PHONEY REDUCTIONS
The evidence of how well tradeable pollution rights have worked in practice is mixed. While proponents claim that a given environmental standard can be met for much less cost than by using legislation, opponents argue that the environment benefits little from such schemes.
This is because the emissions reductions that are bought and sold are often phoney.LA Rule 1610
Rule 1610 was introduced in Los Angeles in 1993. It enabled companies to offset their emissions by reducing emissions from mobile sources. This could be done by:
• reducing emissions from vehicles through repairs or retrofitting
• purchasing low-emission vehicles
• scrapping old, high-emission vehicles
• purchasing low-emission lawn and garden equipment (Drury et al. 1999: 249).
Some 20 000 cars were scrapped under this scheme in the first five years. It was assumed that these cars would otherwise have continued to be driven for three more years, for 4000-5000 miles per year. Companies wanting to increase their allowable emissions paid around $600 for each car scrapped. In fact, many cars that were at the end of their lives and would not or could not have been driven any longer were included in the scheme, although no environmental benefit was gained from their inclusion. Between 100 000 and 200 000 old vehicles were scrapped or abandoned each year anyway, and it was by no means clear that the cars scrapped under Rule 1610 weren't part of this group:
... market forces encourage people who were planning to scrap an old car for its $50 value as scrap metal to obtain $600 for it through the Rule 1610 program instead. This practice is encouraged in Los Angeles because many licensed scrappers are operated jointly with junkyards, where people bring their old cars to be destroyed. While this is rational economic behavior for the car owner, it creates false emission credits.
(Drury et al. 1999: 261-2)Auditors also found that the engines of cars that were supposed to have been scrapped to earn emissions credits were in fact being sold for reuse. Only the car bodies were crushed. This, of course, defeated the purpose of the exercise.
Greenhouse gas emissions trading
The introduction of emissions trading as a mechanism for greenhouse gas reductions has the potential to enable similar phoney reductions. The most obvious is the trading of emissions credits with Russia and other Eastern European countries in economic decline. This has meant that some countries in Eastern Europe, already emitting 30-45 per cent less carbon dioxide than in 1990 because of lowered production, can sell rights to emissions they were not going to make to the USA or Japan in return for hard currency, with no net benefit to the planet (CEO 2000: 13; Pearce 1997). In other words, the reductions that would have occurred without emissions trading are now available to affluent countries to avoid making their own emissions reductions. These are referred to as 'hot air' or 'phantom' emissions reductions.
Companies were given millions of dollars in incentives to take part in the UK's voluntary emission trading scheme. An independent nongovernment group, Environmental Data Services (ENDS), found that three chemical companies, including DuPont, claimed credit for reductions that they had been required to make previously under EU laws. In addition to the millions they got in taxpayer incentives, they made millions from selling the credits they did not deserve. It has been alleged that other companies have also claimed phoney reductions (resulting from plant closures), thus 'securing a baseline against a quot;falsequot; projection of economic activity which exaggerates output and hence emissions' (Bachram 2004: 5).
In New South Wales, Australia, the Greenhouse Abatement Scheme issues certificates to those who reduce greenhouse gas emissions which can then be sold to electricity retailers who have to meet mandatory emissions reductions.
However, a study by researchers at the University of NSW has found that 95 per cent of the certificates issued in the 18 months leading up to June 2004 were for projects established before the introduction of the scheme, and that more than 70 per cent were awarded for emissions reductions that would have occurred anyway. A government spokesman defended the scheme, which is predicted to cost taxpayers some $2 billion over nine years, saying: 'It is not possible to distinguish between production or investment decisions made as a result of the scheme and those that would have been made anyway' (Frew 2005).Carbon offsets
Those claiming credits for carbon offsets under the joint implementation (JI) and clean development mechanism (CDM) schemes must supply a 'brief explanation' of how emissions of greenhouse gases caused by human activity 'are to be reduced by the proposed CDM project activity, including why the emission reductions would not occur in the absence of the proposed project activity' (Pearson amp; Loong 2003).
The company getting the credits is therefore able to 'conjure up huge estimates of the emissions that would be supposedly produced without the company's CDM or JI project'. The company investing in a gas-fired power plant, for example, can argue that the alternative would have been a coal-fired power plant - and there is no onus on the company to prove that the coal-fired plant would have been built, nor that the gas- fired plant would not have been built without the CDM credits. Nor does it matter that a wind farm would have reduced CO2 emissions far more. Using the credits gained with 'imagined' reductions, a company or country can increase their emissions from existing plant in countries that have signed the Kyoto protocol. The benefit to the environment is doubtful, however, since a gas-fired power plant may have been built anyway (Bachram 2004: 4; Lohmann 2004: 29; Pearson amp; Loong 2003).
In some cases projects that are already underway belatedly claim CDM credits, even though it is obvious they would have gone ahead anyway.
An example is the Esti Dam in Panama, which was more than half complete when the Dutch government applied for 3.5 million tonnes of CDM credits for it. Thus CDM credits are being claimed without any genuine emission reductions being made. This non-reduction then allows more emissions in signatory countries than would otherwise have been permitted, in fact diverting funds from genuine reductions to subsidise business as usual (Pearson amp; Loong 2003).The Climate Justice Network (Rising Tide 2005b) points out that transnational companies with operations in developing countries can earn credits from taking measures to reduce emissions that they should have taken anyway: 'An example of a horribly easy emission reduction would be Shell stopping gas flares on the oil fields which have already been poisoning people in the Niger Delta for decades - and actually getting paid for it with emission credits!'
The CDM mechanism also provides a disincentive for governments in poor countries to introduce 'programmes supporting renewables or other climate-friendly projects', as this might disqualify them from receiving CDM funding - since the projects might no longer be seen as additional to what would normally happen without CDM funding: 'There is evidence, for example, that Mexico City has held back several quot;climate-friendly policiesquot; in order not to jeopardise CDM investment'. This means that government policies that would have reduced global greenhouse gas emissions are substituted for by project financing that avoids corresponding emission reductions in affluent nations, so there is no global benefit (Lohmann 2004: 29).
The CDM also provides an incentive for industrial facilities to be designed without pollution controls so that they present an attractive emission-reduction opportunity. It is conceivable, for example, that future landfill dumps could be designed without methane capture in the hope that foreign investors looking for credits would be attracted to pay for the methane capture. On top of this, there is an incentive for governments to not enforce the environmental regulations they do have in order to justify CDM projects: 'some proposed CDM projects are claiming carbon credits simply for obeying the environmental laws of the host country on the grounds that, without the projects, it can be predicted that the law would be violated' (Lohmann 2004: 29).