Problems with the Global Carbon Market

           After the signing of the Kyoto Protocol, there are a lot of concerns about whether the protocol truly works for lowering the emission of makes the situation even worse. The key issues with the carbon market are how can we define the owners, products and modes of ownerships, when countries selling and buying emission credits from others. Lohmann talks about that the objects of accounting are difficult to choose, besides the ways to count and what should not be counted with the process of establishing the ownership. In his paper, he talks about the failures of the carbon market system.

(Source: http://www.worldbank.org/depweb/english/beyond/global/chapter14.html)

            The Kyoto Protocol “translate public concern about climate change into greenhouse gas emissions permit and credit prices. The earth’s carbon dump would gradually be made economically scarce through limits on its use imposed by states. A market would be built for the new resource by creating and distributing tradable legal rights to it. Bargaining would then generate a price that would reflect the value society placed on carbon dump use and ‘denote the financial reward paid to reduce …emissions’. Emitters who found ways of using the dump more efficiently could profit by selling their unused rights in it to more backward producers. Emitters could also develop new dumps. The market would ‘help society find and move along the least-cost pollution-reduction supply curve’ (Sandor et al., 2002, p. 57)” (Lohmann, 205).

He gave three study cases regarding of how people fail to frame the market in South America, South African and East Asia. The common points of these places are that they are new places of dumping carbon; these places are less developed countries and the level of acknowledgement on potential threats is extremely low. The result of these features is that the process of development is much slower than the expecting level due to inequality of getting other goods at the local level, comparing with developed countries.

For lowering carbon emission, the global carbon market is a great beginning to start with, though more supervision on every member and more details on regulations are needed. It is crucial to start fix problems instead of neglecting them. For a protocol that needed globally cooperation, there are a lot of issues that need to figure out, such as “Sellers and buyers have to be identified and isolated by simplifying attributions of causality or responsibility and developing instruments of ownership. The displacements and institutions needed for running the system—negotiating arenas, legal processes, communication mechanisms, measuring instruments, police—are formatted as ‘transaction costs’ (Coase, 1937), which are then minimized, and foundations laid for securities and commodities exchanges as well as futures and options markets.” (Lohmann, 210)

The very first thing is to quantify industrial emission of carbon dioxide when trading the emission quota as a commodity. This procedure requires vast amounts investments on measuring infrastructures. How to split the costs for that is crucial, especially most people think that the global north should take more responsibilities than global south, where more poor countries are located. Will the developed countries willing to spend extra money on lowering carbon emission, when most of them are struggling with getting off from economic crisis? There are six gases that mentioned in the Kyoto Protocol: CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride (Wara, 595), but the whole market system only concentrated on the emission of carbon dioxide. Further improvements may need to focus on the other five gases’ emission.

Reference: 

Lohmann, Larry. "Marketing and Making Carbon Dumps: Commodification, Calculation and Counterfactuals in Climate Change Mitigation." Science as Culture 14.3 (2005): 203-35. Print.

Wara, Michael. "Is the Global Carbon Market Working?" Nature 445.7128 (2007): 595-96. Print.