Will Carbon Trading Work?

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It’s bad enough that carbon trading is aimed at the wrong goal. What’s worse is that to try to achieve that goal, it has to set up an apparatus that ties up so many resources that it leaves little room for anything else.

Vast bureaucracies are created to measure, monitor, register, certify, validate and enforce millions of separate emissions cuts. Thousands of bright technical people go to work inventing ways of achieving those cuts as cheaply as possible.

Regulators try to keep market players happy, with little time left to think about the long-term future. Carbon buyers, sellers and consultants concentrate on finding cunning means of producing carbon permits for short-term profit. Wall Street gets into the act to cash in on opportunities for speculation. Ingenuity goes into milking the system, not into weaning the world off fossil fuels.

Rhodia, a French chemical firm, makes adipic acid at a factory in South Korea. By investing $15 million in equipment that destroys nitrous oxide – an unwanted byproduct – the company is set to produce $1 billion in UN-approved carbon credits for sale to polluting industries in industrialized countries. Nitrous oxide is a greenhouse gas said to be 310 times more potent than carbon dioxide, so Rhodia can generate 310 tons of carbon credits just by burning one ton of the compound.

Clever. But does the trade reduce overall greenhouse gases? No. Customers buy Rhodia’s credits only so that they can continue to invest in fossil fuels. Does the trade help decarbonize Korea? No. At best, it’s irrelevant; at worst, it encourages the country to build more dirty industries so that it can make money cleaning up later. Rhodia already makes 35 times more money selling carbon credits than it does from the adipic acid market. Nor does the deal promote green innovation: the technology Rhodia uses dates from the 1970s.

Such schemes are the rule in carbon trading, not the exception. Does the world have time for this charade?