From Carbon Markets to the (Conveniently) Forgotten Four Billion

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Energy and climate are now all over the news these days. Remarkable agreements between many an erstwhile nemesis -- Democrat and Republican, environmentalist and venture capitalist, public official and industry leader, evangelist and reductionist/rationalist/scientist/atheist -- show that they are now, roughly, on the same wavelength.

In fact, the convergence is so strong that there is an evolving common international language around the need to investigate not just the science of global warming, but the specific local impacts of change -- from flooding to Great Britain, to hurricanes in the United States, to changes in ocean chemistry and coral growth. Global warming has, for many become a common language of carbon management. There is a recognized need to explore the mechanisms of carbon accounting and, in time, actual mitigation.

Debates once reserved for cafes near environmental non-profits are now held on the House and Senate floor, with ideas of cap-and-trade schemes balanced against ideas of carbon prices, even the once feared tax word appearing from time to time. Scions of industry are stepping up to call -- often forcefully -- for federal regulatory clarity on global warming.

Sadly, federal leadership in the United States has so far been an embarrassment of denial and inaction. Now, and perhaps worst of all, the President has uttered the words that "climate change is real," but at the same time exhibited a complete lack of action to make anyone believe that the White House is at all serious about the issue. The federal government spends less on energy research and development than the U.S. pet food industry spends on its products in the United States. With "fossil free in 2033" [PDF] and energy independence projects popping up all over, the Administration is apparently content to take a back seat to any nation, industry, state, or city that will step up and look for solutions and invest in their future.

All this action, among virtually everyone but the U. S. President and his cabinet, has made carbon into a new currency. The price of carbon emissions -- or more precisely the cost to buy and sell credits to either emit carbon, or to sell unused quotas to emit -- has now becoming a new currency, as I covered in my April column, "A Currency for the Wealth, and Environmental Debt, of Nations." The issue is that we do not know how to value carbon as of yet.

Carbon is trading at under $2 per ton in the U. S., where the vast majority of carbon credit sales are for voluntary, feel-good credits, and over ten times that amount in the European Union, where power producers, at least, must offset a fraction of their emissions with credits. It is, of course, very difficult to come to any reasonable price of carbon when the nation directly responsible for a quarter or more of total emissions, still denies the issue

All this interest in the face of uncertainty has produced a dilemma -- an exuberance of interest in markets for carbon credits. These credits, however, are clearly being traded at prices far below their actual market value. Measured in terms of avoided carbon emissions, it may cost several hundred dollars to invest in solar power instead of coal-fired power. In fact, the early "winner" in carbon markets is poverty -- both of wages and of the value of nature. The cheapest carbon credits available today are from forestry projects, generally in poor nations. These low costs -- often below $5/ton of carbon -- reflect the dramatic disparities in wages, of legal enforcement, and of the costs of land in many developing nations.

Purchasers of these credits, even and often the most well-meaning of buyers, are finding that long airplane trips can be offset for tremendously low costs. Developing nations -- from governments to community groups are frequently all too happy to sell these credits because it can augment the tremendously unfair undervaluation that they generally receive for goods and services provides to international clients.

As a result, the ability to offset carbon emissions for the wealthy appears easy, in many cases little more than a game, and claims of greenwashing, carbon imperialism, and carbon injustice are now becoming increasingly common.

Now, there is a real value in easy, inexpensive, initial deals for carbon. This lubricates the market, builds experience with this new currency -- greenhouse gas emissions credits. Familiarity is vital, and such a new currency demands and deserves a period of time to move from marginal to the mainstream.

A next step, however, needs to be taken. Voluntary markets, and markets for credits that do not reflect the value of the lives, the land, and the economies of poor nations, need to evolve. The value placed on a parcel of land in Ecuador or Ethiopia, or of a day's labor in Indonesia or on a Native American Reservation, cannot be valued simply on how many miles the resulting biofuel will propel an American Sport Utility Vehicle.

This, of course, will not be easy. Globalization is an effort to place a common value and currency on products, with the comparative advantage of many nations precisely their poverty. If we wait for carbon markets to be well established before working towards this carbon, climate, and cultural equity, we will make the job of revaluing credits all the more difficult. When prices for climatic goods and services in developing nations are firmly established as bargains for the rich, the number of reasons to keep the system -- and the market -- unchanged will have been multiplied.

Models already exist, however, to prevent the perils of carbon exploitation. Some of the most well-known are that of fair trade for products such as coffee or tea, and of dolphin- and turtle-safe tuna. The idea has been applied to greenhouse warming as well. One example of this idea, as Paul Baer and colleagues illustrated in the journal Science in 2000, is that of climate equity built into the envisioned allocations of carbon emissions permits (Baer, et al., 2000). Carbon credits can be certified as well -- and some already are -- as not only accurate in terms of actual carbon emissions reductions, but also sustainable in terms of the communities that produce the credits.

Just as a minimum wage, if adjusted regularly to reflect the actual cost of living, can protect the poor, the costs of carbon can reflect the actual value of the resources being traded. One means to do this -- and far from the only means -- is for governments to ensure not a cap, but a minimum price -- a floor -- for the cost of carbon credits. Other approaches are to expand the measurement of carbon credits from simply tons of greenhouse gas molecules to broader measures of the social and environmental value of nature's services.

At this point, with the value of carbon not even set -- it may seem premature and needlessly complicated to begin to measure even more nebulous ideas of sustainability in a commodity that while new at least seemed simple and tangible. History has proven, however, that this is the easiest time to at least begin the bookkeeping of environmental preservation, even if the first rounds of greenhouse gas markets, stick to the basics.

GreenBiz Editor-at-Large Daniel M. Kammen is the Class of 1935 Distinguished Professor of Energy at the University of California, Berkeley. He co-directs the Berkeley Institute of the Environment and is founding director of the Renewable and Appropriate Energy Laboratory. He has appointments in the Energy and Resources Group and the Goldman School of Public Policy. His previous columns, A Currency for the Wealth, and Environmental Debt, of Nations, Transportation's Next Big Thing is Already Here and What Solar Power Needs Now, are available on GreenBiz.

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