Carbon Trading. The Writer Examines Term Paper

But the supply far outstrips demand, Europeans are finding. The climate of this marketplace itself is decidedly cloudy. Advance prices have plunged by half.

At this point, one shouldn't portray it as a liquid, vibrant market," said Atle C. Christiansen of PointCarbon, a Norway-based research firm (Climate, 2004).

More than six years after governments negotiated the historic climate accord in Kyoto, Japan, the world is taking only halting steps _ not always forward, never in unison _ to follow through (Climate, 2004).

In fact, the Kyoto treaty itself is not yet in force, since it hasn't been ratified, as required, by industrial countries emitting a total of 55% of "greenhouse gases," such as carbon dioxide, that trap heat in the atmosphere that Earth otherwise would give off.

Russia's expected accession later this year would clear the 55% hurdle. But even a functioning Kyoto agreement would have little impact: Its limited reductions would barely slow the greenhouse buildup, and the biggest emitter, the United States, would remain outside the treaty (Climate, 2004)."

In the meantime scientists keep a watchful, wary eye to the future of carbon trading in the hopes that it will provide much needed relief.

If carbon dioxide had a color, if people saw the sky getting darker, people would have no problem recognizing what's going on," said climatologist David Pierce of San Diego's Scripps Institution of Oceanography.

What's going on is that the world's daily output of man-made carbon dioxide, from burning coal, oil and other fossil fuels, is 11% greater today than a decade ago. Under Kyoto, industrial nations were actually supposed to be cutting back greenhouse gas discharges, to 8% below 1990 levels by the year 2012.

The planet, meanwhile, is warming. Global temperatures rose almost 1 F (almost 0.5 C) from 1981 to 1998, NASA scientists report.

If greenhouse emissions aren't cut back soon, temperatures could rise many degrees more, expanding oceans, causing drought, intensifying storms and altering climate in other predictable and unpredictable ways, say scientists of the U.N.-organized Intergovernmental Panel on Climate Change (Climate, 2004).

As the mercury rose in recent years, so did U.S. political opposition to reducing power-plant and car-exhaust emissions, imposing energy taxes or taking other steps to try to stabilize the atmosphere. Higher energy and other costs would seriously damage the economy, it was said.

Economic analyses ranged widely, from a projected annual cost of $112 per U.S. family to comply with Kyoto, to $2,700 a family, with heavy U.S. job losses. Environmentalists said dire projections didn't factor in the costs _ to coastal states, agriculture and other sectors _ of doing nothing, or the job growth in new energy industries (Climate, 2004).

It is hard to think of a public policy issue that is harder than this one," said American economist Jeffrey D. Sachs, who has studied climate's complexities.

But he and others say any ultimate plan must include "cap-and-trade" _ schemes whereby emissions caps are imposed, and companies that emit less gas than allowed can sell unused allotments to others who overshoot the target. The profit motive is expected to drive efforts and technology to rein in emissions."

Europe put laws into effect that allowed the EU nations to trade carbon through a plan called KYOTO Protocol (Climate, 2004).

Now, whether the treaty takes effect elsewhere or not, Europe must reduce greenhouse emissions overall to 8% below 1990 levels by 2012, via formulas distributing the burden to individual countries. It has made progress, but slowly: Emissions are 2% less than in 1990, thanks largely to big reductions in Germany and Britain (Climate, 2004).

To kick off trading, national governments are allocating carbon dioxide quotas to some 12,000 plants across the continent _ from power plants and oil refineries to paper and cement factories (Climate, 2004).

Those permits and the ability to trade them, as of next Jan. 1, are what will draw company reps and technology salesmen, legal experts and would-be dealers to Cologne for CarbonExpo (Climate, 2004).

As national allocation plans were announced, however, the "hot air" market lost some of its bounce.

Germany's pacesetting plan, in particular, deflated expectations: In its first round, Berlin shaved just 2 million tons off current annual output of 505 million tons of carbon dioxide gas. Following the German lead, other EU governments also drafted lax emissions plans (Climate, 2004).

With hundreds of millions of tons of quotas issued, but relatively little need for anyone to buy them, speculative prices on the carbon market slid by nearly half, from about $16 per ton of CO-2 in January (Climate, 2004)."

As for carbon trading's future, "we have to move one step at a time." And some "encouraging" steps are being taken even on the other side of the Atlantic, she pointed out (Climate, 2004).

Quietly, with the support of both Democratic and Republican governors, 10 states in the U.S. Northeast are developing their own regional "cap-and-trade" plan for power plants and carbon dioxide, to be unveiled in April 2005.

Some see it as a potential "backdoor Kyoto," a seed for U.S. national action _ even for carbon trading between Europe and American states _ in defiance of the Bush administration (Climate, 2004).

In Washington, meanwhile, a frontdoor Kyoto has been offered on the floor of the Senate, where Sens. Joseph Lieberman, D-Conn., and John McCain, R-Ariz., have proposed legislation to cap U.S. greenhouse emissions at 2000 levels by 2010, and create an emissions trading system (Climate, 2004).

Making it a corporate issue

Carbon trading can offer solutions that are longer lasting and more permanent than other options when it comes to saving and preserving world resources.

A potentially controversial report concludes that deals to counteract the carbon emissions of the smokestack industry could benefit more than the environment. It reveals that carbon-trading deals in forestry could sharply reduce poverty among the rural poor, while also providing businesses with an inexpensive way to "off-set" their carbon emissions. The research counters the view that most carbon-trading deals between industry and tree growers in developing countries will have negative environmental and social consequences.

Carbon trading has major benefits to the corporations that participate in the trading. Carbon trading allows the industries in the developed nations that are causing the worldwide emission issues to off set those emissions of carbon dioxide by investing in reforestation projects in underdeveloped nations worldwide.

A recent study concluded that carbon trading is a vital tool in the rebuilding of the forests and their resources. The report argues that carbon projects could potentially recover habitat on millions of hectares of heavily populated forest and farmlands. "This would bring social, economic, and local environmental benefits to hundreds of thousands, and potentially millions, of poor rural people in the developing world," said David Kaimowitz, Director General of CIFOR. "Our report shows for the first time that deals between industry and community tree growers may be one of the least expensive ways for companies to off-set their carbon emissions," said Sara Scherr, Senior Policy Analyst at the Washington, D.C.-based Forest Trends and co-author of the report. "If companies invested in such deals, this could mean a huge number of private sector dollars being invested in poor rural areas."

Experts warn that carbon trading efforts cannot succeed without the efforts of world businesses.

In addition worldwide efforts to allow corporate carbon trading will provide many avenues of environmental protection. These will include:

Make all types of forestry and agroforestry projects with significant benefits for local communities eligible for the Clean Development Mechanism (as long as they also meet rigorous requirements for carbon benefits). For example, draft rules omit forest rehabilitation as an approved activity despite its enormous social benefits and significant carbon-sequestration potential.

Reduce risks for local communities. The rules should require assessments of the social impact of projects to ascertain how local people have benefited or been harmed. National governments will need to protect and formalize land tenure rights of communities, or carbon deals will be riddled with conflict, increasing their financial risk for investors.

Reduce the cost of managing community projects. Private businesses and NGOs can act as intermediaries to combine the carbon offsets produced by multiple farmers or communities and sell them jointly to buyers. For example, in Mexico, a local environmental organization helped to organize 400 small-scale farmers in 20 communities to sequester carbon by planting trees around their crop fields. With the NGO acting as the intermediary, the farmers sold carbon credits equal to 17,000 tons of carbon to the International Federation of Automobiles for between U.S.$10 and $12 per ton of carbon. The CDM rules should make all community-based forestry projects eligible for the low-cost "fast-track" approval process.

Reduce risks and costs for investors. The report notes that there are new players in the carbon-trading field who can simplify deal making and reduce the costs of organizing and marketing community tree-growing projects. For example, industry buyers are now able to.....