Okay, my last post summarized Tom Athanasiou and Paul Baers’ arguments in favor of drastic cuts in emissions. They place responsibility on the rich and to some extent the middle class rather than the poor. As you might expect, I agree with both these points. I disagree with their arguments that carbon trading and even offsets are the best way for the global north to subsidize the global south.

Tom and Paul’s argument: the rich countries are responsible for cuts exceeding 100 percent. The only way to meet that obligation is by paying for cuts in the poor nations; Tom & Paul suggest buying offsets from them.

Why use offsets? Tom and Paul argue that the size of the cuts makes it essential to use the absolutely cheapest methods, and emissions trading tends to the produce the cheapest cuts.

I have argued in the past that emissions trading may be less expensive statically, but not dynamically. Compare rule-based regulation with stringency increases against a cap-and-trade with a cap that tightens.

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Initially, in the rule-based system, at least some major polluters will have to buy leading-edge equipment. In contrast, in the cap-and-trade system, in the first stage, with a high cap, major polluters will buy inexpensive carbon credits and get the same reductions. So far, the cap-and-trade has cut costs.

But consider the next stage, when the stringency of the rules tightens or the cap is lowered and that leading-edge technology has to be deployed more widely. Under the rule-based system, because the technology was deployed early, it will have matured and become less expensive and more reliable. Someone may even have found a superior replacement. In contrast, under cap-and-trade, the leading-edge technology is still leading-edge. It has to be widely deployed while still an immature, expensive, and unreliable technology. All of the costs saved in the initial stage of a cap-and-trade system are spent many times over in the second.

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I will add that even statically, emissions trading is only cheaper on a gross basis, not a net one: businesses which must operate within rules seek means of compliance with business benefits. For example, not so long ago, the U.K. passed major regulations requiring all businesses to reduce solid waste. Waterstones, a major U.K. bookseller, arranged with their biggest distributor to deliver books in permanent plastic crates. They return the empty crates to the distributor when the next shipment arrives. This has several benefits that are far more important to Waterstones and the distributor than any reduction in cardboard. The books suffer less damage shipping in plastic crates, reducing returns and saving labor for both. And crates with latches are easier to open and close, pack and unpack — that saves labor. So Waterstones and their distributor profited handsomely from replacing cardboard boxes with plastic crates. But they would have never noticed the opportunity without the regulation. (I hope I don’t have to explain to anyone here how a long-lasting plastic crate that replaces several thousand cardboard boxes over its lifetime reduces emissions.)

The way Amory Lovins puts it is that businesses leave $10,000 bills on the shop floor. There is a whole subsection of economic literature that studies why businesses tend to overlook profitable opportunities to save energy. While there is dispute over how large that gap is, there is no longer a serious argument that there is one of significant size. And people like Joe Romm, who have practical business experience in the area, tend to be the ones who argue for the high numbers of overlooked opportunities.

The second argument for trading is one made by the Simon Retallack article Tom linked to. It notes that the alternative to emissions trading — aid and development funds — has proven as unreliable as the current form of carbon trading. Rich nations simply don’t honor their aid agreements; they break their promises. Retellack admits that carbon trading has not yet worked in practice, but insists that aid hasn’t either. For some reason, he thinks that carbon trading is fixable and that aid is not.

If the global north won’t honor aid treaties, what makes Retallack — or Tom or Paul, for that matter — think the global north will continue to buy offsets if they find a way to reduce the cheating that makes offsets cheap?

There are major political obstacles no matter how we try to solve the problems, once we limit ourselves to solutions that actually work. But offsets and trading have all the problems of every other solution, and their own set besides.

Retellack himself mentioned an example of aid that did work: the Marshall plan. What made it different from other aid programs is that the donor nation, the U.S., considered the plan’s success essential to its own survival. No means will work with a half-hearted commitment. Get a full commitment and apply what will be least expensive and work best — which is not a trading system but a combination of public investment, rule-based regulation, and a non-trade means of putting a price on carbon, such as a cap & auction or a carbon tax.