A Fresh Look at Market-Based Approaches to Climate Change

By Ruth Greenspan Bell

The urgent need to act on climate change is sadly counterbalanced by the paucity of viable ideas for controlling further carbon emissions. Even those firmly convinced that prompt action is required appear mesmerized by the tantalizing hope that the problem can be efficiently controlled –- and developing nations induced to participate — by harnessing market forces.The Kyoto Protocol’s Flexible Mechanisms enshrine several forms of emissions trading — among participating industrialized countries, project-by-project between “donor” and “host” countries, and between the developed and the developing world (the Clean Development Mechanism) on the assumption that reductions are cheaper in the developing world — to achieve “mandatory” but unenforceable greenhouse gas reduction commitments by developed countries.

But many have questioned the integrity of CDM results. Recently documented cases show that investors reap enormous profits — up to 100 times the actual cost of cleanup — to eliminate greenhouse gas emissions in China and India rather than revise practices at home. The deals are Kyoto-authorized, but don’t address deeper structural change. The incinerated waste gas, HFC-23 (also an ozone layer depleter), is produced during the production of the refrigerant HFC-22. Clearly, eliminating HFC-23 has greenhouse benefits but at a large and unnecessary cost.

More damning, the profits are not invested in long-run antidotes to climate change by either western investors or the home-country beneficiaries. Instead, the proceeds frequently expand existing factories and build new ones that produce the same offending gas to feed growing demand for air conditioning.

A close examination of offsets — a growing business selling carbon reduction credits to guilty westerners engaged in carbon-rich activities such as flying and driving fuel-inefficient cars — intensifies concerns whether anything real is to be gained by outsourcing responsibility. The Times of London spotlighted “the moral predicament of offsetting,” detailing close-to cynical efforts claiming climate benefits adequate to balance western lifestyles that actually pass the responsibility for emissions reductions to the poorest people on earth. Climate Care (a prominent seller) provides “treadle pumps” (people push pedals) to poor rural families to get water without using diesel fuel. Whatever the benefits to the families, if a peasant treads two hours a day, it will take at least three years to offset the CO2 from a one way London to India flight, an advertised use of a purchased offset.

Clearly, new approaches are needed and deployable once the United States has shown its own good faith by enacting and implementing serious legislation.

With colleagues at two major universities, I am developing a ground-up enterprise to formulate new climate policy options for the next U.S. administration. Rather than assume that incentives and policy instruments function identically in all cultures, we draw instead on specialists with deep knowledge of the traditions, cultures, beliefs, practices and institutions that condition collective decisions and actions in the key developing world countries.

The result should offer a different kind of vocabulary to engage Indian and Chinese polluters and countries like Indonesia and Brazil that contribute through deforestation, one that tailors appeals to national and local interests, country by country, and harnesses existing cultural values and institutions to rise to the climate challenge.

We envision customized approaches to bring key developing nations to participate meaningfully in climate change mitigation and options for effective implementation of climate goals within each of these nations. This offers an improved chance for the international community to come together around more realistic approaches to the daunting challenge of climate change.