The Financial Express

Climate crisis and the market

| Updated: December 09, 2021 21:41:24

There was a whole variety of activists and campaigners in Glasgow where COP26 took place. All of them were united by the belief that time is running out for Earth and that politicians have to implement effective policies to combat global warming and climate change. 	—DW Photo There was a whole variety of activists and campaigners in Glasgow where COP26 took place. All of them were united by the belief that time is running out for Earth and that politicians have to implement effective policies to combat global warming and climate change. —DW Photo

Early last month marked the 26th round of negotiation or Conference of the Parties  (COP26) to the United Nations Framework Convention on Climate Change (UNFCCC). The summit was held in Glasgow, Scotland and dragged on for two weeks beginning on October 31. The summit was scheduled to end on November 12 but was extended for an extra day.

Emissions of greenhouse gases (GHG) have a global impact, unlike some other forms of pollution. Whether they are emitted in Asia, Africa, Europe or the Americas, they rapidly disperse evenly across the globe. This is the reason why efforts to address climate crisis have been going on through international collaboration and agreement.

Nearly 200 countries attended the meeting and they produced an outcome document called the "Glasgow Climate Pact" on November 13. According to  UN Secretary General Antonio Guterres the document "reflects the interests, the contradictions, and the state of political will in the world today". He further added, "It is an important step, but not enough".

The document in reality  just provided a semblance of progress made in an effort to resolve the global climate crisis. Major rival powers pursued their respective agenda resulting in a half baked document reflecting the lack of agreement even on purely voluntary arrangements to reduce  GHG emissions as agreed in Paris in 2015. The Financial Times in an editorial wrote "more hot air than progress at COP26".

Now the planet Earth is facing  a climate crisis caused by accumulating GHG emissions. It is human activity that is contributing to this GHG emissions along with billions of tons of Carbon dioxide (CO2) into the atmosphere resulting from fossil fuel production and use.  It is to be noted that CO2 makes up the vast majority of GHG emissions.

Neither dire warnings of scientists nor the visible everyday consequences of  extreme weather have fundamentally altered the very pathetic response to the climate crisis. Since the very late eighteenth century, the world has experienced extraordinary but uneven economic growth largely due to the use of fossil fuels. This process of growth based on the use of fossil fuels which caused GHG emissions leading to the current climate crisis. The crisis is coming at us very hard and fast. We  are also losing forests, biodiversity, agricultural land, fisheries at a frightening rate across the whole world. Fresh water shortages and toxic accumulations are reaching at a critical point threatening  sustainable living on this planet.

Also, in particular the low elevation costal zone population in countries like Bangladesh in developing regions are most vulnerable to sea level rise due to global warming. These regions are vulnerable to coastal hazards such as storm surges, coastal erosion and salt water intrusion. Such climate crisis induced hazards will seriously endanger  the economic livelihood of the people in these regions, especially the poor. It is also to be noted that there has been no mention of multinational corporations and national coal and oil companies who are responsible for more than two thirds of global GHG emissions during the Glasgow summit by the mainstream media. Also there was no mention of the role of the US and its war industry's contribution to global warming by continually  waging wars in various parts of the  world since the end of the WWII. The US war industry has created incalculable amounts of carbon dioxide (CO2)  and toxic waste further adding to the environmental degradation.

In fact, the Biden administration aimed to use the summit as part of pushing through its anti-China policy designed to unleash military violence against China. Even the declining days of the US imperial power did not stop President Joe Biden to continue to use the climate summit to achieve the US geo-political and economic objectives. He declared  to "turn the climate crisis into an opportunity to put us on a path not only to compete but to win the economic competition of the 21st century against China and every other country in the world".  Historically, the US and Europe mostly contributed to CO2 emissions accounting for 75 per cent of cumulative CO2 emissions between 1850 and 1990. Therefore, the primary responsibility for reducing the current and future emissions lie with developed countries. However,  since the early 1990s the relative cumulative share of the US and  Europe has declined to little above 50 per cent now.

The reason for the relative decline is  due to  emissions of CO2 from developing countries like China, India and others, growing at a faster rate due to increased levels of economic activity as reflected in these countries GDP growth rates. China now stands as the largest emitter of CO2 accounting for 28 per cent in 2018 while the US was responsible for 15 per cent CO2 emissions in the same year.  But the US still has  one of the highest rates of per capita emissions in the world far ahead of China or India. Bangladesh was responsible for 0.21 per cent of CO2 emissions during the same year.

Although climate crisis mitigation agreements emphasising carbon emission reduction have been reached through international approaches, the policy measures to meet the obligations and objectives set by such agreements are implemented at the national or regional level.

In this regard Article 6 of the Paris agreement provides the foundation for creating a global carbon market to help deliver on emission commitments. The Glasgow pact further strengthens that market based approach to ensure the functioning of the global carbon market.

This market based climate crisis mitigation approach has been described by many as "green capitalism".  The main idea behind market based environmental policies is that the market would be used  to solve the climate crisis. In other words, the cause of the problem ( i.e., the market) to be used as the solution to the problem. Market based instruments of environmental policy involve carbon taxes, emission trading that allows for the tradable permits to pollute, also known as carbon offset.

Advocates of market based approaches believe that environmental policy instruments such as trade of permits to pollute (i.e., carbon offset) could motivate firms to improve their emission levels and could be a new source of government revenue which could be then used to fund public programmes.

A carbon tax sets a price on carbon by designing a tax rate on GHG emissions. Carbon pricing, therefore, frames climate crisis as a market failure rather than as a fundamental system problem. Most market failures are inherent in the  characteristics of the current market system.

The market failure argument emphasises that carbon pricing incetivises firms or actors to seek the lowest cost abatement options for their specific circumstances. As such price on carbon - such as tax or an emission trading permit would internalise the external costs of GHGs.

A market based solution postulates that the primary role of the government is to set the right price and leave the rest to the market. Such an argument does not recognise that climate crisis mitigation policy development arena is highly contested and politicised, making the market also a politically contested area. 

Therefore, carbon pricing strategies are not politically neutral but normative in nature with major distributional consequences. Now if one looks at carbon pricing in developed countries, the political nature of markets becomes very clear.  According to the OECD effective taxes on CO2 from energy varies from EUR 107 per tonne in Switzerland to EUR 2.80 in Mexico. Australia a major producer and exporter coal carbon price is EUR 18. It is estimated that about 80 percent of world emissions right now still have effective zero price on them.

 According to the World Bank, almost a quarter of world GHG emissions are from countries that have a cap on-and-trade system or carbon tax system. There are also concerns that rich countries are foisting green capitalism on developing countries blocking out any other options.

Most of the green initiatives like planting forestry and carbon trading initiatives are market based responses to the climate crisis that rely upon the mitigation strategies in the global South (developing countries) to offset industrial and other polluting activities in the global North (developed countries).

The global carbon market economy incentivises the privatisation and commodification of common land and forest resources in the global South, thereby promoting a new reclonisation process that can be termed as the "new carbon colonialism". Market based approaches are intended to stimulate the optimisation of the market  system rather than transform the system that created climate crisis in the first place. This is akin to having the cause of the problem made into the solution of the problem. Also, many consider that most elements of these approaches are designed as financial instruments which serve the financial industry rather than the environment. Market based environment policies are essentially pro-business with the environmental concerns viewed as secondary to their interests.

While rich nations pushed for market based approaches to the climate crisis or what has been dubbed as green capitalism during the Glasgow summit, Bolivian President Luis Arce warned that true solutions to the planetary emergency require moving beyond capitalism or more green capitalism  to an "alternative model" that centers on living " well together in harmony with Mother Earth". That will require setting environmental standards to preserve Nature and the environment, protect against damage and repair past damages enforced through regulatory instruments.

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