8JANUARY 2008 Le Monde diplomatique

Should we scrap Kyoto? M ost scientists now agree that unless we limit greenhouse gas emissions,the planet could heat up by between 1.4oC and 5.8oC by the end of the century,with catastrophic consequences. Governments acknowledged the problem by signing the United Nations Framework Convention on Climate Change (UNFCCC) at the second Earth Summit held in Rio de Janeiro in 1992.Since then there have been regular negotiations at both international and national levels. Under the 1997 Kyoto Protocol,the international community accepted the concept of “common but differentiated responsibilities” and agreed targets for reducing greenhouse gas emissions. Thirty industrialised nations signed up;developing countries took part in the negotiations but were exempted from specific reduction goals.Opposition from the planet’s leading polluter,the United States,which was required to reduce emissions by 7%,delayed the implementation of the protocol until February 2005.But 168 states have now ratified it – an indication of its importance. But as new economic powers like China and India emerge,energy use continues to increase.More than ever,looking beyond the Kyoto Protocol,the campaign to combat wastage,to increase energy efficiency and to replace fossil fuels with renewable resources is absolutely crucial. The first phase of the Kyoto Protocol is due to end soon,in 2012. The aim of December’s Bali conference was to set an agenda for negotiations on a global agreement on new methods of application to extend Kyoto beyond 2012.But contradictions remain.Developing countries from the Group of 77 have reminded the industrialised nations of their historic responsibility and want them to lead the way in cutting pollution.In September President George Bush organised a meeting of the world’s 17 leading polluters in Washington,at the end of which the US administration maintained its opposition to mandatory limits on carbon output.In a more positive development,China gave its support to the protocol as “the basis for any future international agreement on climate change”. Although it is inconceivable that there should be no agreement to cover the period after 2012,it would be stupid to regard Kyoto as the miracle solution. The protocol’s positive achievements are undermined by perverse effects.Some of its “flexible mechanisms” do nothing to help the structural reduction of carbon dioxide (CO2) emissions.While defending Kyoto,we must also ask some very serious questions.

BY AURÉÉLIEN BERNIER The concept of environmental taxes dates back to 1920, when the British economist Arthur Cecil Pigou outlined the concept of “externality”: the impact upon an uninvolved party of any act of production or consumption (1). He described how hot cinders from steam locomotives could set fire to land alongside the railway tracks. Pigou suggested that a tax on such damage, imposed on the railway companies, would act as an incentive to stop cinders from escaping. This argument is the basis of the principle that the polluter should pay. Forty years later another British economist, Ronald Coase, insisted it would be better to leave the market to itself since state intervention would generate transaction costs (2). The best economic result would be obtained if the victims of trackside fires negotiated directly with the railway companies, which could resolve the problem by owning the adjacent land themselves. The Coase Theorem states that the assignment of rights is economically meaningless: it is unhelpful for the owner of the adjacent land to have a right not to be the victim of fires, or for the company to have the right to cause them. Nevertheless, in 1970 the US government responded to chronic atmospheric pollution by extending an earlier Clean Air Act to impose strict limits. Two years later the Club of Rome, a global think tank, published a report, “The Limits to Growth” (3), that warned of a catastrophic future if the human race failed to take account of the environmental dimension. A correlation was suggested between the concentration of CO2in the atmosphere and climate change; discussions on the greenhouse effect became increasingly common. But when US industry failed to respect the Clean Air Act, the government reacted by weakening the act’s provisions. In 1990 it introduced a system of emissions trading that fixed targets for reducing the sulphur dioxide (SO2) emissions that are responsible for acid rain. This initially awarded 110 heavy polluters permits to emit SO2, then allowed them to trade these rights on a free market. The hope was that improvements would occur first where the investment costs involved were lowest, and that the surplus authorisations thus generated would be sold to plants emitting more pollution than they had been allocated. Heavy fines would be imposed upon any company whose actual SO2emissions exceeded its annual allocation. This system apparently respected Coase’s prescriptions by letting the market operate freely. The Acid Rain programme was successful: the target of a 40% reduction in SO2emissions compared with 1980 was met and even exceeded. But this dramatic fall was largely due to the fact that many polluters cleaned up their act in anticipation of ongoing regulation and limits, and that the coal industry developed competitive low-sulphur products. The impact of market trading was marginal (4). Anyway, there were serious secondary consequences: because the new coal generated less heat, more had to be burned, which inevitably increased emissions of another pollutant, CO2. But disciples of state non-intervention drew a single conclusion: the market in quotas had worked and must therefore be extended. The Intergovernmental Panel on Climate Change (IPCC) was set up in 1988 to warn of the consequences of global warming. In 1992 the United Nations Framework Convention on Climate Change (UNFCCC) was presented for ratification, and was welcomed by most countries. Its stated objective was “to achieve stabilisation of greenhouse gas concentrations in the atmosphere”. But it failed to set out specific targets or how they should be achieved. Instead it provided for subsequent updates: the most important was the Kyoto Protocol for which negotiations began in December 1997. Since the UN’s framework required unanimity, the battle between industrialised and developing countries was fierce. It was four years before the legal framework was settled by the Marrakesh accords of November 2001. The US withdrew from Kyoto after the Senate voted unanimously against ratification. This limited the protocol’s scope to 40% of global greenhouse gas emissions. So the commitment to reduce emissions to 5.2% below 1990 levels by 2012 actually represents only a 2% reduction overall. Taking into account the fact that, at the time of the negotiations, emissions had alreadyfallen by 4.8% compared with 1990 (5), the real target falls to a reduction of 0.16% in the quantity of greenhouse gases released into the atmosphere (6)! This figure is so pathetic, given the stakes, that has it never appeared in any official publication. Meanwhile the lobby of major polluters has managed to secure a number of profitable “flexibility” mechanisms. The first is the muchpublicised market in negotiable emissions permits, demanded by the United States on the pretence that its SO2experiment was successful, despite the difference in scale and the fact that the Kyoto Protocol is not based upon any shared regulatory framework. For the states that signed up to Annex B of the protocol (7), it is rather like the beginning of a game of Monopoly: each must allocate CO2emission rights to its most polluting installations (8). Governments do not, of course, stoop so low as to charge industry for these handouts, even though the resulting revenues would fund ambitious pro-environmental policies. These free allocations constitute a “right to pollute”, which assumes that the environment belongs by default to those who are damaging it. Once it has received its carbon credits a company has only to match

Auréélien Bernier is the author of Les OGM en guerre contre la sociéété éand co-author,with Michel Gicquel,of Transgéénial!,both published by ATTAC/Mille et une nuits,Paris,2005 and 2006 respectively

CORPORATES HUNT FOR PROFITSAST

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the quantity of CO2it actually emits with its quota. This is a simple accounting operation. Annual emissions represent a liability that must be balanced against the initial credit, which can be increased by purchases and reduced by sales. Signatories to the protocol can also exchange allocations by carrying out projects that economise on greenhouse gases: wind farms, methane capture, alternative fuels, tree planting etc. Under “joint implementation” (JI) one “host” country can, for example, plant trees and sell the resulting “emission reduction units” (ERUs) to another. Developing countries, led by Brazil, secured a concession whereby states that do not appear inAnnex B can also host such projects, in order to attract foreign capital. Since the host country has no commitment under the protocol, the resulting creation of “certified emissions reductions” (CERs) actually increases the amount of carbon currency circulating on the global market. The UN does not charge for CERs, and investors can either use them to meet their Kyoto commitments or sell them on the market like state-allocated quotas. These ingenious “clean development mechanisms” (CDMs) prevent any possible shortage of quotas; their supply can be increased as necessary. Parties can extend these mechanisms to sectors not covered by the allocation of quotas. In spring 2007 the French government established a regulatory framework for domestic projects, allowing private and public sector producers of low emissions to access the carbon market in return for investments that help reduce emissions or absorb CO2. The United Kingdom has gone even further and is currently drawing up legislation to give every adult a personal carbon allowance. This would be credited to a chip card, and the account would be debited every time the holder consumed primary energy – for example by filling up with petrol or settling an electricity bill. Once the account was exhausted, the user would have to pay to recharge the card or buy additional credits on the open market. The European carbon market, launched in 2005, is based on the financial markets. Trading can be conducted either directly, between allocation holders, or on formal CO2exchanges where transactions can be facilitated and secured. Since traders can conduct both cash and forward (9) transactions, carbon trades at two prices: the current “spot”