This House believes that carbon taxing and carbon credits have no substantial effect on global warming
Zainab Lokhandwala
Before we delve into the substantive arguments for and against the motion it is vital to understand the concept, meaning and purpose of carbon taxing and carbon credits. A?carbon tax?is a?Pigovian tax?levied on the?carbon?content of?fuels. It is a form of?carbon pricing. Carbon is present in every hydrocarbon fuel (coal,?petroleum, and?natural gas) and is released as?carbon dioxide?(CO2) when they are burnt. In contrast, non-combustion?energy sources?wind,?sunlight,?hydropower, and?nuclear?do not convert?hydrocarbons?to?CO2.? Carbon taxes offer a potentially?cost-effective?means of reducing greenhouse gas emissions: the imposition of a tax as a preventive measure wherein the polluter pays a tax for crossing a certain threshold of emissions. Pollution becomes a form of financial deterrent; thus one can pollute only as much one can afford.
Carbon credits were developed from the emergence of the Kyoto Protocol in 1997 under the United Nations Framework Convention for Climate Change (UNFCCC). The Kyoto Protocol was a result of commitments made by numerous countries to reduce emissions of green-house gases (GHGs) which are deleterious to the environment. The Inter-governmental Panel for Climate Change (IPCC) released a series of reports in 2007 conclusively proving that anthropogenic (human-induced) emissions of GHGs due to burning of fossil fuels, deforestation, irrational use of resources and unsustainable methods of production of energy was a direct cause of unnatural and accelerated global warming, commonly termed as ?climate change?.
Hence, under the regime of the Kyoto Protocol, developed countries took upon themselves the obligation to reduce emissions in a specific time-frame. Countries which cannot meet their targets under the Protocol, either due lack of technology or means to produce and manage the same, or inability to change a behavioural pattern among its people, have the opportunity to invest in developing countries through the Clean Development Mechanism (CDM) and thus ?offset? their emissions. They could therefore support, for example, renewable energy projects in these developing countries and ?buy? the carbon credits that these projects create as they reduce the developing countries? reliance on fossil fuels. These credits could then be traded between countries. Credits can also be traded between developed countries where one may have oversubscribed on their targets and others have undersubscribed. This is known as the compliance market.
Coming to the debate:
For the motion:
Carbon taxes and credits are neither good for the climate nor for emissions trading. In theory, a great idea for reducing a country?s or company?s emissions. In practice however they have proved impossibly difficult to successfully implement without fraud.
Carbon credits are a type of carbon currency and hence are subject to counterfeit and other kinds of fraud. They are a medium of exchange by which one activity that reduces emissions at a higher cost can be swapped for another that does so at lower cost. But this currency has been watered by forged credits that are very difficult in practice to distinguish from the genuine credits. This generates three risks: fraud on consumers; increased uncertainty about the value of other carbon currencies; and lower public confidence in emissions trading systems. All this puts the viability of using market mechanisms, the lowest-cost solutions to climate change, in political jeopardy. For that reason alone, and despite their potential benefits, we should steer clear of carbon offsets in our climate policy.
Coming to carbon taxes, it suffers from combining a set price for carbon along with a transfer of revenue from industry to government.This, it is argued, guarantees that the tax will not be set at the appropriate level, but will instead be determined by the politics of large-scale revenue transfers.
Another issue with taxes is whether the emissions reductions they bring about actually exist ? that is, the “additionality” of emissions reductions attributable solely to the taxes. Additionality usually requires a comparison of observed emission reductions against an estimate of the emission reductions that would have taken place without the presence of the tax (the emissions “baseline”). The additionality of a carbon tax, in this sense, is difficult to establish because other policies usually will also have impacts on levels of emissions, e.g., subsidies and regulations. (As a case in point, greenhouse gas emissions from British Columbia had fallen 4.5% between 2007 and 2010 following imposition of its carbon tax. However, it is estimated by the government that most of this decrease is, in fact, attributable to an economic recession.) Thus it is extremely difficult to conclusively measure the effect a carbon tax has in a give state of facts.
The characteristic of additionality has surrounded the issue of carbon credits in a similar way. The problem with carbon offsets is that many of them are counterfeit. Offsets allow a company or an individual, rather than reducing their own emissions, to pay for others to do the same. For this trade to work, there has to be some certainty that the purchased reduction represents an actual change in behaviour. How to tell the difference between changed behaviour and the ?anyway? credit is the crux of carbon offset regulation. This is the phenomenon of additionality, which has been the focus of intense debate and controversy since the first carbon offsetting schemes were established. Today, it remains the greatest challenge and the source of most criticisms, including many of my own, regarding the use of carbon offsets. Typically, an offset producer (or project developer as they are called in the business) must produce evidence in the form of a report that argues that the offset it would like to sell is truly an additional reduction.
There are strong incentives to fudge the details in these reports to create additionality, since this is what creates value in the offset. Offsets are created in literally hundreds of countries with different tax and environmental regulations, and business conditions making evaluation of any claim very difficult.
Thus, carbon taxing and credits do not have any substantial impact on climate change.
Against the motion:
Greenhouse gases come from a wide variety of sources. Unlike most pollutants, the main GHG (greenhouse gas)?carbon dioxide?does little damage close to the source of its emission. It disperses around the global atmosphere, where it does its damage to the earth as a whole. This means that, from the atmosphere?s perspective, it really does not matter where, or from what sort of source, the GHGs come. The only issue is reducing the total sum of them.
Reducing GHGs is expensive. Nowhere, in the absence of a price for carbon, is it the economically optimal thing to do, otherwise people would be doing it without needing to be incentivised, regulated or hectored. Some GHG reduction activity, like improving energy efficiency and therefore cutting fuel bills, is surprisingly cheap. Unfortunately, the cheap activities do not make a sizable contribution to the reduction og global warming. Much of the problem we have is the GHG consequences of growth, particularly in developing countries, that has yet to occur. Making that growth low-carbon, rather than retrofitting low-carbon solutions, is on the whole cheaper and yet just as effective.
Carbon taxing and credits make sense because anyone who has an obligation to reduce carbon is going to pay a cost. We need to reduce that cost wherever it can be done without compromising the carbon reduction achieved. The more the cost is reduced, the more likely a given level of carbon reduction ambition?individual, national or global?is going to be regarded as affordable and therefore politically achievable.
One person?s, company?s or country?s range of options may all be comparatively high-cost compared with what is available across the whole world. Since reducing GHGs in one part of the world is exactly as effective as reducing them in another, there is no good reason to limit reduction options to what is on the territory or in the direct control of the individual or country. There is a make or buy decision to be made every time. And that is what carbon credits are all about: deciding to buy rather than make. And the benefits of trade apply to trade in this new commodity, too. Many developing countries have, at least at this point in time, a comparative advantage in producing emissions reductions. It benefits their growth, as well as reducing developed-country costs, if it is their reductions that are bought.
Criticisms to this are only lofty moral ones. Some tend to disapprove in principle of the unequal power game in trade involving developing countries. Others dislike the idea of turning the common property of the environment into private rights. Well these are hardly the focus of the debate. Then there are suspicions of whether the credits are actually properly calculated: do they?particularly the ones in faraway places?actually deliver the emissions reductions they claim? But whether reductions are made at home or abroad, at national economy level or at project level, against past levels or future projections, monitoring, reporting and verification is the same basic issue and needs to be dealt with by painstakingly creating a rulebook. Enormous efforts have gone into developing the UNFCCC national accounting protocols, the Kyoto project mechanisms and the verification schemes used by the various voluntary market certification schemes.
There is a better argument for limiting the amount you emit rather than trading it: if you believe that over time the cost of offsetting is going to go up, and that you are going to have to live in a changed environment where the net price of emissions will increase radically, you should rationally alter your assets and activities to avoid being stranded paying the higher costs. That means that you should start learning to do without emissions-producing activities now, and you should put a limit on the cost-reduction options that you take, so as to be incentivised earlier by the higher average price you will be paying. Offsetting, backed by a flourishing market (which we already have), provides immense flexibility which should be used to keep costs down. Higher costs will mean less emissions reduction, however much we might wish it otherwise.
For undermining the effect of climate change, taxing and offsetting makes the effort go a long way indeed.
Equally, the damage to the earth translates into problems for people all round the earth, whether from sea level rise, increased storm intensities, or changes to rainfall patterns. On the whole everyone suffers, directly or indirectly. So everyone has an interest in contributing to GHG reduction.
