Block’s Indicator of Sustainable Growth

By Ray Block

The World Bank has estimated that the global trade in greenhouse emissions, which was $64 billion in 2007 is likely to grow to $3 trillion (that is $3,000 billion) by 2020.

The European based carbon consulting group, Point Carbon has made a similar projection out to 2020, with an expected volume of 38 billion tonnes traded, on the assumption that the US begins to participate. The consultants are assuming a carbon price of $78 a tonne, more than double the current price.

The US based carbon consulting group, New Carbon Finance is estimating for the domestic American market alone a 2020 trade of $1 trillion ($1,000 billion), assuming that a carbon price of $40 a tonne would apply as soon as 2015, which would result in increases in electricity prices of about 20 per cent and in gas prices by 10 per cent in inflation adjusted prices.

Fiona Harvey (Financial Times May 23 2008) says that the carbon trade last year was worth about $64 billion, with $50 billion coming from the European Union’s emissions trading scheme, and the rest under the Clean Development Mechanism (CDM) of the UN’s Kyoto protocol.

The CDM allows industrialised countries to invest in emission reduction projects in poorer countries, principally Africa. The EU commission agreed to allow companies within its borders buy CDM credits to help meet their targets under the emissions trading scheme. But long running controversies over the CDM’s environmental integrity have existed since the beginning.

CDM projects from solar panels to systems that capture methane from pig farms are awarded carbon credits for every tonne of carbon dioxide avoided. Fiona Harvey says that the international trade in credits was worth about $14 billion in 2007. In that year, China, the largest manufacturing centre in the world gained most of the CDM carbon credits-73 per cent in fact. The next two largest beneficiaries under CDM in 2007 were Brazil and India, each with a 6 per cent share.

Only around 5 per cent of the carbon emission reduction (CER) credits have been directed to Africa. There is a strong suspicion that projects were getting carbon credits unfairly, in that they would have been developed anyway without the financial benefit of the CDMs, and that they are not being directed to the poorest countries. Mark Gregory of BBC World Service in India (June 4 2008) said that in India, carbon credits had been paid to projects that would have been realised without external funding.

A tightening of the CDM rules by the United Nations now requires that projects entering the scheme have to prove they were additional to projects that would have been developed otherwise.