Upsetting the Offset - Transnational Institute

Upsetting the Offset
What are Carbon Markets?
The United Nations Framework Convention on Climate Change (UNFCCC),
through the Kyoto Protocol, prepared the ground for establishing a range of
carbon markets. The whole idea behind creating carbon markets is to achieve
maximum possible emissions reductions at the lowest possible cost. 4 This
follows, as Lohmann shows in detail, 5 the nowadays mainstream economic
theory that human behaviour is determined by the relation between rational
ends and scarce resources. So, GHG emissions – that is, pollution – are made
into an economically scarce resource, which is supposed to maximize the
efficiency in which this pollution is reduced on a global basis.
In order to do this, you need to create a market for GHG emissions
reductions, which are called ‘Certified Emissions Reductions’ (CERs) in the case
of the CDM. These CERs can then be traded between countries, companies or
even individuals. The idea is that if somebody in the polluting North cannot
reduce their GHG emissions efficiently – that is, it would cost them too much –
then they could simply buy some CERs from a country or company in the
South which would have a comparative cost advantage in implementing GHG
emissions cuts. For example, one ton of emissions reduction in China is thought
to be equivalent to one ton of emissions reduction in the USA. So, basically the
assumption is that the atmosphere doesn’t care where cuts are made, as long as
the cuts take place. But what is hoped is that carbon markets deliver efficient
emission cuts, because cutting emissions in China might be cheaper (because of
the low cost of labour in that country, for example) than say in the USA. Hence,
by turning GHG emissions into a commodity, ‘efficiency gains’ can be made in
terms of how these emissions are cut at a global level.
The Kyoto Protocol aims to reduce six greenhouse gases (GHG), namely
carbon dioxide, methane, nitrous oxide, sulphur hexafluoride,
hydrofluorocarbons (HFCs), and perfluorocarbons (PFCs). In order to reduce
all of these GHG, they have to be turned into one commodity that can be
traded globally. This is achieved by creating equivalents of greenhouse gases
with respect to carbon dioxide. For instance, 1 ton of HFC-23 is equivalent to
11,700 tons of carbon dioxide. Hence, all greenhouse gases can now be
calculated in terms of the equivalent power to pollute the earth in comparison to
carbon dioxide, or ‘carbon’ in short, and all of these gases – at least this is the
idea – can be cut in an ‘efficient’ way across the globe.
The Kyoto Protocol introduced and legitimized the set up of three market
mechanisms for emissions reduction:
! Emissions Trading (ET)
! Joint Implementation (JI)
! Clean Development Mechanism (CDM)
The first two mechanisms are currently operational only in the developed
countries (Annex I countries), and the CDM allows the developing countries
(non-Annex I) and developed countries to jointly reduce emissions. 6 Now, there
is also something called ‘voluntary carbon offset market’, which is more or less
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