Picture by DAVE HUNT/AAP/PA Images. All rights reserved. At this year’s Conference of the Parties, or COP23, held earlier in November in Bonn, China’s special representative for climate change, Zhenhua Xie, confirmed that the world’s most populous country had designed its own carbon market which will be established very soon.

By enlarging and unifying its carbon market, Beijing will take the proportion of the world’s population covered by an emissions trading system from 15% to 25%.

He also tipped his hat to the EU, who made a start with its own carbon market, the EU Emissions Trading System (ETS) launched over a decade ago, following the Kyoto Protocol.

The Kyoto Protocol is an international agreement that has set legally binding emission reduction targets that the industrialized countries must meet in order to combat climate change.

It makes a distinction between industrialized (Annex) countries that receive emissions reductions obligations they must stay under and developing (Non-annex) countries that participate by investing in projects that lower emissions in their own countries. For these projects, they earn carbon credits.

A flexibility mechanism, ‘cap and trade’, which allows Annex countries to trade their emission reductions obligations was pushed through during the Kyoto Protocol by the US to give industries flexibility in how they meet their emission reduction limitation targets.

Essentially, carbon is given a price and then polluting entities that are unwilling to meet their emissions reductions cap can trade ‘carbon credits’ from those that have done more to reduce emissions.

For example, if an environmentalist group in a Non-Annex country that works to reduce greenhouse gases plants enough trees to reduce emissions by one ton – they will be awarded a credit. A corporation in an Annex country that may have an emission quota of 10 tons but is expected to produce 11 can purchase the carbon credit from the environmental group

Carbon credits are one of the main sources of income for the UNFCCC Adaptation Fund, which was established to finance adaptation projects in developing countries.

In addition to the fact that the market doesn’t entirely work, they also displace attention from real solutions

But according to many climate advocates and NGOs, carbon markets only shifts the responsibility out of the hands of polluters and into the invisible hands of the market and fail to decrease emissions globally or advance climate equity.

“Markets are often portrayed as a magical solution to environmental pollution,” according to a new report by Corporate Accountability International (CAI). “Study after study shows that carbon markets make things worse. Not only do they not address the problem, they create new ones.”

According to the report, the caps are set so high that there is seldom a need to decrease emissions and the prices are so low that it hardly provides enough incentive to truly reduce emissions.

According to the CAI report, Polluting Paris, Europe’s carbon market, the longest operating trading scheme, has so far failed to reduce emissions.

A tonne of carbon is valued at €7, for example. Most advocates think the price is too low to spur a transition from coal to gas.

“Beyond these errors, emission trading schemes like this one give way to short-term profit seeking, fraud and speculation, and environmental injustice; enable windfall profits by those who receive free allowances, hinder innovation, and impede the systemic changes required to implement a low-carbon economy,” it adds.

The solution?

According to CAI, negotiations need to reject the commodification of carbon and put in place regulations at the international and national level that require entities 
to equitably and drastically reduce emissions instead of just “shift them around the planet”. 


“Advance non-market approaches to international cooperation that hold the greatest potential to decrease emissions,” the report adds.

These include direct finance at the national level that supports developing countries in realizing the evidenced benefits of approaches such as energy transformation, technology transfer, forest preservation, and sustainable agricultural development.

The final Paris agreement does include non-market approaches to reducing emissions due to the demands of delegates from developing countries.

However, the US and EU also pushed through a deal to implement a new carbon market mechanism and cooperative approaches linking markets around the world by introducing a new carbon currency (coined ITMOs, or internationally traded mitigation outcomes).

Parties are now developing guidelines for these approaches as part of larger negotiations on implementing the Paris Agreement that will be finalized by 2018.

“Governments at these climate talks are wasting time meddling with rules of markets—already shown to be a dead end—while the planet burns.”

However, according to the report, individuals and organizations that prioritize corporations over people have become involved in working on the finalized guidelines for the emission reduction obligations.

The
 International Emissions Trading Association (IETA), for example, is supposed to exist to advance the economic agenda in climate policy, or in its words: “to be the trusted business voice on market-based climate solutions.”

Big Polluters BP and Rio Tinto helped set it up in 1999.

Today, its corporate members still include BP and Rio Tinto, as well as Chevron, BHP Billiton, Dow, Duke Energy, Repsol, Xcel Energy, Veolia, Statoil, and Total. A Rio Tinto executive sits on its board of directors, and senior staffs from BP, Shell, Chevron, and BHP Billiton direct it.

If the most effective way to address climate change equitable is by ensuring industrialized countries take responsibility for their emissions instead of sweeping it under the market rug, the finalized guidelines must reflect it, say experts.

It is crucial that the upcoming negotiations fully address the shortcomings of the carbon market.

In addition to the fact that the market doesn’t entirely work, they also displace attention from real solutions, concludes the CAI report.

“Governments at these climate talks are wasting time meddling with rules of markets—already shown to be a dead end—while the planet burns.”