A Critical Conversation on Climate Change ... - Green Choices

lessons unlearned 149based credit market sells is ‘carbon’ or ‘schmarbon.’ Nor does it matterthat no one knows what schmarbon is. In this market, image is assaleable as reality.But if this ‘schmarbon market’ isn’t about climate, then what is it about? Aren’tpeople eventually going to want to know what is being bought and sold?Very likely. To survive for very long, the market will ultimately haveto deal in something more concrete whose quality can be verified. Itwon’t be enough of a guarantee of product quality that buyers and sellersagree to label their commodity ‘carbon’ or ‘emissions reductions’, ifin fact it’s only schmarbon. To put it another way, sooner or later thequality of the image will have to be measured by the reality.George AkerlofAt that point, the project-based credit market begins to run the riskof becoming what economist George Akerlof calls a self-destructing‘lemons market’. 298 In such a market, because the quality of goodscan’t be proved, buyers can neither locate, nor create demand for,quality products, if any exist at all. ‘Lemons’ are loaded onto themarket, and buyers won’t pay the prices demanded by any sellers ofhigher -quality products. Better projects are penalised and bad ‘freeriders’subsidised. Transaction volume and quality both decline, furtherlowering prices and quality in a cumulative process which ultimatelydestroys the market.Notes Francis Sullivan of HSBC, the Hong Kong and ShanghaiBanking Corporation, ‘there is little incentive for a small company,or even a big business’ to spend a lot of time looking for high-qualitycarbon credits ‘when there is a risk of losing credibility and wastingmoney’ due to lack of a credible standard. Sullivan relates that whenHSBC put out a tender for carbon credits in the voluntary market,suppliers came forward with credits with a huge price range betweenusd 3–25 per tonne. ‘If there’s an eight-fold difference in price, youcan’t be talking about the same product,’ Sullivan points out. 299Of course, when sellers can’t verify commodity quality any better thanbuyers, and know it, the situation is even worse. And it’s worse stillwhen not even buyers are concerned about verifiable quality, but onlyabout fulfilling legal commitments at the cheapest possible price.Yet such are the demands of the market – and the self-defeating determinationto ignore logic in order to ‘keep Kyoto going’ – thatconsultancies, UN bodies and technocratic NGOs such as the WorldResources Institute continue relentlessly to try to develop techniquesfor isolating unique, quantifiable counterfactual baselines. 301