Avoiding extinction: Green markets are the answer

Dec 04, 2015, 6:56 PM EST
Source: Mohamed Malik/flickr
Source: Mohamed Malik/flickr
Graciela Chichilnisky is a Professor of Economics and Statistics at Columbia University in New York, as well as the Director of the Columbia Consortium for Risk Management. The views, opinions and positions expressed by the author of this blog are hers alone, and do not necessarily reflect the views, opinions or positions of Blouin News or Louise Blouin Media. This blog is part five of a series. 
What is a green market and why does it matter? A shining example of a green market is the Kyoto Protocol Carbon Market discussed in the last installment of this series, which I introduced in 1997 and became international law in 2005. The E.U. ETS is trading $200 billion annually today and has transferred already $50 billion to developing nations for clean technology private projects that promote sustainable development, and has decreased about 20% of the E.U. emissions since becoming law in 2005.
Another successful example of a green market is the SO2 Market in Chicago Board of Trade that was created about 20 years ago, which is quite different from the carbon market because SO2 concentration is not a “global commons” since it varies city by city while CO2 is the same uniformly all over the planet. There are more green markets in the works. Today the U.N. is exploring markets mechanisms for biodiversity and for watersheds. As in the case of the Kyoto Protocol carbon market, these are markets that would trade rights to use the global commons – the world’s atmosphere, its bodies of water, its biodiversity – and therefore have a deep built-in link between efficiency and equity.
In the carbon market of the Kyoto Protocol, by design, the poor nations are preferentially treated, having more access and more user rights to the global commons (in that case the planet’s atmosphere). This is not the case with SO2 which is a simple “cap and trade” approach as SO2 is not a public good, as was discussed above.
Efficiency with equity is what it’s all about. They are really two sides of the coin. The carbon market provides efficiency with equity. How? Through its Clean Development Mechanism the Kyoto Protocol provides a link between rich and poor nations – the only such link within the Kyoto Protocol -- since poor nations do not have emissions limits under the KP and therefore cannot trade in the carbon market. But developing nations still benefit from the CDM of the carbon market – how so?
Since 2005, when it became international law, the KP carbon market funded US$50 billion in clean technology (CDM) projects in poor nations, and the CDM projects have decreased so far the equivalent of 20% of E.U. emissions. The CDM works as follows:
Private clean technology projects in the soil of a developing nation – such as China, Brazil, India -- that are proven to decrease the emissions of carbon from this nation below its given "U.N. agreed baseline" are awarded “carbon credits” for the amount of carbon that is reduced. Carbon credits are tradable for cash in the carbon market so as to recognize in monetary terms the amount of carbon avoided in those projects, and fill the role of shifting prices in favor of clean technologies. These CDM carbon credits – by law – can be transformed in cash in the KP’s carbon market. This is the role of the carbon market in the CDM, and this is how the KP has provided $50 billion in funding to developing nations since 2005.
The North-South conflict – namely, who should abate first -- puts all this at risk. To move forward in the global negotiations we must overcome the China.U.S. Impasse, which is in an intense form of the same conflict that prevails between rich nations and poor nations as a whole. But is it possible to overcome the North-South divide? Yes, it is. But the interests of the industrial and developing nations are so opposed that once again, we need a two-sided coin. This is the same dual role that the carbon market played in the Kyoto 1997 global negotiations, where it provided market efficiency that the U.S. and the OECD wanted, while limiting only OECD nations emissions, which is what poor nations wanted. This is what I saw then, and by introducing the carbon market into the wording of the KP, I saved the negotiations. Equity and efficiency are the two sides of the coin. We need both.
- Graciela Chichilnisky
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