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Le Monde diplomatique JANUARY 2008 9

price, and the forward price of a tonne delivered in December 2008. The spot price yo-yo’d between $30 and $45 a tonne, then collapsed in 2006 after the publication of the first statement of actual company emissions. These results showed how generous government quota allocations had been – hardly surprising since these had been based on industry forecasts. By September 2007 the spot price of CO2had collapsed to $0.07 per tonne, just enough to cover the cost of the transaction. Investments associated with the greenhouse effect are clearly driven by the desire to make a profit. A number of carbon funds have been established to manage portfolios of allocations, in particular those generated by CDMs. The World Bank is the leading manager of carbon shares (10). In France the deposit and consignment office (Caisse des déépôôts et consignations) is responsible for maintaining the national register of quotas and managing the European Carbon Fund, which it took the precaution of placing in a Luxemburg-based Sicav (investment fund with variable capital). It doesn’t take a genius to work out why CDMs are proving so popular. Equipment and labour costs mean that an investment of $120 is required to save a tonne of CO2in Europe, compared with just $5 in China (11). Unsurprisingly, companies in industrialised countries would rather go to China to invest in emissions-saving economic activities. Moreover, pouring public money into carbon funds allows states to offer secret aid to the companies that are the ultimate beneficiaries of the newly created quotas. Some analysts believe that between now and 2012 CDM projects could generate new quotas equivalent to the accumulated greenhouse gas emissions of Canada, France, Spain and Switzerland. In 2006 more than 40% of the global carbon market consisted of CERs (12), some of which had been improperly allocated to inappropriate projects. The beneficiaries were the countries that investors found most attractive. According to the World Bank, China and India hosted hundreds of projects and accounted for 73% of CERs. Africa hosted little more than 30 projects, with 80% of credits concentrated in three countries: South Africa, Egypt and Tunisia. This is a far cry from the pious talk in official publications of environmental protection, technology transfer and sustainable development. Apart from the cynicism of big companies, the general atmosphere on the markets associated with climate change is reminiscent of the internet boom. A vast speculative bubble is forming around processes that save

CO2and generate valuable quotas. The French company Areva fought unsuccessfully for several months against the Indian group Suzlon to acquire the leading German wind turbine manufacture REpower, which at the beginning of April 2007 was worth 100 times its 2006 trading profit of $18m. The stockmarket flotation of Electricitéé de France’s environmental subsidiary succeeded beyond its wildest dreams: in less than 90 minutes shares put on 20% and the valuation at the end of the day had risen to six times turnover. When a series of scandals left another French company, Rhodia, on the verge of liquidation, it took a gamble on carbon. In 2005 it announced that it was spending $20m to renovate two factories, one in South Korea, the other in Brazil – a process that would yield 77m tonnes of carbon credits, worth $300m a year! The company’s shares leapt 14% in an hour. Business banks like Lehman Brothers and reinsurers like Swiss Re are starting to tempt investors into carbon finance (13). And this is just the beginning of a speculative process whose dangers are self-evident. International negotiations for the period after 2012 already look very alarming, with those involved apparently prepared to make any concession to bring the US on board. The American strategy could be to replace absolute emission reduction targets either with non-binding conditions or with goals expressed in “carbon intensity”, a measure of the CO2content of growth. In the latter case, the reference would be the amount of CO2emitted per point of GDP, which would make policies to combat climate change purely ornamental. Time is short and the warnings sounded by some ecologists do not encourage awareness. When Dominique Voynet, France’s former environment minister, suggests that “the mistake has been to believe that emissions trading was a liberal mechanism” (14), or when the Green MEP Alain Lipietz congratulates himself upon the system of negotiable permits (15), there is a danger of justifying the unjustifiable. Any effective solution involves questioning the systems of production and the rules of international trade, for example by introducing new customs duties on the energy and carbon content of imported products. Such a framework would be the opposite of protectionism, since revenues could be used to establish genuinely sustainable projects in developing countries. Such a mixed carbon/energy tax could also be applied to domestic industrial activity. In this case, half of receipts could go towards the

national budget and support ambitious environmental public policies. The other half could be invested in helping individual businesses to reduce emissions. An effective package of public subsidies would complete the mechanism. In other words, we should respond to Coase and the environmental crisis by reinventing Pigou. TRANSLATED BY DONALD HOUNAM

(1) Arthur Cecil Pigou, The Economics of Welfare, republished in two volumes, Cosimo, New York, 2006. (2) Ronald Coase, “The Problem of Social Cost”, Journal of Law and Economics, 3, Chicago, 1960. (3) Dennis L Meadows et al, The Limits to Growth, Universe Books, New York, 1972. An abstract can be downloaded from (4) Olivier Godard, “L’expéérience amééricaine des permis néégociables”, Economie Internationale, CEPII, no 82, Paris, 2000. (5) Pierre Cornut, “Le carbon lobby et le Protocole de Kyoto”, Le Courrier de la Planèète, no 72, Montpellier, July 2004. (6) The difference between 5.2 and 4.8 is 0.4. An 0·4% reduction applied to 40% of emissions is 0.4 x (40 ÷100), which makes 0.16 of worldwide greenhouse gas emissions. (7) Annex B lists states that have made reduction commitments; it relates only to countries from the Organisation of Economic Cooperation and Development (OECD), and east European countries in “transition to a market economy”. (8) The Kyoto Protocol targets six greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6). Since CO2is the most significant contributor to the greenhouse effect it has been made the unit of reference, and emissions of the other five gases are expressed as CO2equivalents. (9) In a forward transaction, money does not actually change hands until some agreed future date, at an exchange rate agreed now. (10) At the end of July 2007 the World Bank was managing 11 carbon funds worth a total of $2.23bn. The average contribution of governments is about 50%. (11) See Annie Valléée, Economie de l’environnement, Seuil, Paris, 2002. (12) Karan Capoor, Philippe Ambrosi, “State and trends of the carbon market 2007”, World Bank, Washington DC, May 2007; The figure given relates to exchanges expressed in tonnes of CO2. (13) In 2007 Lehman Brothers (New York) published a report by John Llewellyn, “The business of climate change: Challenges and opportunities”. This was updated in September. See (14) See the round table “Climat, éénergies: et maintenant?”, (15)

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