The New Engineer
Citation: This is article was published as Sharon Beder, 'Emissions Trading', Engineers Australia, August 1999, p. 58.
This is a final version submitted for publication.
Tradeable pollution rights are being increasingly used as an environmental policy tool for pollution control. They are now being proposed as a method for meeting Australia's Kyoto Protocol targets for greenhouse gas emissions. However pollution rights trading, or emissions trading, is aimed at minimising costs rather than maximising environmental gains and past experience has shown that the environmental gains from emissions trading are far from guaranteed.
The evidence of how well tradeable pollution rights have worked in the past is mixed. Whilst proponents claim that a given environmental standard has been met for much less cost, opponents argue that the environment has benefitted little from such schemes. For example in Los Angeles there are two schemes to improve air quality. One is the Regional Clean Air Incentives Market, RECLAIM, which enables the trading of smog causing nitrogen oxides and sulphur oxides. An internal audit by the South Coast Air Quality Management District found no significant emissions reductions between 1993 and 1997 when the audit was done. James Jenal from Citizens for a Better Environment claims this happened because companies were able to inflate the baseline of allowable emissions, enabling an additonal 40,000 tons of air pollution which would not have been allowed under the previous regulatory regime.
The second scheme introduced in Los Angeles, was a trading scheme enabling companies to offset their emissions by scrapping cars, that is, removing older more polluting cars from the roads. Some twenty thousand cars were scrapped in this way, but critics argue that these cars were often barely running and would not have continued to be used much longer anyway.
The introduction of emissions trading as a mechanism for achieving the Kyoto Protocol has the potential to enable similar "phony" reductions. The most obvious is the trading of emissions credits with Russia and other eastern European countries that are in economic decline. Russia's economic decline has meant that its carbon dioxide emissions have decreased by some 30% below 1990 levels. Now countries such as the US and Japan are looking to buy the right to those emissions which Russia is unable to use so that they don't have to reduce their own emissions. This will not benefit the environment or help to reduce the global emissions of greenhouse gases in the long-term. They are referred to as "hot air" or or "phantom" emissions reductions.
The problem of inflated base-lines is also an issue for emissions trading in greenhouse gases. Since it is proposed in Australia that any trading scheme be based on an initial free allowance based on past emissions, it is in the interests of polluting companies to put out as much greenhouse gases as possible in the next few years prior to such a trading scheme being introduced. As the Australian Greenhouse Office points out, newcomers will be disadvantaged "thereby impeding domestic competition and innovation" which might otherwise lead to reductions.
What is more, such a scheme rewards the worst polluters by giving them the highest entitlements to start with. This applies both to individual companies and to nations as well. Anil Agarwal and Sunita Narain, claimed in the publication "Down to Earth" that Australia was being rewarded for its poor record on deforestation. They argud that a significant proportion of the country's emissions have been from deforestation. "Emissions which are still present in the atmosphere and are causing global warming. But instead of being penalised for creating the problem in the first place, Australia has been able to use its high emissions to its advantage by winning the right to count any improvement from this position as its national credit."
Even if we discount the phantom reductions and baseline exaggerations that are likely to occur in any emissions trading scheme, the whole rationale of emissions trading is to find the cheapest possible way of meeting the Kyoto Protocol commitments. However it is generally acknowledged that the reductions agreed to at Kyoto are not sufficient to prevent global warming and that the Kyoto Protocol is merely a first step. More reductions are going to be necessary and enabling companies to plant trees or buy emissions credits instead of reducing their emissions is only delaying the inevitable at the risk of not even meeting current targets.