Financial capitalism will have to play a role in mitigating climate change. But first it must be reformed so that it produces markets that work for society and not the other way around. Until then the application of markets to problems like climate change simply creates more problems.
This blog is about one such example: the European Emissions Trading Scheme (ETS). Designed as a solution to Europe’s need for steep emissions reductions, the ETS has become a net contributor to EU emissions growth. The scheme relies on the market to tell the truth about the value of emissions, and global companies to tell the truth about how much they emit now and plan to emit in a few years. Unsurprisingly it fails on both counts.
The impacts of this are, like all recent financial scandals, invisible but massive. The failure of the ETS means nothing less than a block on Europe making any meaningful contribution to preventing catastrophic climate change. So why has it received almost no coverage? The simple answer is that its dull and endlessly complex. But just as important is the fact that the ETS has not failed by accident but by design; the failure is not an event but a well-executed plan.
It may seem like the recent endless financial scandals make the job of understanding the ETS easier; wall-to-wall news of financial mismanagement and a regulatory system that is at best a failure and at worst a lie should have made us all experts in dysfunctional market theory. Unfortunately, for most, it won’t have, and this is in large part to do with the way these financial scandals have been presented for public consumption. The story goes something this: testosterone-fueled ‘bankers’ take too much risk and receive too much reward and the regulators (governments etc.) are too weak and too stupid to do anything about it until it’s too late.
The idea that market failures are the markets’ fault is, in the case of the ETS and most recent financial scandals, a lie. A lie that is as useful as it is powerful. Whilst its important to understand that our capacity to innovate tends to produce as many Frankenstein’s monsters as it does wind turbines and vaccines for polio this shouldn’t be seen as a never-ending get-out-of-jail-free card. Most of the time market failure results from deliberate, calculated decisions on the part of governments and business to ensure that failure is the only possible outcome.
If we brand the ETS as an example of market failure rather than the deliberate distortion of a market we create two problems for ourselves. First, we make it more difficult to hold the individuals and organizations deliberately distorting the market for financial gain to account. This is why Sandbag, the UK-based ETS campaigners, focuses on exposing how the market is distorted (a massive over-allocation of right-to-emit permits) and who has profited from this distortion. Their map, showing which companies have collected these surplus permits and the potential profits they could yield, is one of the most the most shocking visualizations of corporate corruption I have ever seen. It is, in itself a vindication for the shift Greenpeace, Push Europe and other campaigns have made to a focus on the corporations blocking Europe from fulfilling its global responsibilities.
Second, if we decide to call the market the problem, rather than those deliberately distorting it, then the only solution is to scrap the ETS and start again. This is not necessarily a problem, because, as Friends of the Earth Europe demonstrated in a great report published two years ago, there are serious alternatives to the market-based approach. However the unavoidable political context is one in which carbon markets are expanding, with the ETS set to incorporate Australia by July 2015 and California, China, South Korea and many other in the not-too-distant future.
If we decide to buy the market failure argument and take the logical step of opposing carbon markets in general then we must be certain that this opposition is based on a considered understanding of existing evidence. There is no evidence that carbon markets work and so its right that we oppose any attempt to expand them or to pretend they are always a solution. But unless our arguments and campaigns target the specific reasons for these failures they will fall flat. A global market in carbon will be a reality within this decade and our role is to ensure that the lessons of its failure in Europe are applied. If we fail to do this carbon will become just another commodity subject to the vagaries of a market rigged to produce profit for a few companies at the expense of our future.