In the battle against climate change, carbon trading is not efficient, ethical or fair

Carbon trading is often hailed as the perfect solution to the problem of incessantly rising emissions around the world.

For more than two decades, businesses and governments, as well as many environmental organizations, have welcomed the idea of letting markets impose a financial penalty on polluting companies. This is done by setting a quota for an acceptable annual level of carbon emissions for the industries in a country. Each business is then given a set amount of “carbon credits” and if it exceeds this emissions limit, it has to purchase extra credits from other businesses in the same country or elsewhere in the world. The more businesses that exceed their quotas and have to buy credits, the higher it drives the price of credits, forcing polluters to pay heftier penalties.

The system sounds perfect — in theory. Unfortunately, in practice this approach of letting the markets fix a price for carbon emissions has been a huge flop. Carbon markets have been available for more than two decades but nowhere do they properly serve their purpose. Not only is there too little activity on the global, regional, national and local carbon-trading marketplaces, but the price that most polluters pay for excessive carbon emissions has remained ridiculously low. It stands at about $5 per ton in most nations, while a minimum price of $80 per ton is needed for companies to start to feel the pinch for polluting.

As a result, most countries have pitifully little to show for their carbon-pricing mechanisms. In 2018, for example, the governments of the world raised a measly $44 billion in carbon-trading revenues. This represents a minuscule 0.05 percent of the total global GDP of nearly $85 trillion.

Another key issue with carbon-related revenue is that a large chunk of it comes from the indirect taxes that governments impose on consumers, most notably by increasing consumer taxes on fossil fuels and electricity. These increases have the admirable purpose of helping to cut carbon emissions, but they attempt to tackle the problem at the wrong end of the business by hurting the weakest link in the chain: The ordinary customers. Many families are fighting to stay afloat; the benefits of the economic boom of the past two decades has failed to trickle down to benefit them, while an overwhelming chunk of wealth has gone to a tiny minority of high earners, leading to a rapid growth in financial inequality.

The only way to save the environment is by forcing businesses to dramatically cut their emissions, not by allowing them to find ridiculous loopholes through which they can gamble with human lives just to earn a few extra dollars.

Ranvir Nayar

But ordinary citizens are not always silent spectators. The “Yellow Vest” movement, for example, began when French President Emmanuel Macron announced increases to taxes on fossil fuel, already a very heavily taxed product. Faced with weeks of public protests, he was forced to rethink his plans. He could have saved himself a lot of trouble had he tried to target the other end of the business: The top instead of the bottom.

Taxing citizens unfairly while letting businesses off lightly is not the only ethical problem with carbon trading. The bigger, much more worrying issue is when businesses in rich countries buy carbon credits from less wealthy nations. This flow, which is uniformly one-way, allows developed economies to buy the right to pollute from poor countries that do not have adequate industrial development or where carbon credits are priced, like everything else, at a fraction of what they would cost in the developed world.

A few companies in developing nations, such as Gujarat Fluorochemicals Limited in India, have profited hugely from selling carbon credits to European polluters. This has not resulted in any cuts to emissions in India or the EU.

The EU has said that such deals lack environmental integrity, but this is a particular mild way to call out something that is downright cheating, if not a crime. Attracted by the billions of dollars that can be made, the global carbon markets have become a hotbed of corruption, fueled by a complete lack of transparency. Consultants, brokers, policymakers and NGOs continue to enrich themselves in a system with very little independent or democratic oversight.

Letting businesses control the carbon market is a repetition of a long-standing problem affecting another aspect of pollution: Rich countries dumping their waste in landfills in poor countries. Through carbon trading, we might be setting up the perfect channels that allow businesses in rich and middle-income countries to continue to pollute with impunity, while paying a pittance for the right to do so. Meanwhile, ordinary people around the world, in particular those in poor countries, continue to pay with their health, or even their lives, a hefty price for climate change and rising air pollution.

Global businesses and carbon-trading supporters should put a dollar value on these lives. The only way to save the environment is by forcing businesses to dramatically cut their emissions, not by allowing them to find ridiculous loopholes through which they can gamble with human lives just to earn a few extra dollars.

• Ranvir S. Nayar is the editor of Media India Group, a global platform based in Europe and India that encompasses publishing, communication and consultation services.