Global warming: Financial Times exposes carbon trading fraud

In a series of articles published in April 2007, the Financial Times described how a "carbon gold rush" has led to the setting up large number of carbon offset trading companies, which act as intermediaries between the buyers and sellers of carbon credits. What it meant in reality was that the polluters in the USA and Europe, and now also in China, could continue to pollute unchecked. [Originally published in edited version on www.socialist.net, 10 May 2007]

A recent investigation by the Financial Times found widespread profiteering and fraud in carbon trading, the main mechanism for greenhouse gas reduction proposed by the Kyoto treaty. Many schemes will produce only limited reductions in greenhouse gases and will have little or no effect on global warming.

This raises a major question mark over the figure of 0.12 percent of global GDP that has been quoted in recent newspaper articles as the cost of reducing greenhouse gases. Carbon trading is a central part of the calculations used to obtain that figure. If carbon trading does not work then the true costs will be dramatically higher.

The USA and Europe have promoted carbon trading as a market solution for the problem of global warming. Companies could offset the effects of their pollution by paying for "carbon credits" in projects elsewhere that would reduce emissions or improve energy efficiency. The carbon credits would be traded on carbon exchanges, and polluters could buy the credits and count them as a reduction of their own pollution.

Several travel agencies, for example, now offer customers the chance to offset the carbon emissions produced by air travel through paying for credits in schemes for energy efficiency. Rolling Stones fans will remember that ticket prices for the 2003 tour were increased to pay for tree planting in Scotland. Yet the Financial Times says that it has found "widespread instances of people and organisations buying useless credits that do not yield any reductions in carbon emissions". Their investigation has exposed this approach as a multi-billion dollar scam which will produce few real benefits - other than massive profits for some of the participants.

In a series of articles published at the end of April, the Financial Times described how a "carbon gold rush" has led to the setting up large number of carbon offset trading companies, which act as intermediaries between the buyers and sellers of carbon credits. By far the largest number of the new carbon trading companies have been established in the UK, and have existed only a few months. Many of these companies have been set up by people with no experience of the carbon trading market. The FT mentions, for example, a company based in Surrey set up by "a surveyor who spotted a gap in the market", or another operation that "offers to make web-sites carbon neutral" and which was set up as an offshoot to a media planning company. Advisors, consultants, traders and other assorted hangers-on have jumped onto the green bandwagon and are lining up for their cut of what is estimated will be a $70 billion business by 2010.

Many of the projects that have been set up will fail to deliver the promised reductions in carbon dioxide. The FT quotes an insider in the market as saying "I would expect that half of the credits would not come through in the end". In many cases credits are being sold for projects that do not exist. The UN encourages independent verification of projects, and maintains a list of recommended verifying companies. Users have warned, however, of serious conflicts of interest when a company sets up a project and is also used to verify the project. An "environmental advisor" working for HSBC was quoted as saying that he found "serious credibility concerns" after evaluating the offsetting market for several months:  "the police, the fraud squad and trading standards need to be looking into this."

The European emissions trading scheme (worth $18 billion in the first nine months of 2006) was also strongly criticised by the Financial Times. The EU issued carbon credits to companies by setting allowed ceilings for pollution. If a company was producing more pollution than allowed by its permit then it could either reduce its pollution or offset it by buying carbon credits; if a company was producing less than allowed by its permit it could sell carbon credits. Yet the first round of permits issued by the EU set such high ceilings for allowed pollution that they led to no overall reduction. This has not prevented the UK Department of the Environment from recommending the scheme, encouraging the sale of credits for emission cuts that exist on paper, or perhaps on the hard drive of some bureaucrat's computer, but nowhere else.

The Financial Times also discovered that of the £215 million of government money used to set up the UK emissions trading scheme a total of £111 million went to only four companies (Ineos Fluor, Invista UK, Rhodia Organique Fine and BP). Ineos Fluor was paid £43 million after ICI, the previous owner of its Cheshire works, had installed an incinerator for £6 million in 1999; the company told the FT it had spent only half of the government money it received on clean-up technology. This company is also profiting at the other end of this lucrative game. It is in partnership with companies selling carbon credits (in India and Korea), using the emission reduction technology developed with the government cash.

Other companies have found they can make money by asking consumers to pay them for cleaning up their own pollution. The chemicals company DuPont has a program which offers people the opportunity to buy carbon credits which come from reduction of refrigerant emissions from one of its plants. The Financial Times article points out that the equipment required to reduce such gases is relatively cheap, and that DuPont "declined to specify its earnings from the project, saying it was at too early a stage to discuss". BP similarly has a program which offers motorists the chance to pay to offset the emissions from their driving, at a price which is approximately 5 times the cost of the credits bought by BP.  Well-meaning individuals may contribute to these programs believing they are doing something to help the environment. In reality they are offering these companies a chance to clean-up in more ways than one.

There is also a chaotic situation amongst the projects that are supposedly being established to reduce emissions. In South Africa for example when a local scheme offered to exchange normal light bulbs for low energy light bulbs (which normally cost four times as much), thousands were handed out, at a rate of as many as ten to 15 per person. "We got a bit suspicious" said one of the organisers. "We wondered if people were going to sell them on. And it's too early to tell if most of the low energy bulbs will be replaced with similar bulbs." The Financial Times cites examples both in India and the UK where projects are being funded to grow trees (that supposedly will cancel carbon dioxide emissions elsewhere) where there is no verification that the trees have actually been planted. The manager of one of the companies involved said "the company did not use an independent verifier because clients just wanted to know they were aiding the environment by planting trees." The Rolling Stones UK tour in 2003 was declared "carbon neutral" by using part of the proceeds to pay for trees to be planted in forestry projects; ticket prices were increased by 15p to cover the cost. Fans were also encouraged to donate £8.50 to plant trees in Scotland. The private company managing the scheme has since been accused of using the fans payment to buy carbon credits in trees that have already been planted or were funded from other sources, such as the Forestry Commission, and that only around 40-45p of the £8.50 payment was being used to plant new trees.

There are serious scientific questions in fact about the benefits of using forestry to offset emissions. The trees must be allowed to grow to maturity to obtain the full benefits (and the emissions reductions for which the finance has been given) and this may not occur. Some scientists have even suggested that planting trees in northern latitudes can actually speed up global warming, as dark forest canopies may trap more heat than the ground they cover.

The proposal to move to bio-fuels as a replacement for oil is another attempt at a short-cut that is fraught with environmental dangers. Supporters claim that by growing crops such as sugar cane, which absorb atmospheric carbon dioxide, there will be no net increase in carbon dioxide when they are burnt. But a recent UN report points out that the massive profits that are on offer has led to a rapid increase in forest clearance in those countries that plan to grow bio-fuels. Amongst other effects this is releasing the carbon stored in the forest trees and will actually lead to an increase in atmospheric carbon dioxide. Small farmers are being forced off their land, food prices are increasing, and famines are possible as a result. The market mechanism is exposed here for what it really is - unplanned and anarchic, with consequences that are the opposite of those intended.

Carbon trading is central to the plans of the major industrialised nations to reduce greenhouse gases, but the evidence shows that it will produce only limited and completely inadequate environmental benefits. Even if that was not the case and the trading schemes worked, the real and fundamental failing of this approach is that the pollution is left unstopped. Factory and power station chimneys would continue to pour ton after ton of carbon dioxide into the atmosphere. The polluters would continue to be able evade the central question, which is the urgent need to stop burning carbon-based fuels. This is the only measure that can have any real effect.

Despite all the glossy ads and press releases, the evidence shows that the owners of the major polluting industries in the USA and Europe, and also now China, are in reality not taking any serious measures to stop global warming.  Carbon trading was supposed to act as an additional cost to industry which would force research and investment in less polluting alternatives. But it is a purely artificial mechanism that requires at the very least the imposition of meaningful emissions targets. The European Union claims that the next phase of its emissions program will have tighter targets than the meaningless targets of its first phase. We will see. In reality the European Union or any national government is powerless to act in the face of the economic strength of the companies that dominate the world economy. The oil companies alone are in a position to break any government that acts against their interest - and at present in the United States have their own representatives right at the heart of the government.  And these are the companies that are responsible for the pollution.

Capitalism has relied on carbon fuels for more than 150 years. Over that period there has been a massive investment in transport, electricity and machinery that depends on those fuels. Without a plan, with only the wonders of the market and their greed for profit to guide them, the capitalists have become locked into this particular form of energy supply. 20 to 30 years ago scientists were aware of the danger of global warming, but their warnings were dismissed, in just the same way that for decades the tobacco companies dismissed the health dangers of smoking. If there had been sufficient investment in alternatives over the last 30 years the problem of global warming could have been avoided. But the capitalist owners of industry preferred instead to use energy produced at a lower cost than is safe to the environment, in order to avoid a reduction in profit. This is nothing more than is to be expected from capitalism. There are many industries - the food and drug industries for example - where the owners routinely cut corners to increase profit, regardless of the cost to the health of workers or consumers. But energy is so central to every aspect of production that the cost cutting here has led to a global threat to life and health.

The consequences of this shortsightedness are now becoming apparent. The recent UN report from the Intergovernmental Panel on Climate Change, a committee of 1200 climate experts from 40 countries, was very clear - "there is a 90% certainty that the burning of fossil fuels and other human activities are driving climate change". There has been a massive rise in the level of carbon dioxide in the atmosphere in the last 150 years. This has in turn lead to a rise in the earth's temperature. An environment and atmosphere that had evolved over hundreds of millions of years, with inbuilt mechanisms for regulating carbon dioxide levels, has been given a massive and sudden jolt. Sea levels are rising and will continue to rise as the ice caps melt, and some of the most densely populated and poorest areas of the world are at risk of major flooding. Massive famines could occur as a result of crop failures caused by changes in weather patterns. And the increased amount of energy in the earth's atmosphere will produce increasingly severe weather, similar to hurricane Katrina or the recent severe tornadoes in the central United States.

The full consequences are in fact impossible to predict. Some scientists have suggested that at a certain point the temperature changes might become irreversible or could even "run away", with ever increasing temperatures leading to a still more rapid increase in temperature and so on.  It is not an exaggeration to say that this places a question mark against the future existence of humanity.

At the heart of the problem is the fact that the capitalist market is reactive, at best adjusting to change only after the event. And the crushing strength now of the giant monopolies distorts the market to such an extent that adjustments, when they do occur, are convulsive and lead to yet further unintended consequences.

On a global scale, companies will take any opportunity to protect themselves and destroy their competitors. It is impossible to imagine that the American and the Chinese capitalists, for example, would ever jointly co-operate to achieve genuine and effective reductions in carbon emissions. In any struggle, the slightest sign of weakness will be attacked by an opponent. If the American capitalists took even the smallest measure that would limit their ability to compete, the Chinese capitalists would exploit their opponents' weakness to the absolute limit - as the American capitalists would do if the situation were reversed. They are in reality both engaged in a vicious struggle for markets, raw materials, spheres of influence - and profit.  Reduction of pollution is not on that agenda.

The capitalists can focus only on the short term, the immediate search for profit. The system itself demands this. Any major polluter that seriously attempted to reduce its pollution would see its share price and profits collapse. Its management would be forced to change direction or lose their jobs. Whatever their individual intentions might be, and despite all their green propaganda, they are locked into a system of production for profit and are forced by the logic of that system to continue to pollute. It is not individual greed, or lack of thought, or madness, that cause them to pollute - although the capitalists have all of those traits in abundance. The capitalist mode of production insists that they pollute.

But perhaps the capitalists will eventually be forced to act, to preserve their system from complete destruction. The fiasco of carbon trading suggests this will be a chaotic response that will be too little and too late. Whilst industry remains in private hands, and is run for the benefit of a tiny handful, what solution can there be other than one that is at the expense of the rest of humanity. There is the risk of a catastrophic impoverishment of the majority of the earth's population, as the capitalists attempt to offload the cost of their own failings onto the backs of the workers and poor of the world. That is the real meaning of the schemes from DuPont and BP that ask consumers to pay for emission cuts.

To mount a serious fight against global warming means to mount a serious fight against capitalism. Any other measures, no matter how well meant, will fail in the face of the implacable opposition of the capitalist class to anything that threatens their privilege and profit. The capitalists have shown by their inaction over the last 30 years that they are incapable of putting right the environmental damage they have caused.  They have shown in fact that capitalism has reached its limits. To provide a safe and clean environment and a long-term future for humanity is beyond it.

In Britain we should demand of a Labour government that as a first step the transport, gas and electricity industries should be re-nationalised and placed under democratic control. Boards of control should be established made up of government representatives, who will ensure the company adheres to the overall national energy policy, together with elected representatives of the workforce and also of the local community. An emergency program of research into energy alternatives and programs for energy efficiency should be initiated, funded by the profit previously paid to the shareholders.

The rail and bus system must be re-nationalised and a thoroughgoing program of investment be started immediately in order to provide a high quality alternative to car usage. Transport of goods by road should be curtailed and freight moved only by the publicly owned and expanded railway network. Other major industries must be nationalised under democratic control on a similar basis in order to provide the resources, both financial and material, for the investment in public transport and the implementation of new technology. Their energy usage should be monitored and controlled to ensure they also conform to the plan. Local environment committees should be established that include the workers in those industries, local residents, local trade unions and consumer groups. They should oversee energy usage in their area, with the authority and the funding needed to stop energy wastage and to ensure that new, cleaner and more efficient technology is introduced.

A socialist government in Britain could make these changes immediately and start the urgent job of replacing carbon-based fuels with clean and safe alternatives. The government can expect to face fierce opposition from the British capitalists and their supporters, plus sabotage and intervention from the capitalist class internationally. The British working class will need to join with their brothers and sisters in the other countries of the world in order to overcome the enormous damage that has been done by capitalism. The global scale of the problem requires a global solution. An integrated plan is needed throughout the world as a whole - a global socialist plan.  Any other proposed solution ignores the reality of capitalism, and the enormous scale of the problem. Either a world socialist plan - or the reduction of humanity to barbarism, and possibly even extinction.

Notes:

1. The Financial Times articles are available at http://www.ft.com/indepth/carbontrading

[Originally published in edited version on www.socialist.net, 10 May 2007]