Not so long ago (ie. January), I wrote a post on the value versus price misconception. Within it, I came up with a value hierarchy ordered by “necessity for survival”. The first item on the list:
Which is very concerning. Because all we have to do is look at China and remember that the weather does not obey political boundaries. Just because the Chinese have allowed their country to look like this:
…does not mean that the rest of us will never suffer.
And today’s politicians have presented us with the apparent solution of carbon tax credits* under the Kyoto protocol.
I see two problems with this.
Firstly – there is an inherent flaw with the carbon tax credit itself.
A carbon tax credit basically functions as an allowance of carbon emissions (in tonnes) in a particular period. If you put procedures in place to lower your emissions below your allocated credits, you can then sell your excess credits to the factories that are less green. In theory, this sale should offset the cost you incurred to make yourself more green (it functions like a tax break).
And because the credits will trade, presumably on an exchange, we should see some kind of equilibrium occurring. That is – if it is cheaper for me to buy carbon tax credits than it is to buy more-green machinery, then I’ll buy credits. But this will push up the price of the credits (which are limited in supply), while putting downward pressure on the prices of green machinery. Eventually, the price of a carbon tax credit should level out at a point where the cost of the credit is roughly equal to the cost of saving the carbon emission tonnage allowed by that credit.
Again, I see two parts to this problem. If carbon credits are traded on an exchange, there is the risk of speculation. Demand will not be driven by need, but by both the fear of need and the opportunistic anticipation of said fear. Sometimes that will work in the favour of the environment, sometimes it will not.
But more importantly, we should consider what a board will do when faced with this carbon credit story. It will say to itself, I have the following options:
- Accept my carbon credit allocation and spend the money on making myself green;
- Use the money (that I would have spent making myself green) on lobbying for a higher carbon credit allocation; or
- Move the bulk of my operations to a country where there are no carbon credit allocations, and then sell my carbon credits.
For one reason or another, Kyoto effectively doesn’t apply to China (29% of the world’s carbon emissions), the US (16%) or India (6%). Or any of the African and South American countries.
In fact, only 31 countries are actually committed to lowering their Carbon Emissions by 2020 under the protocol. Which made me a little more sympathetic to the American position on ratifying the treaty, because why would they commit to a treaty where their major economic trade partners get the benefit of their decreasing competitiveness?
If the empirical evidence suggests anything – it’s that we’re all a bit doomed if this is our grand strategy. Yes – it’s a start. And I like starts.
But the real change will only come when it becomes difficult to breathe. And at that point, we should all be encouraged. Because here’s an order of events:
- People the world over start developing real breathing problems through the smog.
- Many people die.
- This causes a public outcry, whereby politicians can follow the political will to initiate highly restrictive air pollution regulation.
- Meanwhile, the swathe of death has significantly dampened the demand for products, as well as having removed a significant portion of the workforce.
- Production therefore slows, and the pollution begins to dissipate*.
- The politicians declare their regulation a roaring success.
- But either way – we’re now believers in sustainability – until the next time.
*I’m actually not sure how that happens. Let’s hope that it does – because the alternative makes all of this a bit pointless.