bad for the community, because what happened is that the community must spent a lot of time and putting money from them in order to keep the plantations clean. Or also they have to prevent any damage to the planted trees, for example plagues or even fires", says Ivonne Yanez.

The Kichwa people soon realized that the pine plantation was not only hard to maintain, but that it also damaged the Páramo ecosystem and its water cycle. Until then, the landscape had been spoiled with moisture by the glaciers and water from the mountains. Now the pine trees were covering the soil, absorbing excess water and blocking off light for native plants, that played a crucial role for the regions water cycle.

One day, an old man went up to perform a ritual. On his way back, he forgot to blow out the candles. A huge fire blazed on the Páramo, and the entire plantation burnt down. And this included all the carbon it had taken up so far.

Again, the project hadn’t helped the climate, but caused problems for the locals. Ivonne points out a different case from the Brazilian Amazon, where a tree-planting program led to conflict among the local people:

"And this community decided that they didn't want it anymore this project (…). They said that the money was causing problems with the communities – divisions, fights, and they were spending too much time protecting these forests that were forbidden for them to use any more as the traditional way. They didn't could go in and hunt and harvest or make some cultures there, agricultural cultures, because this part of the forest now was under a property right regime of environmental services that belong to the companies that were giving the money to the community."

In the global carbon market, it’s often the people who have contributed the least to climate change that are supposed to make up for it. They are asked to turn their traditional land and culture into what’s dubbed a carbon sink. By doing this, they enable the global North to continue emitting greenhouse gases. To Ivonne Yanez, that’s neo-colonialism at its best, and even worse:

"Indigenous peoples are the ones that will suffer in terms of their collective rights violations and instead of a change of the model of production in the North, all of these problems and the responsibilities are put in the hands of the indigenous people, the campesinos, the fishermen etc. in the world. So, for me this is absolutely racist."

Dealing with climate change in terms of carbon causes conflicts. In Brasil, Camila Moreno from the Federal Rural University of Rio de Janeiro is looking at this new paradigm of carbon metrics. In 2016, we met her at the United Nations climate summit in Morocco:

"The CO2 metric that we criticize actually damages the protection of forests and reduces it to carbon sinks to fit in wider engines of speculating with the climate, connecting forest with the financial markets, issuing green bonds and carbon credits and all kinds of things."

For accountants and traders, CO2 is an ideal entity: Emit it here, and save somewhere else. Here, carbon dioxide is released when fossil fuels and trees are burnt. Somewhere else, carbon dioxide is captured by nature itself, when plants photosynthesize.

One of the places where both processes are happening at the same time is the Amazon. The lush vegetation of the tropical rainforest constantly removes huge amounts of CO2 from the air, and stores some of it in roots and stems. But when the trees are felled and burnt, they cannot do this anymore, and the carbon is released instead.

This is why the fight against deforestation is so important. For some time, the Brazilian government was able to crack down on illegal logging. But then the Amazon forest code was changed, says Camila Moreno.

"The fundamental thing it did was to transform the illegality now in a legal deforestation, and to open up for market mechanisms for flexibility. So, if you are a big land owner and you have a deforested beyond what you're allowed to do, you can buy the avoided deforestation elsewhere – the rights of somebody else to deforest that were not to used yet. So this, although it makes for the market minded people logic in terms of cost effectiveness allocation – locally it destroys livelihoods, it mis-uses equivalences of CO2, saying that you can destroy one ecosystem but at the same time preserve the other. So who said that? Who decided which one has the right to live and which one has the right to be destroyed? And we could never forget, should always remember, that there are people living in those ecosystems. And when we destroy them, we are destroying traditional knowledge that only exists as long as the ecosystem is there, you know", says Camila Moreno

To critics like Camila, the carbon market is a questionable instrument in the fight against climate change. The root of the climate crisis is clear, but the global climate talks have avoided it like the elephant in the room.

"See, within the current climate negotiations people are discussing how to offset emissions with forest on housing, with health, with education, with agriculture, with infrastructures. They talk about everything, and they try to implement climate policy related to every single area of people's lives. The only thing that they are not talking here is to stop using fossil fuels," says Camila Moreno.

The strategy against climate change has focused on emissions, and not the process of production that causes them. Instead of deciding to close coal mines and leave gas and oil reserves in the ground, an intricate credit system was created. It evolves around the idea of carbon as a tradeable good and effectively enables the fossil industry to continue. For her part, Ivonne Yanez is convinced that the Paris Agreement will only make things worse:

"I really think that the Paris agreement will not be good at all for climate, I mean, all of these promises of 1.5, 2.5… I think that they just wanted to put a sort of number, because they had a lot of pressure from the international community, so the governments and the representatives said OK, we're going to put these degrees. Of course, they are real degrees that we have to achieve. But they were forced to say that they are going to achieve this. But at the same time with their national promises and with the creation of a global market of carbon through their mechanisms that are set in the Paris agreement, climate change will be worse!"

Carbon markets haven’t worked so far. On the contrary, they have caused conflict for poor communities, threatened ecosystems, and have been misused to make huge profit. To biologist Jutta Kill, the idea of carbon trading has steered the discussion into the wrong direction:

"The introduction of emissions trading in the Kyoto Protocol has distracted the discussion for 20 years away from the main problem and that is the continuation of burning fossil carbon through petrol, through coal, through natural gas."

We get lost in counting CO2, and don’t see the full picture: Carbon credits from projects in the global south can’t offset the damage done by pollution in the North. In fact, the trading may be doing more harm than good. Ivonne Yanez says that the people in the richer countries need to realize their responsibility, and act.

"It's not only now. I think that we have to think that these problems are coming since many years ago. More than 100 years ago or at least even more than after the Second World War, when the capitalism and these economic system really expanded everywhere with new frontiers, everywhere. So, I think that in the north, it is important to think that this is not the question that to be a good consumer and consume locally and consume organic or whatever it is, but also to take a conscience that there is an ecological debt that should be recognized and also to be repaired with the southern peoples in the world," says Ivonne Yanez.

The true keepers of forests are those who have been living there for generations. They know how to take care of the land, to sustainably farm it and preserve its diversity and potential. It is these peoples’ livelihoods that are threatened by the same industry that is driving deforestation: industrial agriculture, industrial logging and large infrastructure projects like mining. But instead of saying no to this kind of development it is oftentimes the local population that is attacked for protecting their land.

"The best way to preserve forests is to guarantee the rights of people that live in the forest, so indigenous territory, local communities, riverine communities as in the case for the Amazon basin, peasants, small agricultures. So they are the ones that have traditionally learned and lived with the ecosystems without destroying the ecosystem and rebuilding it as a giant monoculture", says Camila Moreno.

"And I think that these communities, instead to be criminalized, instead to be their leaders put in jail etc., I think that there should be recognized, that they are the leading people that are fighting climate change and fighting for a change of civilization," says Ivonne Yanez.

So here’s the answer to our question from the beginning: Can the market fix climate change? Now, judging by the experiences we just heard about, the answer is clearly no. Carbon trade has neither been able to make pollution pricey enough to steer us away from our fossil fuel addiction. Nor does it actually address and tackle the drivers of deforestation. Even worse, in numerous cases this approach seems to cause more harm than good.



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