Even the pope gets it – carbon markets won't fix the climate

Pope Francis’s encyclical on the environment has quickly made him one of the world’s most significant figures in the climate debate. His message was notable not just for its acceptance of mainstream climate science but also for its outright rejection of market logic.

Nowhere is this more clear than when he addresses the various emissions trading and carbon offsetting schemes that leave decisions such as whether to phase out coal power in the hands of the market. These “carbon markets”, he said, are a “ploy which permits maintaining the excessive consumption of some countries and sectors”.

If only our politicians were able to see this as clearly as Pope Francis. As we approach the 2015 UN climate conference in Paris, carbon markets just won’t go away – even despite the fact market solutions actively hinder our ability to make serious emissions cuts.

The first round of pre-Paris negotiations in Geneva in February produced a draft negotiating text that is littered with references to new and expanded market mechanisms. The market-based agenda was pushed by negotiators from the EU, US, Japan and Brazil and provoked an optimistic response from financial, fossil fuel and other industry interests at the recent Carbon Expo in Barcelona.

Ahead of Paris, many will ask whether we are in for a repeat of the disastrous Copenhagen climate change conference in 2009. But given the current focus on market-based approaches, it is necessary to look at the record of the carbon markets that formed the basis of the agreement that a Paris deal will replace: the 1997 Kyoto Protocol.

Kyoto was a landmark agreement that bound developed countries to reduce their greenhouse gas emissions by an average of 5% between 2008 and 2012 from 1990 levels. It also included a number of novel market instruments for meeting that goal – one of the most important of which was the Clean Development Mechanism.

It’s about the Clean Development Mechanism, Mr President.Gregorio Borgia / EPA

The CDM allows developed countries to substitute domestic efforts to combat climate change for emissions reductions generated by projects in developing countries. The operators of these projects, which can be anything from wind farms to rubbish dumps, are awarded “carbon credits” for each tonne of carbon they reduce compared to what would otherwise have occurred. The credits are then traded, bought and surrendered by governments that ratified Kyoto, or corporations covered by the EU’s Emissions Trading System, as an alternative to reducing their own emissions.

Paying to export pollution

We have carried out research, recently published in a special carbon offsetting edition of the journal Environment and Planning A, which explores some of the problems with the CDM. We used the Gujarat Fluorochemicals Limited industrial gas destruction facility in Gujarat, India, as a case study – it was the first of more than 7,000 registered CDM projects. Our findings demonstrate why governments should exclude carbon markets from international climate negotiations.

Between 2005 and 2013, the GFL project was awarded more than 55m carbon offset credits for destroying a potent greenhouse gas known as HFC-23, a by-product of the refrigerant gases produced by the factory. Sales of the credits proved to be extremely lucrative for the company, bringing in more than half a billion US dollars and generating business for associated carbon trading industries.

However, local communities surrounding the project weren’t so happy. They claim to have suffered from pollution from the GFL plant for many years and have had to put up resistance. Local villagers, GFL workers and activists from NGOs told us the air, soil and water pollution generated by the plant had harmed their health and agricultural output.

The CDM entrenched and exacerbated these problems as it encouraged the company to maximise the production of refrigerant gases that were causing the pollution in order to destroy HFC-23 and receive as many carbon credits as possible. The company was effectively profiting from local pollution in order to let richer nations of the hook for their own emissions. While working on this article we put these accusations to GFL but the company did not respond.

This perversity benefited the European corporations that purchased the credits but was bad news for the climate. For example, EDF Energy, which made a pro-carbon market submission to the UK’s Energy and Climate Change Committee, surrendered more than 200,000 GFL offset credits. The purchases allowed the company’s fossil fuel power stations in the UK to pollute over their level of allocated by the EU, while at the same time EDF could justify its attempts to cultivate a “green” marketing image, such as sponsoring the 2012 London Olympics as “official sustainability partner”.

Campaigns from NGOs such as Carbon Market Watch and Paryavaran Mitra resulted in the EU banning the use of HFC-23 offsets and the United Nations making some changes to rules governing carbon credits. However, the poor social and ecological impacts of the GFL project were the product of the economic imperatives that underpin carbon markets in general.

Market mayhem

Carbon markets are in fact designed to seek out cheap emissions reductions such as HFC-23 destruction over fundamental structural changes to energy systems away from fossil fuels and towards renewables. Researchers and activists have linked this profit-driven logic to the creative accounting, financial fraud, phantom emissions reductions and polluter subsidies that have riddled carbon markets, arguing they cannot be reformed and should be scrapped.

Further, the negative impacts of CDM offset projects have not been restricted to large industrial projects like HFC-23 destruction, with projects from forestry to biogas and coal to wind, repeatedly being exposed as fuelling local conflicts in developing countries. Expanding protections for local communities and environments beyond the “boutique” schemes currently in place face strong structural barriers because they interfere with the profits of project developers or fossil fuel industries.

As a result, the continuation, expansion or creation of new market mechanisms in the Paris agreement is likely to generate further damaging outcomes at offset projects, mostly in the Global South. At the same time, relying on carbon markets will work against the capacity of governments around the world to end the era of coal, oil and gas.

Policies that benefit the already powerful and harm those most affected by climate change? Nothing could be further from Pope Francis’s message linking climate issues with development and global justice. Perhaps he’ll be the man to finally make inroads with the people that matter, as governments will be faced with a stark choice in Paris: continue with the failed market-based approach or plan a serious transition away from fossil fuels.

Steffen Böhm has received funding from: British Academy, East of England Co-operative Society, Green Light Trust, Swedish Energy Agency and the ESRC, though he writes in a personal capacity.

Gareth Bryant has participated in climate campaigns as a member of Friends of the Earth Australia, AID/WATCH and the NSW Greens but writes in a personal capacity.

Siddhartha Dabhi does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.