Tools to cap, trade and continue (to profit?)

Carbon markets are a nuanced example of the master’s tools trying to solve an intractable problem (climate change) that we can look at with some detail.

Carbon markets are economic tools designed to reduce greenhouse gas emissions by leveraging market forces. They operate on the principle of ‘cap and trade’. Regulators set a cap on total emissions, and companies are issued or buy their ‘emissions allowances’ as a commodity, in an amount that suits their business needs. Essentially, carbon markets engineer supply and demand of CO₂. This should remind you of our neoliberal fisheries model in Week 1!

CO₂ is turned into something that can be traded on a market to help companies make money. Companies that figure out how to reduce their emissions below their allowances can then sell their excess credits to companies that exceed their limits.

This incentivises companies to learn how to lower emissions; over time, the overall allowed cap is lowered, gradually reducing total emissions in the system, as companies innovate away from the increasing imposed costs of carbon.

The Economist does a great job explaining how these carbon markets should work, and why they don’t (from their perspective):

The argument is that carbon price incentives aren’t big enough to change companies’ behaviour, while hinting at other problems outside the market.

These other problems might include the party and identity politics that democracies deal with when elected officials attempt to sustain the market. As an example of this difficulty, Australia had a carbon market (circa 2012) until the next elected government said it didn’t (circa 2014) – and business don’t appreciate changing financial rules for their long-term profit planning.

Even when they are secure, critics point out that carbon markets are rooted in the principles of capitalism, and may inadvertently perpetuate or even exacerbate emissions in certain contexts. The argument is that markets are tools that only know how to build capitalist disparities and alienate land and labour from profits. Specifically, any market solution will create new modes of uneven accumulation and development, shifting pollution out of market areas (Gao et al 2020), and creating legitimisation issues for local stakeholders (Blum 2018).

The worst observed outcomes of using the master’s tools include things like carbon leakage (actors placing pollution outside of markets) or speculative behaviours that ‘pervert’ the market with excess profits and functional failures.

Over time, the effectiveness of solutions like carbon markets is nuanced. It requires policy choices that continually attempt to steer away from the less than ideal outcomes (Skjærseth & Wettestad 2010).

Let’s now step back from the success and failure of carbon markets, and consider how we are defining the problem: as a rather simplistic ‘market’ of rational actors vying for carbon that can be capped and traded. Perhaps we should instead think of it as a much more complex system of ecological, political, and economic forces that combine into a greater whole.

This greater whole does not react to ‘cap and trade’ tools like we might expect a perfect market to. It rides many feedback loops and seems to shift of its own accord. Just like the fisheries example from last week, carbon markets show how ‘solutions’ to complex problems have unintended consequences. Lorde pointed out how this is political: the tools that sustain the system cannot be used to break it apart or shift its outcomes.

Must we then subvert the system, using the tools that it cannot, to break it apart in ways that re-organise both its constituent parts and outcomes?

From the perspective of identity, this type of re-organisation might happen along the lines of business and its associated labour. Consider the political trope that opposition to carbon markets is currently defined through carbon-intensive businesses and their workers (e.g. steelworkers). In the near future these identity patterns might shift to new labour-capital groups differentiated by small carbon footprints (Mildenberger 2020: p. 3).

New intersections of identity politics can reconfigure what is possible in electoral campaigns, which again feeds into changing the system’s potential political outcomes. How might we evoke or foment a community for the low-carbon worker?

Aside from labour, how might energy markets be more directly subverted? Local grids and individualised solar installations might offer paths. However, these small-scale solutions sit aside current larger structures of the carbon economy.

More radical change might look like ‘cap and share’ or ‘cap and dividend’ structures, which flip the carbon trading market on its head (Whyte 2023). Instead of allowing market trading between firms, a cap on total emissions is combined with an equal allocation of emission permits to all citizens. Citizens can then decide to sell their permits directly to polluters (or not).

Here’s a video that explains one iteration:

But does cap and share imagine – and holistically consider – the profit-driven system involved? Where is the weakest link in the chain of its theory of change? What factors might make its ‘simple’ answer much more complex in reality? And more importantly, what are we to do about it?

We’ll continue to explore such questions throughout the week.

Reflect

Consider the following:

• Are carbon markets just master’s tools that keep the carbon-capitalist system up, or can they steer the planet away from disaster?
• Are there viable paths to organise outside capitalism (that work)?
• Is the cap and share video a holistic, system-based understanding of the challenge? How does it consider how identity and community fit in?

Share your thoughts in the comments.

References

_{Blum, M. (2020). The legitimation of contested carbon markets after Paris–empirical insights from market stakeholders. Journal of Environmental Policy and Planning, 22(2), 226–238.}

_{Gao, Y., Li, M., Xue, J., & Liu, Y. (2020). Evaluation of effectiveness of China’s carbon emissions trading scheme in carbon mitigation. Energy Economics, 90.}

_{Mildenberger, M. (2020). Carbon captured: How business and labor control climate politics. MIT Press.}

_{Skjærseth, J. B., & Wettestad, J. (2010). Fixing the EU Emissions Trading System? Understanding the Post-2012 Changes. Global Environmental Politics, 10(4), 101–123.}

_{Whyte, C. (2023). Cap and Share: A Proposal for Achieving a Fair Fossil Fuel Phase-out. Imagining Europe Beyond Growth, 55.}