A group of US States have agreed to implement a carbon trading systems despite opposition of such from the federal government. Now Australian states are heading in the same direction by contemplating opening a carbon market, despite outright opposition from prime minister John Howard, who argues that such a system would impact Australia’s coal industry. It would seem that many do not agree with this analysis; that such systems would represent an undue burden to industry. On the contrary, many companies perceive the opportunity to develop a competitive advantage.
Those who argue against carbon trading don’t appear to be able to offer up an alternative that would be as effective in reducing emissions. They make the arguments that such a scheme would impact industries and consumers, mostly through the added cost of energy. The problem with this is that no course of action besides “doing bugger all” will result in zero added cost in the short run (and even that strategy will incur high hidden future costs).Everyone acknowledges that something should be done to reduce pollution- no politician would succeed today on a platform calling for “more fossil fuel combustion! continued liberation of toxins into the air!” (though we have seen at the federal level in Canada and the US a policy of inaction that is basically supporting just that). The alternatives generally touted are technology, and, well, er.. technology. The public seems to be painfully aware of the oil & gas dependence that exists, therefore other energy technologies such as nuclear and “clean” coal are usually discussed. But the added cost argument falls flat given the costs of all the alternatives- clean coal technology reprepsents a costlier technology to implement- adding cost to energy producers and therefore consumers. I have yet to see a profitable private nuclear power producer. In fact, any new “technology” is likely to increase costs to industry in the short term as it is adopted.
Why no talk about technologies such as solar, wind, geothermal, tidal and other energy sources which are not only clean, but renewable? Simply, because these technologies do not yet have an established industrial base with which to influence policy. Conservative politicians who decry carbon-trading as unfair should take a dose of their own erstwhile free-market rhetoric, and the public should be asking itself whose interests these policy makers are really serving.
Long ago, economists realized that a free market is most efficient in terms of allowing the greatest value to be exchanged through trade. This shouldn’t be confused with equitable distribution, and doesn’t necessarily mean that all things should be distributed by way of a free market (basic services and public goods come to mind). But carbon IS a commodity- regardless of the price, the basic utility is the same, and the more you burn the more you can produce, ergo the more you can sell, and the better off you are.To enable a free market, you must have a sufficient quantity of players on both sides. This produces competition, which is essential to technical innovation. If “technology” is going to help us reduce our emissions, how do the carbon trading opponents suppose it is going to be developed? Dr. Hugh Saddler of the Australian company Energy Strategies, recently expressed his views with respect to the Australian government’s opposition:
“It’s really a cynical planning, picking-winners approach. It’s more akin to what used to happen in the old Soviet Union. Instead of letting the market decide which technologies are the best ones, letting consumers decide because they have a price signal, or letting different generators decide they might build a different type of power station, he actually seems to be saying, we’re going to choose the technologies and we’re going to put public money into them, not let the market decide, we’re going to decide as politicians. And then they are going to be the technologies which reduce emissions.
“We need to change the ways we use energy and the sources of energy towards lower emission energy sources and that’s not going to happen in a market economy unless you give all the economic agents a price signal, and a trading scheme is the first step towards giving just that price signal.
Perusing the members of the currently operating Chicago Climate Exchange yields a number of industry leaders such as Dupont, IBM, Ford, etc. who are participating in the trading system through voluntary emissions reductions. Is it all image? or are these companies deriving an advantage from such initiatives? The voluntary state of the carbon market means prices are much lower than with legislated limits. The environmental pages of the companies’ websites make no mention of carbon trading, so PR doesn’t seem to be an objective. Simply put, these are the companies who have the expertise and the means to find innovative ways to reduce emissions and become more efficient. Getting paid for the credits generated is icing on the cake.
But these companies can also gamble- small companies with innovative solutions but high risk exposure are being hurt as they wait in the wings for certainty about the future of emissions regulations. In Canada’s own burgeoning carbon market, the Montreal Climate Exchange (MCeX) has put off launch until after the Federal government unveils its plan (another potential player, the Canadian Climate Exchange (CCE) based in Winnipeg, has been MIA for over a year, and presumed dead).
This stands as just another sign that the world’s “business friendly” conservative governments are doing a disservice to the pursuit of efficient economics- they are seemingly more swayed by the self-interest of the status quo than by the need to encourage innovation and entrepreneurship in a dynamic marketplace.
The corporate and government leaders who recognize that strategy must look ahead and not backwards have begun to take the initiative. With the help of a little entrepreneurial spirit, hopefully in the future the label “green” will stand for both environmental and economic performance.
