Thus far my evaluation of the LCDS has highlighted several features of carbon-trading markets, including what are termed the ‘nuts and bolts’ of the workings of climate exchanges. This has been designed to lead into a general assessment of the role of these markets in combating the problems of global warming and climate change. My aim is to provide readers with enough information to assess for themselves whether carbon markets are truly part of global solutions to the climate problem or whether they contribute to its worsening.
Time-out
At this stage of my assessment of the LCDS I am obliged to take a time-out to address some of the broader issues, which contextualize this ongoing evaluation. The occasion for this is that June is the commemorative month of Walter Rodney’s assassination and I intend to dedicate June’s columns in memory of his legacy for all Guyanese. My decision is guided by the political circumstance that it has been long-standing practice of the PPP/C government, through its spokespersons, to respond to concerns expressed over its policies by directly attacking, ridiculing, and vilifying those who express them. Guyanese know full well the most frequently hurled epithets: “part of an anti-government conspiracy,” “against the development of the Guyanese people,” “mouthpieces for special interests” and indeed much worse. I do not care to repeat the more vile of these, but readers would have noted that those raising concerns over the LCDS have been challenged and denigrated for “failing to understand it”; “not reading it”; or “not educated enough to have an opinion worth listening to.”
My rather extended evaluation of the LCDS is in large measure a response to this challenge. I sincerely believe, as Walter Rodney consistently insisted, in circumstances such as we find ourselves in Guyana information is absolutely essential for empowering those who have doubts about the direction in which the country is heading. One test which I ask every reader to set for himself/herself is to consider that all the topics I have considered so far have been raised in one of the two drafts of the LCDS.
I would even go further and posit that the LCDS is easily the most ambitious public policy proposal of the PPP/C regime. For this reason if no other, it requires intense scrutiny in light of the public policies track-record of the regime. Indeed it could be argued that the importance of the LCDS goes further. The matters surrounding it (global warming and climate change) are arguably the most important, if not also the most contentious, presently engaging the international community. In reality what is at stake is the very survival of life as we know it on Planet Earth because atmospheric pollution now impacts every area of life thereby posing an unprecedented historical threat.
Explosive growth
Although the global carbon market has been recently established, today it is valued at approximately US$150 billion. Its growth has been nothing short of spectacular. At a size of approximately US$11 billion in 2005, it has had a compound annual rate of growth of about 90 per cent since then. Indeed the market value has doubled over two successive years 2006-2007 and 2007-2008.
The bulk of this growth has occurred in the market for emissions allowances, particularly those coming under the European Union (EU) Emissions Trading Scheme. The explosive growth of this market seems, however, to have slowed somewhat due to the 2008-2009 recession. This reduced global economic output, thereby reducing the amount of carbon dioxide emissions and consequently the demand for emissions permits.
The global carbon market saw a marginal decline of 1 per cent in 2009 over 2008. Despite this, however, research firms in the industry are suggesting that after economic recovery during 2010-2011 the market could ultimately reach a value of US$1.2 to 1.5 trillion by 2020. Much of this prediction is based on 1) the continued spectacular performance of European climate exchanges, 2) the vigorous development of other climate exchanges in places like Asia, the USA, Australia, New Zealand, Canada, as well as 3) hopefully, the development of a formal US Federal Government cap-and-trade programme. The US voluntary carbon market was estimated at US$2.5 billion in 2009.
Project-based emissions reduction under both the Clean Development Mechanism (CDM) and the Joint Implementation (JI) suffered particularly from the recent economic recession. The larger of the two schemes (CDM) had both volume and price reductions last year. However, as we shall see in my analysis of the carbon market in coming weeks it has faltered not only because of the economic recession, but also because of a multiplicity of other negative developments, including fraud, corruption, and other increased risks attached to carbon market trading.
Over time prices for carbon offsets have ranged considerably, from US$0.65 per metric ton of carbon dioxide equivalent to more than US$50 per metric ton. The volume-weighted average price in recent years has been US$7.88 per metric ton. Higher prices have also ruled in the compliance, as compared to voluntary markets.
Undoubtedly, the carbon market has been the fastest growing commodity market in the world. Some key players such as Barclays Capital have predicted the carbon market could become in the medium to long-term the world’s largest commodity market and perhaps also the world’s biggest market ever.
Conclusion
In conclusion it should be observed the carbon market has attracted some of the world’s most high profile financial and finance-related firms (Deutsche Bank, Morgan Stanley, Barclays Capital, BNP Paribas, Sumitomo, Kommunal Kredit, JP Morgan Chase, Cantor Fitzgerald and Credit Suisse) as well as a number of high-level officials from multilateral organisations (dealing with carbon issues) who have established private firms, and reportedly as well some leaders of government in rainforest countries who are known to be preparing their entry into the market. Such participation, particularly the latter ones is raising a hornet’s nest of criticism in regard to insider trading, influence peddling, information manipulation, fraud and corruption.
Next week I shall begin assessing the pros and cons of carbon markets in the spirit of Walter Rodney’s trenchant analysis of the plight of the poor and the powerless in the face of the explosive ascendancy of market-based capitalism.
