Debra Davidson
September, 2015
Why aren’t more of us sinking our research teeth into carbon markets? They have become the poster child of climate change mitigation policy, and despite the sketchy returns offered by previous experiments such as the EU Emissions Trading System, and the UNFCCC’s Clean Development Mechanism, they are being proposed and implemented in numerous other jurisdictions around the world. Just to review, here’s how it works in theory: A governing body begins by setting a cap on allowable emissions, then distributes or auctions off emissions allowances up to the cap. Implicated businesses that do not have enough allowances to cover their emissions must either make reductions or buy spare credits on the market. Facilities with extra allowances become the sellers.
Market-based strategies to address environmental degradation is certainly nothing new. The idea has been around since the 1960s, and in practice in various guises for a couple decades. But the carbon market is qualitatively different in a number of respects, including its trans-national origins and global extent, and the multiple sources and sinks incorporated into the market, are just a few features that come immediately to mind. Economists would tell us, nonetheless, that, as with any market, if we can just ‘get the price right’ carbon markets will take us smoothly down the mitigation path. But the sociologist in me suggests the problems run far deeper than ticket prices.
Indeed, sociologists have already raised valid questions regarding the efficiency, legitimacy, equity and regulatory dimensions of carbon markets. But dig deeper still and we can find certain social dynamics of carbon trading that reveal key insights into the questionable ability for a neoliberal capitalist marketplace to internalize environmental costs. Exploring these dynamics calls for less of looking at carbon markets, and more of looking in them, to the interpretations and practices of the actors--buyers, sellers, traders and regulators who are negotiating and ultimately legitimating these new institutions, and subsequently shaping their emergent effects. Evaluation of structure-agency dynamics and their effects for socio-ecological relations is, after all, the key unique contribution of environmental sociology to the social-environmental sciences.
Hopes for ecological transformation are often placed in our basic sociological premise that institutions are social constructs and thus defined, and transformed, by the actors operating within them, and thus capitalism is malleable. In which case, as noted by Spaargaren and Mol (2013: 177): “once they are up and running carbon markets gain a relative ‘autonomy’ and their own carbon logic/ rationality” and thus, presumably, capitalism can be restructured through such market innovations to reckon with environmental degradation. Alas, this autonomy cuts both ways. There is little evidence that carbon market trading to date has resulted in any notable emission reductions, despite large sums of money exchanging hands. Why?
To begin to explore this question, there are a number of peculiarities about this marketplace. Price, as economists point out, is one thing. What price per ton of carbon dioxide actually represents the cost to the climate of emissions, or even more pragmatically, the price that would motivate reductions? But before we even go there (as plenty of others have done already), we need to consider the peculiarities of that thing being traded, the commodity itself. Markets are premised on the creation of commodities exchanged between buyers and sellers at an agreed-upon price. The commodities themselves are scrutinized and thus valued by the potential buyer, as we do when we shop for a new car. The ultimate ability of a particular market to produce social benefits, and maintain legitimacy, is determined by the integrity of the marketplace itself: the buyer’s knowledge of the commodity and the trust that the agreed price is a fair value of that commodity.
The carbon market, however, represents another entity entirely. The carbon market at its heart involves the construction and trade of an entirely fictitious commodity. A ton of CO2, and even more blatantly, a ton of other gases measured in denominations of CO2-equivalent, is not a ‘thing’ to be scrutinized and valued by a potential buyer. It is, in effect, a scientific estimate; an unseen--indeed undetectable--quantity of environmental ill. There have, of course, been previous critiques of the commodification of nature on normative grounds, but a healthy dose of more idiographic inquiries is warranted here: the commodification of nature in this case also raises a number of fundamental pragmatic issues that offer a central landscape within which the transformative potential of capitalism can be analyzed.
How are these scientific estimates generated and monitored for their validity? Scientists have defined the commodities that make up emission permits in the form of tons of CO2 or, for the many other greenhouse gases, CO2-equivalent, on the basis of current scientific understanding of the global warming potential of a ton of CO2, and the comparative global warming potential of other gases. For example, the CO2-eq of methane is 25, meaning the global warming potential of methane on a pound for pound basis, over 100 years, is 25 times greater than for CO2. Nitrous oxide’s is 298. The estimates provided in the IPCC Assessment Reports have been the standard in many marketplaces, although the estimates generated by other sources have also been used. Not surprisingly given the evolving nature of climate science, these values are re-defined all the time. They were changed after release of the 4th Assessment Report in 2007, and to make things more complicated (and to more accurately reflect the complexity of the scientific estimation business), the 5th Assessment Report released last year provided two sets of values: one that takes into account climate‐carbon feedbacks, including measures of the indirect effects of changes in carbon storage due to changes in climate; and one set of values that, like their predecessors in earlier reports, do not incorporate feedbacks.
But there is yet another source of ambiguity in the process. Even assuming the scientific estimates described above were perfectly accurate, how do buyers know that the 1,000 tons CO2 they are prepared to purchase actually represents 1,000 tons of emissions? (Another important sociological question is: ‘Do they care?’ But I only have so much space…) They don’t arrive on the back of the truck, to be inventoried in the warehouse. Instead, that 1,000 tons in reality is simply the digital readout of a “carbon meter.” A carbon meter is a gas measurement instrument, there are several available now, all developed by competitive private firms, all claiming their products have superior accuracy. The meters must be purchased and used by any firm engaged in the carbon market. But who is really responsible for ensuring the accuracy of the measurement instruments?
Third, our largest carbon market, the UNFCCC’s Clean Development Mechanism (CDM), is the mother of all futures markets, embodying all of the unknowns, and the unknown unknowns, that the future holds. With the CDM, companies and governments in Annex I countries (basically the developed world) can buy emission reduction credits, called Certified Emissions Reductions (CERs), from the developers of projects in Annex II countries, instead of reducing their own emissions. But CERs don’t actually reduce current emissions, and aren't designed to. They are designed to avoid future emissions. Which means every seller on the CDM market needs to determine what its emissions would have been if the project was not implemented. In other words, new projects need to offer ‘additional’ mitigation than would occur without the project. But confirming ‘additionality' is itself a highly speculative accounting exercise, and many of the approved projects to date have been found to offer no additional mitigation at all.
Fourth, but most likely not finally, enter the middleman, the entirely new financial sector that is The Carbon Broker. While the first three factors discussed are rather unique to the carbon market, this fourth factor is an age-old bane of free markets. Of course busy business people are not able to investigate the integrity of the carbon offsets they need to buy. Fortunately, we now have carbon brokerage firms, an wholly private industry that exists solely to serve carbon markets, representing the inevitable market middleman, to make the lives of businessmen everywhere easier. And it is also that point in the market matrix at which corruption is most likely to rear its head, and it already has.
A ton of CO2 then, that entity upon which we have invested entirely our ability to limit global warming, is ironically the epitome of a social construction. As described by George Monbiot with his typical prosaic acuity, “Buying and selling carbon offsets is like pushing the food around on your plate to create the impression that you have eaten it.” Convincing onlookers that the food was consumed when in actuality is was not would require a masterful dose of magicianship, but doing so is so much easier when the “food” has become a fiction.
If this isn’t a bowl full of tasty analytical candy for the environmental sociologist, I don't know what is.
September, 2015
Why aren’t more of us sinking our research teeth into carbon markets? They have become the poster child of climate change mitigation policy, and despite the sketchy returns offered by previous experiments such as the EU Emissions Trading System, and the UNFCCC’s Clean Development Mechanism, they are being proposed and implemented in numerous other jurisdictions around the world. Just to review, here’s how it works in theory: A governing body begins by setting a cap on allowable emissions, then distributes or auctions off emissions allowances up to the cap. Implicated businesses that do not have enough allowances to cover their emissions must either make reductions or buy spare credits on the market. Facilities with extra allowances become the sellers.
Market-based strategies to address environmental degradation is certainly nothing new. The idea has been around since the 1960s, and in practice in various guises for a couple decades. But the carbon market is qualitatively different in a number of respects, including its trans-national origins and global extent, and the multiple sources and sinks incorporated into the market, are just a few features that come immediately to mind. Economists would tell us, nonetheless, that, as with any market, if we can just ‘get the price right’ carbon markets will take us smoothly down the mitigation path. But the sociologist in me suggests the problems run far deeper than ticket prices.
Indeed, sociologists have already raised valid questions regarding the efficiency, legitimacy, equity and regulatory dimensions of carbon markets. But dig deeper still and we can find certain social dynamics of carbon trading that reveal key insights into the questionable ability for a neoliberal capitalist marketplace to internalize environmental costs. Exploring these dynamics calls for less of looking at carbon markets, and more of looking in them, to the interpretations and practices of the actors--buyers, sellers, traders and regulators who are negotiating and ultimately legitimating these new institutions, and subsequently shaping their emergent effects. Evaluation of structure-agency dynamics and their effects for socio-ecological relations is, after all, the key unique contribution of environmental sociology to the social-environmental sciences.
Hopes for ecological transformation are often placed in our basic sociological premise that institutions are social constructs and thus defined, and transformed, by the actors operating within them, and thus capitalism is malleable. In which case, as noted by Spaargaren and Mol (2013: 177): “once they are up and running carbon markets gain a relative ‘autonomy’ and their own carbon logic/ rationality” and thus, presumably, capitalism can be restructured through such market innovations to reckon with environmental degradation. Alas, this autonomy cuts both ways. There is little evidence that carbon market trading to date has resulted in any notable emission reductions, despite large sums of money exchanging hands. Why?
To begin to explore this question, there are a number of peculiarities about this marketplace. Price, as economists point out, is one thing. What price per ton of carbon dioxide actually represents the cost to the climate of emissions, or even more pragmatically, the price that would motivate reductions? But before we even go there (as plenty of others have done already), we need to consider the peculiarities of that thing being traded, the commodity itself. Markets are premised on the creation of commodities exchanged between buyers and sellers at an agreed-upon price. The commodities themselves are scrutinized and thus valued by the potential buyer, as we do when we shop for a new car. The ultimate ability of a particular market to produce social benefits, and maintain legitimacy, is determined by the integrity of the marketplace itself: the buyer’s knowledge of the commodity and the trust that the agreed price is a fair value of that commodity.
The carbon market, however, represents another entity entirely. The carbon market at its heart involves the construction and trade of an entirely fictitious commodity. A ton of CO2, and even more blatantly, a ton of other gases measured in denominations of CO2-equivalent, is not a ‘thing’ to be scrutinized and valued by a potential buyer. It is, in effect, a scientific estimate; an unseen--indeed undetectable--quantity of environmental ill. There have, of course, been previous critiques of the commodification of nature on normative grounds, but a healthy dose of more idiographic inquiries is warranted here: the commodification of nature in this case also raises a number of fundamental pragmatic issues that offer a central landscape within which the transformative potential of capitalism can be analyzed.
How are these scientific estimates generated and monitored for their validity? Scientists have defined the commodities that make up emission permits in the form of tons of CO2 or, for the many other greenhouse gases, CO2-equivalent, on the basis of current scientific understanding of the global warming potential of a ton of CO2, and the comparative global warming potential of other gases. For example, the CO2-eq of methane is 25, meaning the global warming potential of methane on a pound for pound basis, over 100 years, is 25 times greater than for CO2. Nitrous oxide’s is 298. The estimates provided in the IPCC Assessment Reports have been the standard in many marketplaces, although the estimates generated by other sources have also been used. Not surprisingly given the evolving nature of climate science, these values are re-defined all the time. They were changed after release of the 4th Assessment Report in 2007, and to make things more complicated (and to more accurately reflect the complexity of the scientific estimation business), the 5th Assessment Report released last year provided two sets of values: one that takes into account climate‐carbon feedbacks, including measures of the indirect effects of changes in carbon storage due to changes in climate; and one set of values that, like their predecessors in earlier reports, do not incorporate feedbacks.
But there is yet another source of ambiguity in the process. Even assuming the scientific estimates described above were perfectly accurate, how do buyers know that the 1,000 tons CO2 they are prepared to purchase actually represents 1,000 tons of emissions? (Another important sociological question is: ‘Do they care?’ But I only have so much space…) They don’t arrive on the back of the truck, to be inventoried in the warehouse. Instead, that 1,000 tons in reality is simply the digital readout of a “carbon meter.” A carbon meter is a gas measurement instrument, there are several available now, all developed by competitive private firms, all claiming their products have superior accuracy. The meters must be purchased and used by any firm engaged in the carbon market. But who is really responsible for ensuring the accuracy of the measurement instruments?
Third, our largest carbon market, the UNFCCC’s Clean Development Mechanism (CDM), is the mother of all futures markets, embodying all of the unknowns, and the unknown unknowns, that the future holds. With the CDM, companies and governments in Annex I countries (basically the developed world) can buy emission reduction credits, called Certified Emissions Reductions (CERs), from the developers of projects in Annex II countries, instead of reducing their own emissions. But CERs don’t actually reduce current emissions, and aren't designed to. They are designed to avoid future emissions. Which means every seller on the CDM market needs to determine what its emissions would have been if the project was not implemented. In other words, new projects need to offer ‘additional’ mitigation than would occur without the project. But confirming ‘additionality' is itself a highly speculative accounting exercise, and many of the approved projects to date have been found to offer no additional mitigation at all.
Fourth, but most likely not finally, enter the middleman, the entirely new financial sector that is The Carbon Broker. While the first three factors discussed are rather unique to the carbon market, this fourth factor is an age-old bane of free markets. Of course busy business people are not able to investigate the integrity of the carbon offsets they need to buy. Fortunately, we now have carbon brokerage firms, an wholly private industry that exists solely to serve carbon markets, representing the inevitable market middleman, to make the lives of businessmen everywhere easier. And it is also that point in the market matrix at which corruption is most likely to rear its head, and it already has.
A ton of CO2 then, that entity upon which we have invested entirely our ability to limit global warming, is ironically the epitome of a social construction. As described by George Monbiot with his typical prosaic acuity, “Buying and selling carbon offsets is like pushing the food around on your plate to create the impression that you have eaten it.” Convincing onlookers that the food was consumed when in actuality is was not would require a masterful dose of magicianship, but doing so is so much easier when the “food” has become a fiction.
If this isn’t a bowl full of tasty analytical candy for the environmental sociologist, I don't know what is.
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