Carbon trading creates perverse incentives
I’ve said before that one problem with greenhouse-gas emissions trading (as opposed to a carbon price) is that it creates a whole new lobby with incentives to build the emissions market at the expense of actual emissions reductions.
Speaking at the Carbon Expo trade fair in Cologne, Germany, Ken Newcombe, a pioneering carbon trader who currently works for Goldman Sachs provided an example:
He described the concept of additionality — the idea of proving that a project would not have happened without the finance provided through the CDM — as “impossible.”
He urged a move to a “portfolio approach” to additionality, where sectors would be benchmarked for best practice. Under such a scheme, activities that emit below the benchmark would be rewarded with credits, but with a discount for the “anyway” or non-additional tonnes of emissions reductions that occur.
So additionality is impossible to measure on a case-by-case basis, but it can be measured for entire sectors. Gee, you don’t think that would lead to game-playing, do you?
Since carbon credits under Kyoto are permissions to pollute, each non-additional credit issued would increase the amount of coal burned. Putting a price on emissions is not sufficient to solve climate chaos — but it is necessary. So put a carbon tax in place or auction permits already. Forget game-playing CDM and the whole additional new carbon lobby that secondary carbon markets create.