Tricks of the Trade

As the EU announces it is to withhold millions of carbon credits from the market, Annie Reece explores the quandary of carbon trading

Carbon dioxide (referred to here-on-in as ‘carbon’) is the most important greenhouse gas (GHG) in terms of human-made climate change. Belching out from countless power stations and emitted in huge numbers through inefficient industrial processes, we’re producing the stuff – and other GHGs measured in terms of carbon – quicker than the earth’s plants can absorb it, leading to drastic climate change. With the climate change agenda firmly embedded in politicians’ and society’s vocabularies (if not their minds), it’s perhaps surprising that there doesn’t seem to be a sure and fast way of dealing with the carbon crisis. To date, there are two main methods of trying to staunch the flow of carbon emissions: carbon tax, which puts a levy on all carbon produced; and carbon trading.

Carbon trading, the form favoured by the European Union (EU), involves a ‘cap and trade’ mechanism, which sets a limit, or ‘cap’, on the amount of emissions allowed, with companies then allocated permits for the emissions they are expected to produce. If they produce less than expected, they can potentially turn a profit by trading their allowances with other companies that have performed badly and need the extra permits (though companies can also trade their carbon permits in the financial markets as any other derivative commodity). Then, over time, the governing body should reduce the number of credits released, theoretically bringing down carbon emissions. Environmentalists and climate justice movements often criticise this method, as it is seen as offering ‘permits to pollute’ and ‘putting a price’ on our fragile climate systems, in effect allowing companies to produce emissions without having to make any drastic changes. It is exactly for this reason that politicians and businesses have embraced the carbon trading market. The root of the debate, it seems, harks back to the power of economy versus the power of climate protection.