Will Carbon Trading Work?

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The case for carbon trading is based largely on stirring abstractions.

Here is one, from Matthew Whittell of Climate Exchange: “None of us is clever enough to work out what is the best way to tackle climate change, but if we have a global carbon price, the market sorts it out.”

The near-religious faith of the sentiment might well be enough to move you to tears.

But the response to a crisis that threatens human civilization needs to be grounded not on unsupported faith but in a sober review of historical experience and a hard empirical understanding of the problem.

Carbon trading is the centerpiece of the Kyoto Protocol; Kyoto has failed. Carbon trading is the centerpiece of Europe’s response to climate change; the EU Emissions Trading Scheme has failed. Before Kyoto, pollution trading had also largely failed in the US, the only country in which it had ever previously been tried.

These failures were not accidental. The reasons for them go deep and can’t be overcome by economists twiddling a few dials – auctioning a few more pollution rights here, tightening up carbon offset regulation there. The failures will be repeated if carbon trading comes to dominate the North American climate agenda – as both major US presidential candidates, having received some singularly bad advice, assure us it will.

Prices can do many things, but one thing they have never done is solve problems that require structural change in so many fundamental areas of industrial life. If disaster is to be staved off, it will not be by letting technicians and Wall Street investment firms try to turn the world’s carbon-cycling capacity into a resource to make money out of, but by a democratic resolve to enter into a new kind of discussion worldwide about the kind of societies that people want in a post-fossil fuels age.