Carbon Market Fundamentalism

by Daphne Wysham

The waste-pickers of Delhi may soon rank among the world’s endangered species if carbon markets
continue their rise. Now numbering in the tens if not hundreds of thousands, waste-pickers have plied the
garbage of Delhi’s streets for decades. A disturbing spectacle, often including women and children in their
ranks, they nonetheless provide a vital service: recycling. In a country like India, paper, plastic and metals
are an increasingly valuable commodity. And for slum-dwellers, this may be their only source of income.
And so they join the cows and dogs in a daily forage through garbage by the side of road, searching for
plastic, paper, metals — anything that can be turned into cash.

Bharati Chaturvedi, director and co-founder of Chintan, a small non-governmental organization (NGO)
servicing India’s waste-pickers, claims that more than 1 percent of Delhi’s population is engaged in waste-
picking — a significant source of revenue for the poorest — and that they recycle 9 percent to 59 percent of
all of the waste generated in the city. “These waste-pickers are providing a public service — for free,”
Chaturvedi says.

But a waste incinerator now proposed in Timarpur, a suburb of Delhi, may change all that. Like other
incinerators, this one will generate cancer-causing dioxins, mercury, and other heavy metals and persistent
organic pollutants. What’s new and different about this particular waste incinerator: It will generate carbon
credits under the Clean Development Mechanism (CDM).

The CDM was originally established under the Kyoto Protocol, the climate change treaty, to address the
need to provide new aid to developing countries to acquire and implement new clean energy technologies
and projects. Its intent was also to provide a vehicle for development. However, critics say, the CDM is
rapidly devolving into a subsidy for some of the dirtiest industries in the Global South and an excuse for
inaction in cutting the significant greenhouse gas emissions by developed countries. Dirty industries and
banks are growing rich on the schemes: The World Bank, for example, is becoming a major broker of many
of them, charging a 13 percent commission on all of the carbon trades it brokers.

The Timarpur incinerator may be the first in a series of incinerators to benefit from the global carbon
market, despite India’s informal and effective recycling industry and generally hostile posture toward
incinerators. Gopal Krishna, a public health researcher at Jawaharlal Nehru University, New Delhi, had
succeeded in dissuading government officials from accepting other proposals from Australian and Danish
incinerator companies in Delhi, based on public health concerns. “We had managed to stop half a dozen of
these dubious projects in the past,” says Krishna. “But this time around, in the name of carbon credits,
fraudulent claims are being made with impunity.”

In addition to Krishna’s public health arguments, there is another reason incinerators have never gotten off
the ground in Delhi: “Delhi’s garbage doesn’t have enough burnable matter,” says Neil Tangri, Waste and
Climate Change Campaign Director for the Global Alliance for Incinerator Alternatives (GAIA). “It tends
to be too wet, containing too much ash and sand, and non-combustible inert materials.” In other words, not
enough combustible products like plastic and paper, thanks in large part to the diligent waste-pickers.

But today, with an incinerator contract looming on the horizon, and with it the potential for millions of
dollars in revenue from the global carbon market, the political dynamic has changed. These waste-pickers
are being harassed by dump managers and actively denied access to the dry, high-calorie items the
incinerator will devour.

“They are effectively denying a livelihood to the poorest of the poor in setting up this incinerator,” says
Chaturvedi. “To take that miserable existence away, it’s criminal. And now we’re seeing skyrocketing food
prices in India. What will these people do? Huge local skills in recycling are now being wiped out, skills
essential for a sustainable society.”

An additional problem with the incinerator is what to do with the fly ash left over. “I’ve been all over
India,” says Patricia Costner, science adviser to GAIA and the International POPS Elimination Network. “I
know what happens to incinerator ash. Most of it ends up by the side of the road. There are no engineered
landfills in India. Fly ash and bottom ash is required to be managed very carefully in most countries, but in
India, they simply do not have the infrastructure to do that.”

Improper disposal of incinerator waste isn’t the only problem: “When waste pickers are denied access to
the waste stream, they go through the ash looking for metal, the only substance to survive incineration
intact,” says GAIA’s Tangri. “I’ve seen people thigh deep picking through incinerator ash for metals.
You’re using the human body as a toxic absorber — you’re basically spoon-feeding it to these people.”

Despite doubts raised by the Indian government and Supreme Court as to the advisability of incinerators in
India, one of the most avid proponents of these carbon credit schemes is India’s former minister of
environment and forests, Rajesh Kumar Sethi. Sethi was recently elected chair of the executive board of the
CDM, the supervisory body that determines which projects qualify for CDM credits. “It would be
impossible for [Sethi] to question any project that has been incorrectly cleared by the Central Pollution
Control Board, a board that comes directly under the ministry he used to direct,” says Krishna.

Carbon Trading 101

Little understood by all but a few insiders, carbon trading was established under the Kyoto Protocol and
involves two types of credits. There are “offsets” and “allowances.” Allowances are the limited number of
government-allocated credits that are either auctioned or given away to certain industries within a
developed country that has signed on to the Kyoto Protocol. One allowance equals one ton of carbon
dioxide. Polluters that emit more than they are allowed must buy enough carbon credits within their country
or from other designated developed countries (grouped as “Annex B” countries in the Kyoto Protocol) to
match their allocated greenhouse gas emission levels. Thus, Company A may have exceeded its permitted
carbon allowances by 100 tons, and so buys from Company B, which has managed to reduce its emissions
by 100 tons carbon. The theory is: The overall cap is the same regardless of the trade, and the invisible
hand of the market allows emissions reductions to occur with greater flexibility, less “command and
control” and produces a “win-win” scenario for everyone involved.

The Clean Development Mechanism also permits carbon allowances to be traded between Annex B
countries and developing countries — countries that are signatory to the Kyoto Protocol but don’t yet have
limits on their greenhouse gas emissions. The problem here is that trading under the CDM is thus occurring
between a set of countries that have an overall cap on their emissions, Annex B countries, and a set of
countries that have no caps on their emissions, developing countries. In order to avoid bogus emissions
credits being sold by developing countries to Annex B countries, the UNFCCC decided that carbon credits
would be issued under the CDM only if they were “additional” — or “not business as usual.” This concept
of additionality, which requires the proof of a counter-factual, has been all but impossible to verify.

The CDM is a subset of an overall category of carbon trading, “offsets,” which critics claim do not
constitute actual emissions reductions. There are two primary markets for carbon offsets: the voluntary
market and the so-called “compliance” market of the CDM. The voluntary carbon offset market — much
like the “compliance” one — offers up for sale the replacement of a climate “bad” with a climate “good.”
So, for example, if I am going to fly across the country, I will “offset” the carbon emissions from the flight
by investing in a tree planting program. Greenhouse gas emissions may rise from my transcontinental
flight; however, I can feel better knowing that I’ve “offset” my flight by investing in a tree farm that will
absorb a quantity of carbon roughly equivalent to my flight. These voluntary offsets tend to be poorly
regulated and therefore cheaper than compliance-based offsets, which have more rigorous — but still
insufficient, to many — regulatory requirements.
Even the “Certified Emissions Reductions” sold under the CDM seem a far cry from actual “emissions
reductions.” In fact, according to David Victor of Stanford University, as many as two thirds of the credits
being produced by the CDM from projects in developing countries are not resulting in any emissions
reductions. Victor and Michael Wara, a law professor at Stanford, found in an April 2008 paper that
virtually all of the hydropower, natural gas and wind projects in China are applying for CDM credits. Yet,
clearly, China could not make the argument that none of these projects would have gone forward without
CDM credits — a key criterion for support under the CDM.

A separate study published by International Rivers argues that nearly three quarters of all registered CDM
projects were complete at the time of approval, suggesting that the requirement that project developers
could not have gone forward without the “additional” source of CDM funds is being routinely waived.

Even compliance-based offsets, such as those sold under the CDM, are proving highly problematic. With
the price of offsets remaining quite low, the most common form of offsets involves large dams, the
destruction of industrial pollutants and the combustion of landfill methane — the “low-hanging fruit” in a
carbon market where the price of carbon has hovered at very low levels.

Policy Goals Achieved? Not Really

The same deregulatory fervor that is playing out in the bankruptcy of Wall Street banks, credit card
companies and derivatives traders brought the theory of carbon trading: Open up the free markets — in this
case, the newly minted market in carbon — eliminate regulatory interventions such as carbon taxes or
precise standards for polluters, and the market will seek out the most efficient means of achieving the same
emissions reductions goals.

“None of us is clever enough to work out what is the best way to tackle climate change,” states Matthew
Whittell of Climate Exchange, a company that owns the European Climate Exchange and the Chicago
Climate Exchange. “But, if we have a global carbon price, the market sorts it out.”

However, early evidence suggests that what is being sorted out is just how much more consumers will pay
for an increase in greenhouse gas emissions. The European Union Emissions Trading Scheme (EU ETS),
has thus far resulted in a rise in greenhouse gas emissions while profits have skyrocketed for utilities and
energy traders. In a powerpoint presentation entitled, “Citigroup Analysis of the Impact of the EU Carbon
Market on European Utilities,” Citigroup’s Head of European Utility Research Peter Atherton summarizes
the EU ETS this way: “All generation-based utilities: winners. Coal and nuclear generators: Biggest
winners. Hedge funds and energy traders: even bigger winners. Losers?? Herm … consumers!”

He goes on to note: “Have policy goals been achieved? Prices up. Emissions up. Profits up. … So, not
really.”

Emissions have risen under the EU ETS because companies essentially fudged their numbers at the outset,
claiming they would emit more than they expected to, so they would have an excess of permits to sell.
Others were equally crafty, and the price of carbon plummeted.

A similar fiasco is unfolding in the newly minted Regional Greenhouse Gas Initiative (RGGI) an emissions
trading scheme for U.S. northeastern states launched in September 2008. The RGGI initiative involves nine
states aiming to provide a domestic pilot “cap and trade” market for carbon. Early results from the RGGI
initiative, like the EU ETS, show evidence of over-allocation of permits to pollute and a concomitant drop
in the price of carbon, as demand for carbon trades proved virtually non-existent.
Recently, the Chicago Climate Exchange (CCX), which claims to be “North America’s only and the world’s
first global marketplace for integrating voluntary legally binding emissions reductions with emissions
trading and offsets for all six greenhouse gases,” saw its shares drop in value by almost 80 percent from a
high of $7.50 in June to a low of $1.50 on October 23, 2008. Bankrupt Lehman Brothers was among those
“distressed sellers” of CCX shares that drove down the price of carbon on the U.S. markets to one of its
lowest levels since carbon markets were launched in 2003. The price dropped further after a Wall Street
Journal article questioned whether carbon credits trading on the CCX represent emission cuts that would
not have otherwise have happened.

“We Need Direct Action”

Larry Lohmann of the UK-based think tank The Corner House, and author of the book, Carbon Trading,
argues that advocates of carbon trading overlook two critical things: first, the poor are often paying the
price for the vast profits of carbon traders, while seeing few benefits; and, second, the most direct solution
to climate chaos is not part of the equation — namely, reorganizing society so that fossil fuels can be left in
the ground while the planet’s remaining forests are preserved and even enlarged.

As carbon markets gain steam internationally, forest carbon credits are now opening up as a new arena for
investment: A country’s entire forests are now up for sale as offsets for continued pollution by wealthy
countries. And once again, it is the World Bank that is leading the way. Under its new “Forest Investment
Fund” and “Forest Carbon Partnership Facility,” the Bank is preparing to show the world how to “scale up”
forests as offsets — selling carbon from individual tracts of forests, or even an entire country’s forest
reserves — as “offsets” for Northern countries to purchase, in lieu of reducing their own emissions at
home.

Yet, in violation of the UN Declaration on the Rights of Indigenous Peoples, indigenous peoples who
inhabit and have preserved these forests for generations, are often the last to be consulted on these schemes.
For many of them, land rights, rather than cash for carbon credits, are a higher priority in the struggle for
autonomy and the right to control their ancestral lands.

“Using market-based systems to privatize our land, forests and now to commodify the atmosphere is not a
sustainable solution,” says Tom Goldtooth, executive director of the Indigenous Environmental Network.

Despite the early evidence of flaws in carbon markets, few environmental organizations are willing to be
critical of this approach. All current legislative proposals being advanced on Capitol Hill to address climate
change include some form of “cap and trade,” another name for carbon trading.

President-elect Barack Obama supports the idea of a “cap and auction” market-based approach to solve the
climate crisis. Yet what few politicians mention, is that if the various market mechanisms for addressing
climate change — the so-called “cap and trade” approach, where most pollution permits are given away to
polluters, or the “cap and auction” approach, where pollution permits are auctioned — move forward
nationally, they will eventually open up to the global market in carbon offsets, including the highly
problematic CDM.

Representatives Jay Inslee, D-Washington, Ed Markey, D-Massachusetts, and Henry Waxman, D-

California, are among the few Members of Congress to advance principles and legislation that recognize
the problematic nature of “carbon offsets,” such as those being advanced by the World Bank and some
environmental organizations. “We have to be very critical of any mechanisms involving offsets,” Inslee
says. “We have to assure in the real world — not the abstract world — that you get something for your
money. We do not have that right now. Until we do, I don’t think the offsets should be something you get
credit for.”

S. David Freeman, former energy advisor to Presidents Carter, Nixon and Kennedy, and former director of
the Tennessee Valley Authority, goes one step further: “If we’re on death row, as Al Gore and others say we
are, then we need to take direct action, and I think the most important form of direct action is deciding from
this day forward it’s all going to be renewable. Why don’t we outlaw new coal and nuclear plants?
 “In World War II, we told the car companies to stop making cars and to start making tanks and airplanes
and we won the war in less time than we’ve been in Iraq. When we have a flu epidemic, the government
goes out and buys vaccines. Yet, now, with the climate crisis, there seems to be a reluctance in this country
to act collectively through its government.”

Tom Picken, the Head of International Climate for Friends of the Earth-UK, puts it this way: “It is
absolutely clear that there is no ‘spare’ [carbon dioxide] ‘in the system’ and therefore no ‘spare’ [carbon
dioxide] to trade. If there is no spare [carbon dioxide] to trade, then this poses a pretty fundamental
challenge to the means available to achieve emissions reductions — that there cannot be any more
offsetting of any form. To do so is downright dangerous, in my view, and seems to me to be based on
neoliberal economic fundamentalism rather than being environmentally and socially informed.”

Daphne Wysham is the director of the Sustainable Energy and Economy Network (SEEN) at the Institute
for Policy Studies. Above: A rag-picker in Delhi, India.

World Bank: Climate Profiteer

The World Bank is perhaps the best example of how one institution can use carbon trading
for profit, while continuing to finance projects that make the climate grow more unstable.
The Bank’s growing number of carbon funds were the subject of a recent report by Janet
Redman, a researcher with the Sustainable Energy and Economy Network, a project of the
Washington, D.C.-based Institute for Policy Studies. That report, “World Bank: Climate
Profiteer,” found that the World Bank was charging a 13 percent commission on its more
than $2 billion in carbon trades, while continuing to support fossil fuels. The report found
that these World Bank carbon trade projects show little evidence of actual emissions
reductions: Of the 83 active World Bank projects found in the Bank’s online project
database, only nine have delivered Certified Emissions Reductions (CERs). The vast
majority of these CERs came from a single industrial chemical project in China. That
chemical project — the destruction of hydrochlorofluorocarbons, or HCFCs — is highly
controversial as it potentially pits the Montreal Protocol to Control Substances that Deplete
the Ozone Layer against the UN Framework Convention on Climate Change, by making it
hugely profitable to destroy HCFCs, thereby potentially creating perverse incentives to
continue to produce them.

Other key findings of the report include:

• To date, less than 10 percent of all the funds flowing through the World Bank’s
carbon trust funds are going to support clean, renewable energy, defined as wind,
geothermal solar and hydro-electricity power plants with a generating capacity of 10
megawatts or less.
• The bulk of the World Bank’s carbon finance portfolio (75 percent to 85 percent) has
been directed to carbon trades involving the coal, chemical, iron and steel industries.
• The World Bank Group is experimenting in the carbon market, without taking
significant risks, knowing that projects with little added value can be readily dumped
— for a profit — into the voluntary carbon market, a market that is entirely self-
regulated.

- D.W.