us version: the weakest link: problems and perils of linking carbon markets

8/12/2019 US Version: The Weakest Link: Problems and Perils of Linking Carbon Markets

http://slidepdf.com/reader/full/us-version-the-weakest-link-problems-and-perils-of-linking-carbon-markets 1/5

Proponents of cap and trade increasingly seek to create a global carbon market

and better emissions reductions than individual markets alone, because carbon dioxide(CO

2) is spread globally throughout our atmosphere.

Since no new inernaional agreemen, like he Kyoo Proo-

col, has maerialized afer he irs Kyoo agreemen ran ou

in 2012, he ocus has now shifed oward creaing a global

carbon marke.1 Doing so requires linking exising botom-up,

regional and sub-naional carbon markes in places like Cali-

ornia, China, he European Union, Qebec and elsewhere.

While promoed as a way o reduce carbon emissions, he

main drive behind linking is economic efficiency and cosreducion. Focusing on economic concerns downplays he real

prioriy o reducing emissions.

Unorunaely, companies will coninue o pollue as long as i

is cheaper o buy carbon credis han o make he invesmens

needed o reduce emissions direcly. And, i companies can

creae markes and link hem ouside o regulaions ha would

acually lead o meaningul emissions reducions, hey will do

ha. Carbon markes are no abou emissions reducions —

hey are abou inding he cheapes way o keep on polluing.

Cap and rade markes are no he soluion o emissions re-

ducions ha hey preend o be. Insead o requiring polluers

o sop or signiicanly reduce emissions wihou excepions,

cap and rade allows polluers o pay o keep on polluing and

mainains he saus quo.

This is made worse as numerous examples o raud, corrup-

ion, oversupply o emissions credis and lack o enorcemeno he cap coninue o plague hese markes.2 These problems

have been so sysemic ha he Inernaional Criminal Police

Organizaion (INTERPOL) is invesigaing carbon rading

crimes and published an exensive repor on his in June 2013.3

As a resul o hese myriad problems, permanen reducions o

greenhouse gas emissions may or may no be achieved. Cap

and rade markes are a pay-o-pollue scheme, no a legii-

mae soluion o emissions reducions and climae change.

THE WEAKEST LINK Problems and Perils of Linking Carbon Markets



Wih his in mind, he idea o linking carbon markes is beyond

counerinuiive; combining several auly markes does no

make one uncional marke. Linking carbon markes poses

many problems, no leas o which is he signiican impac ha

his will have on democraic processes and domesic conrol o

carbon markes. Oversigh and regulaion are required o make

emissions reducions a prioriy over economic efficiency.

Moreover, linking means ha volailiy and liabiliy rom one

marke becomes shared across all linked markes.4 The risks o

leakage, increased emissions and minimal emissions reducions

become serious problems when linking carbon markes as well.

In January 2014, Caliornia and Qebec signed a bilaeral agree-

men linking heir carbon markes.5 Paricipans in Caliornia’s

marke can now buy credis rom Qebec’s marke, and vice

versa. Oher markes also have expressed ineres in linking,

including he Regional Greenhouse Gas Iniiaive (RGGI), he

European Union Emissions Trading Sysem (EU ETS), pilo proj-

ecs in China and several ohers around he world.

The ac ha carbon dioxide is a globally pervasive polluandoes no mean ha he only soluion o reducing i lies in a

global carbon marke. Signiican emissions reducions rom

cap and rade have ye o be seen.6 In addiion, he larges

carbon marke, he EU ETS, is currenly on lie suppor afer

he price o carbon allowances collapsed o €2.46 per on o

CO2 in April 2013, rom a high o €29.69 per on o CO

2 in July

2008.7

Because o his collapse, he European Union has had oinervene and will wihhold 900 million emissions permis in

hopes o saving he marke and propping up he price o emis-

sions permis.8

In a direc, bilaeral link beween wo carbon markes (mar-

ke A and marke B, or example), allowances or credis rom

marke A can be used o mee he reducion arges in marke

B, and vice versa. Links can also be unilaeral, which is a one-

way link where marke A can use allowances rom marke B,

bu marke B canno use allowances rom marke A.9 Muli-laeral links are a possibiliy as well, wherein more han wo

markes become linked and share credis.10

In addiion o direc linkages, indirec links can occur. This

ypically happens by linking wo carbon markes via a hird

marke, such as an offse marke or he Clean Developmen

Mechanism (CDM).11 “I neiher sysem recognizes he oher’s

allowances, wo sysems can become indirecly linked hrough

direc links wih a common hird sysem.”12

However, offse markes like he CDM have become noori-

ous or raud, corrupion, no emissions reducions, increased

emissions and several oher signiican problems.13

As a resul,any linkage wih he CDM or anoher offse marke would

Current and potential linked CO2 markets

Smog hangs over Los Angeles, California and Montreal, Quebec. California and Quebec just linked their carbon marketsin January 2014. PHOTO SOURCE: (LEFT) CC-BY-SA © MASSIMO CATARINELLA; (RIGHT) CC-BY © JUSTIN QUINTAL



This could hen perpeuae exising ho spos and could have

he effec o urning enire carbon markes ino emporary

hospos. Such “hospos” orm when emissions reducions

mechanisms, such as offses, allow polluers o make reduc-

ions elsewhere raher han a he source o polluion. Linking

promoes making emissions reducions where i is cheapes

and easies o do so, regardless o wheher his occurs a hesource o polluion or in a linked marke.32

This presens a signiican risk, because raher han reducing

emissions in, say, China, emissions reducions can be made in

a linked marke wih he cheapes price.33 So while China has

incredibly high levels o emissions in-counry, linking could en-

courage emissions reducions in anoher marke where credis

are cheaper o purchase.34 In he end, China’s air is as oxic as

ever, bu he counry can say ha i has reduced emissions.

Diminished Democracy Linking has signiican implicaions or regulaory conrol and

democraic processes regarding he managemen o linkedcarbon markes.35 Where jurisdicion over a marke was previ-

ously he exclusive domain o he localiy or region, linking

means ha par o his conrol is given up. In addiion, “linking

involves a rade-off beween increased overall efficiency and re-

duced leeway or regulaory inervenions.”36 Who has auhoriy

becomes vague and unclear when linking markes, and also has

implicaions or oversigh, accounabiliy and inervenion.

When wo emissions rading sysems link ogeher, he design

and regulaory eaures o one marke affec he oher mar-

ke.37 This is problemaic i marke A has undesirable policies

ha marke B did no allow on is own; afer linking A wih

B, marke B is now subjec o policies ha i oherwise wouldhave rejeced.

For example, one marke migh employ a sringen cap on

emissions, bu i wans o link wih a marke ha uses a price

ceiling mechanism or carbon credis o keep coss low; i he

price ceiling is reached, more emissions credis are released ino

he linked marke, increasing he oal allowed emissions. This

undoes he effors o he irs marke o abide by a sringen cap

and place prioriy on emissions reducions, because he second

marke placed greaer imporance on keeping coss low.

Similarly, i one o he markes involved in linking suffers

greaer price volailiy, i is hough ha by linking and creaing

a bigger marke, his volailiy will be spread ou and subse-

quenly miigaed.38 However, or an emissions rading sysem

ha did no originally ace his volailiy, hey now impor ha

when linking.39 “As a consequence, he overall economic effec

[o linking] remains ambiguous: he beneis o spreading do-

mesic price volailiy over a larger marke needs o be weighed

agains he coss o impored addiional volailiy.”40

China’s crippling air polluion problems could have signiican

impacs i he counry were o link wih oher carbon markes.

Alhough China has begun emissions rading only hrough

pilo markes, here is already alk o creaing a naional mar-

ke ha could hen link o ohers.41 As he counry wih he

greaes share o global CO2 emissions, China would inlic a

signiican burden on markes ha i poenially links wih.

Wih he recen near-collapse o he EU ETS, he European

Union has had o sep in and play a regulaory role in order o

reorm he marke. However, as carbon markes orm botom-up

links, who seps in o ix hings when a problem arises? The bo

om-up linking archiecure leaves he door open or signiican

lapses in oversigh, accounabiliy and any kind o regulaion.

Linked carbon markes allow polluers o operae ouside o

oversigh, accounabiliy and democraic paricipaion. I is a

orm o evasion and allows polluers o dicae he rules and

ge away wih coninued environmenal degradaion. Linking

allows polluers o place economic efficiency and cos abae-

men above emissions reducions, which will only uphold he

saus quo o pay-o-pollue, and conribue very litle o ad-

dressing climae change.

A satellite photo shows smog blanketing China, the coun-try with the largest share of global CO

2 emissions.

PHOTO BY NASA



The greaes problem wih linking carbon markes is ha i

is a subsandard scheme o address emissions reducions.

The bes and only opion or effecive emissions reducions is

o sop polluing, wihou excepions. Schemes like cap and

rade, linking carbon markes and orming global carbon mar-kes are designed o be cheap and easy o carry ou, wih no

guaranee o any beneicial environmenal oucomes.

Linking carbon markes perpeuaes he abiliy o chea on

making emissions reducions. Proponens o linking are even

aware ha his opion is a second-rae atemp a any kind o

meaningul or posiive environmenal impacs.42 And, in he

process o linking, democraic paricipaion and legiimae

oversigh are signiicanly weakened. Linking carbon markes

serves only economic ineress, no public or environmenal

ineress. I pus prois over people, and i is no a legiimae

soluion o emissions reducions.

1 Flachsland, Chrisian, Rober Marschinski and Otmar Edenhoer. “Global

rading versus linking: Archiecures or inernaional emissions rading.”Energy Policy , vol. 12, iss. 8. 2009 a 8.

2 Environmenal Crime Programme, Inernaional Criminal Police Organiza-ion. “Guide o Carbon Trading Crime.” June 2013 a 11 o 24.

3 Ibid .

4 Flachsland, Chrisian, Rober Marschinski and Otmar Edenhoer. PosdamInsiue or Climae Impac Research. “To link or no o link: beneis anddisadvanages o linking cap-and-rade sysems.” 2009 a 4.

5 “Qebec, Cali. eam up on cap and rade.” E&E Publishing . January 6, 2014.

6 See Food & Waer Wach. “Polluion Trading: Cashing Ou Our Clean Airand Waer.” December 2012.

7 Krukowska, Ewa. “EU Lawmakers Approve Carbon Fix as Glu Widens:Energy Markes.” Bloomberg . December 10, 2013.

8 “EU proposes carbon marke sabilizer.” Reuters published in Climate Spec- tator . January 20, 2014.

9 Tuerk, Andreas e. al. Climae Sraegies. “Linking Emissions TradingSchemes.” 2009 a 2.

10 Ibid . a 2 o 3.

11 Ibid . a 3; Jaffe, Judson, Mathew Ranson and Rober N. Savins. “LinkingTradable Permi Sysems: A Key Elemen o Emerging Inernaional ClimaePolicy Archiecure.” Ecology Law Qarterly , vol. 36. 2009 a 798.

12 Ibid . a 798.

13 McCully, Parick. “Discredied Sraegy.” The Guardian . May 20, 2008.

14 Jaffe, Ranson and Savins. 2009 a 798.

15 Babiker, Musaa H., John M. Reilly and Lauren L. Viguier. MIT JoinProgram on he Science and Policy o Global Change. “Is InernaionalEmissions Trading Always Beneicial?” (Repor No. 93). 2002 a 2.

16 Flachsland, Marschinski and Edenhoer. “Global rading versus linking….”2009 a 1.

17 Zeterberg, Lars. Swedish Foundaion or Sraegic Environmenal Research

“Linking he Emissions Trading Sysems in EU and Caliornia.” 2012 a 3.

18 Ibid . a 3; Edenhoer, Otmar, Chrisian Flachsland and Rober Marschinski.Posdam Insiue or Climae Impac Research. “Towards a global CO2Marke.” 2007 a 5 o 6.


20 Edenhoer, Flachsland and Marschinski. 2007 a 7.

21 Tuerk e al. 2009 a 4.

22 Ibid . a 4.

23 Krukowska, 2013.

24 Lewis, Barbara and Nina Chesney. “EU officials hold preliminary alks onpropping up carbon marke.” Reuters . Sepember 19, 2012; Krukowska, 2013

25 “EU’s ‘Carbon Fa Cas’ Ge Rich Off Trading Scheme: Sudy.” Agence

France-Presse. March 5, 2010.

26 Inman, Phillip and Tim Webb. “Seven charged in carbon rading VAT raudcase.” The Guardian . January 26, 2011.


28 Ibid . a 7; Edenhoer, Flachsland and Marschinski. 2007 a 8.

29 Edenhoer, Flachsland and Marschinski. 2007 a 8.

30 Flachsland, Marschinski and Edenhoer. “To link or no o link….” 2009 a 6.

31 Ibid . a 6; Zeterberg. 2012 a 6.

32 Tuerk e al. 2009 a 4.

33 Jaffe, Ranson and Savins. 2009 a 797.

34 Ibid . a 797.


36 Ibid . a 10.



39 Ibid . a 4.

40 Ibid . a 4.

41 Hornby, Lucy. “China ess waer or carbon marke o discourage emis-sions.” Financial Times . Ocober 10, 2013.


Copyright © March 2014 by Food & Water Watch. All rights reserved. This issue brief can be viewed or downloaded at www.foodandwaterwatch.org.

Food & Water Watch

is safe, accessible and sustainable. So we can all enjoy and trust in what we eat

us version: the weakest link: problems and perils of linking carbon markets

Documents