Editor’s Letter: Carbon Cop-out

Few people would now argue that something needs to be done to arrestand perhaps reversethe growth of emissions that are contributing to global climate change. And as acceptance grows that climate change really is happening and we really are responsible for it, some of the brightest minds in business, finance, technology, government and non-profits are pouring a huge amount of energy into finding solutions.

In our cover story this month, we shine the spotlight on one of the fastest-growing and potentially most beneficial elements of the carbon emissions reduction puzzle: carbon trading. For those who believe the free market can solve any problems, carbon trading is a veritable holy grail. Put a price on carbon emissions, and the market, in its constant search for an efficient equilibrium, will find a way to minimize them. Its an attractive theoryand, for those who are successful in the carbon trading market, a potentially lucrative reality. But does it really work?

The answer to that question is elusive in the extreme. As if the concept of carbon trading were not complex enough already, the implementation of it is even more so. On the evidence available so far, it seems that accurately tracking and evaluating the benefits of carbon trading is next to impossible.

There is no guarantee that the carbon credits being traded are really having an impact on emissions. Sure, the market is growing at a phenomenal rate, but to many of those involved it is just another market, another place where fortunes will be made and lost trading a nebulous commodity. As they try to work out how they will profit from trading carbon emissions on a global scale, the banks and traders involved are in grave danger of losing sight of why the market came into being in the first place.

It may be that this problem is just too complex and too important to be left to the free market to solve. Certainly the initial signs suggest the market will create efficient ways to trade carbon emissions but fail miserably to tackle the sources of those emissions. In the process, a tremendous opportunity to make a real, positive difference is being squandered.

Carbon trading is far from an ideal solution. But this is not an ideal world, and the trading system does have the potential to help drastically reduce emissions. It is up to those involvedthe traders, the companies buying and selling credits, and the civil servants overseeing and regulating the marketto ensure it achieves its aim.