Research shows carbon markets don’t reduce pollution as much as regulation, yet world governments insist of carbon trading to address global warming

By Marc Jampole

The Spring 2018 issue of Jewish Currents had my latest “Left is right” article that uses the latest research to show that the left position on environmental issues is the correct one: that the government has a role in addressing climate change and that the best way to do so is with regulation and not market solutions.

There are no current plans to post the article on the Jewish Currents website, so I thought I would give you a taste of it in hopes that you will buy the issue to read the whole piece, and maybe even start a subscription. Jewish Currents is a leading left-wing journal of politics and the arts.

Here’s the excerpt:

Instead of regulation, conservatives and even some liberals have proposed letting the market fix what the market broke. Their solution is government-administered markets in which an agency gives or sells a set number of permits (or credits) to emit specific quantities of a pollutant over a specific period of time, requiring polluters to hold permits equal to their emissions. Polluters that want to increase their emissions must buy permits from others willing to sell. In this fantasy, polluters who can reduce emissions most cheaply will sell their permits to heavy polluters, achieving the emission reduction at the lowest cost to society. This solution—called “cap and trade”—is embraced by most governments of the world today and many Democrats, including former president Barack Obama.

Tamra Gilbertson and Oscar Reyes, both of the Carbon Trade Watch/Transnational Institute, demonstrate in Carbon Trading: How It Works and Why It Fails that carbon trading markets are ”a multi-billion dollar scheme whose basic premise is that polluters can pay someone else to clean up their mess so they don’t have to.” For one thing, Gilbertson and Reyes argue, the process of setting emission levels is easily tainted by lobbying and politics, resulting in too many permits issued, and major polluters granted additional revenue streams. Moreover, carbon markets do nothing to speed the transition to solar, wind and other alternatives, but merely manage the use of fossil fuels.

As an article of faith, however, right-wingers believe that simple regulation, be it setting efficiency standards for appliances or assessing fines on companies emitting too much greenhouse gas, stifles the freedom to innovate that they fantasize produces more efficient and higher quality solutions. The reality is that companies will “innovate” to meet a regulation just as readily as they innovate to adapt to any market change. The claim that market-based solutions like emissions trading are “less bureaucratic, less centralized, less coercive, and more supportive of innovation than other forms of regulation does not stand up to scrutiny,” write Gilbertson and Reyes.

Recent history serves as some guide here. Starting in the 1990s, both the U.S. and the European Union decided to combat acid rain by reducing the levels of sulfur dioxide in the air. As stipulated by the Clean Air Act Amendments of 1990, the U.S. established a sulfur dioxide trading scheme, while the European Union instituted a series of strict regulations. Using the cap-and-trade strategy, the U.S. obtained mediocre results, reducing sulfur dioxide emissions by 43.1 percent by the end of 2007. Over the same time span, EU countries reduced emissions by a robust 71%.

Yet nations persist in creating carbon markets. For example, China recently announced it was forming a giant national market to trade credits for the right to emit greenhouse gases; the New York Times noted that the trading plan “is not a sure bet to succeed.”

The conceptual problem with cap-and-trade is that it is a market mechanism meant to fix an inherent flaw in the market: The health and environmental costs of fossil fuel extraction and use are not assessed to the companies involved, but are spread to society. This flaw in the overall market repeats itself in the carbon-trading market because it is inherent in all markets not to consider hidden costs to third parties. Further, the reduction of pollution to the lowest common denominator of money conceals the absolute value of an unpolluted environment not threatened by excessive warming. When we reduce all values and inputs to money, it is easy to neglect the overall objectives of society — e.g., the protection of people, the ending of hunger, the maintenance of a clean, safe, biologically diverse environment. These values are better expressed and pursued through regulations and mandates established by a democratic government than by the “logic” of the marketplace.