Spash, Clive L. (2009): The Brave New World of Carbon Trading. Forthcoming in: New Political Economy , Vol. 15, No. 2
Download (179Kb) | Preview
Human induced climate change has become a prominent political issue, at both national and international levels, leading to the search for regulatory ‘solutions’. Emission trading has risen in popularity to become the most broadly favoured government strategy. Carbon permits have then quickly been developed as a serious financial instrument in markets turning over billions of dollars a year. In this paper, I show how the reality of permit market operation is far removed from the assumptions of economic theory and the promise of saving resources by efficiently allocating emission reductions. The pervasiveness of Greenhouse Gas emissions, strong uncertainty and complexity combine to prevent economists from substantiating their theoretical claims of cost effectiveness. Corporate power is shown to be a major force affecting emissions market operation and design. The potential for manipulation to achieve financial gain, while showing little regard for environmental or social consequences, is evident as markets have extended internationally and via trading offsets. At the individual level, there is the potential for emissions trading to have undesirable ethical and psychological impacts and to crowd out voluntary actions. I conclude that the focus on such markets is creating a distraction from the need for changing human behaviour, institutions and infrastructure.
|Item Type:||MPRA Paper|
|Original Title:||The Brave New World of Carbon Trading|
|Keywords:||Emissions trading; Climate change|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters; Global Warming
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy
|Depositing User:||Clive L. Spash|
|Date Deposited:||11. Dec 2009 08:30|
|Last Modified:||11. Feb 2013 20:04|
Andreoni, J. (1989) Giving with impure altruism: Application to charity and Ricardian equivalence. Journal of Political Economy 97(6).
Australian Government (2008a) Carbon Reduction Scheme: Australia's Low Pollution Future, Volume 1. Canberra, Commonwealth of Australia. 435.
Australian Government (2008b) Carbon Reduction Scheme: Australia's Low Pollution Future, Volume 2. Canberra, Commonwealth of Australia. 385.
Benabou, R. and J. Tirole (2002) Self-Confidence and Personal Motivation. Quarterly Journal of Economics 117(3): 871-915.
Benabou, R. and J. Tirole (2006) Incentives and prosocial behaviour. American Economic Review 96(5): 1652-1678.
Bowles, S. (1998) Endogenous preferences: The cultural consequences of markets and other economic institutions. Journal of Economic Literature 36(1): 75-111.
Bowles, S. (2008) Policies designed for self-interested citizens may undermine "the moral sentiments": Evidence from economic experiments. Science 320(5883): 1605-1609.
Bowles, S. and S. H. Hwang (2008) Social preferences and public economics: Mechanism design when social preferences depend on incentives. Journal of Public Economics 92(8-9): 1811-1820.
Butler, W. F. and T. G. Acott (2007) An inquiry concerning the acceptance of intrinsic value theories of Nature. Environmental Values 16(2).
Chapman, D. and N. Khanna (2000) Crying no wolf: Why economists don't worry about climate change and should. Climatic Change 47(3): 225-232.
Chernyaus'ka, L. and F. Gulli (2008) Marginal CO2 cost pass-through under imperfect competition in power markets. Ecological Economics 68: 408-421.
Christiansen, A. C. and J. Wettestad (2003) The EU as a frontrunner on greenhouse gas emissions trading: how did it happen and will the EU succeed? Climate Policy 3(1): 3-18.
Claro, E. (2007) Exchange relationships and the environment: The acceptability of compensation in the siting of wastes disposal facilities. Environmental Values 16(2): 187-208.
Crossley, D. (2008) Tradeable energy efficiency certificates in Australia. Energy Efficiency 1: 276-281.
ECOS (2008) Emissions trading: A view to the national mechanism. ECOS 144: 22-25.
Ekelund, R. B., R. F. Hebert and R. D. Tollison (1992) The economics of sin and redemption: Purgatory as a market-pull innovation? Journal of Economic Behavior & Organization 19(1): 1-15.
European Commission (2001) Proposal for a Directive of the European Parliament and of the Council Establishing a Framework for Greenhouse Gas Emissions Trading within the European Community and Amending Council Directive 96/61/EC, COM(2001)581. Brussels, European Commission.
European Commission (2008) EU Action Against Climate Change: EU Emissions Trading, European Commission. http://ec.europa.eu/environment/climat/pdf/brochures/ets_en.pdf, 6th February, 2008.
Fehr, E. and U. Fischbacher (2002) Why social preferences matter: The impact of non-selfish motives on competition, cooperation and incentives. Economic Journal 112(478): C1-C33.
Frey, B. (1997) Not Just for Money: An Economic Theory of Personal Motivation. Cheltenham: Edward Elgar.
Frey, B. S. (2001) Inspiring economics: Human motivation in political economy. Cheltenham: Edward Elgar.
Frey, B. S. and F. OberholzerGee (1997) The cost of price incentives: An empirical analysis of motivation crowding-out. American Economic Review 87(4): 746-755.
Galbraith, J. K. (2007 ) The New Industrial Estate. Princeton and Oxford: Princeton University Press.
Goodin, R. E. (1994) Selling environmental indulgences. Kyklos 47(4): 573-596.
Grubb, M., C. Azar and U. M. Persson (2005) Allowance allocation in the European emissions trading system: a commentary. Climate Policy 5(1): 127-136.
Grubb, M. and K. Neuhoff (2006) Allocation and competitiveness in the EU emissions trading scheme: Policy overview. Climate Policy 6(1): 7-30.
Grubb, M., C. Vrolijk and D. Brack (1999) The Kyoto Protocol: A Guide and Assessment. London: Earthscan and Royal Institute of International Affairs.
Hause, J. C. (2006) Offsetting behavior and the benefits of safety regulations. Economic Inquiry 44(4): 689-698.
IPART (2008) Compliance and operation of the NSW Greenhouse Gas Reduction Scheme during 2007: Report to Minister. Independent Pricing and Regulatory Tribunal of New South Wales. www.greenhousegas.nsw.gov.au/Documents/syn59.asp.
Kantner, J. (2008) Clean carbon copy not enough for US. Australian Financial Review 12th December.
Lohmann, L. (2006a) Lessons unlearned. Development Dialogue 48(September): 71-218.
Lohmann, L. (2006b) 'Made in the USA': A short history of carbon trading. Development Dialogue 48(September): 31-70.
Lohmann, L. (2006c) Offsets: The fossil economy's new era of conflict. Development Dialogue 48(September): 219-328.
Lord, C. G., L. Ross and M. R. Lepper (1979) Biased assimilation and attitude polarization: The effects of prior theories on subsequently considered evidence. Journal of Personality and Social Psychology 37(11): 2098-2109.
MacGill, I., H. Outhred and K. Nolles (2006) Some design lessons from market-based greenhouse gas regulation in the restructured Australian electricity industry. Energy Policy 34: 11-25.
Macquarie Capital Group Ltd. (2009) Australia's Carbon Pollution teduction Scheme: Looking Behind the Balck and the White. Sydney, Renewable Energy and Climate Change, Macquarie Capital Group Ltd.: 13.
Martinez-Alier, J. (2002) The Environmentalism of the Poor: A Study of Ecological Conflicts and Valuation. Cheltenham: Edward Elgar.
Mialon, H. M. and S. H. Mialon (2005) Sinful indulgences, soft substitutes, and self-control. Applied Economics Letters 12(12): 719-722.
Monbiot, G. (2006) Paying for our sins. The Guardian. Murray, J. and C. Dey (2009) The carbon neutral free for all. International Journal of Greenhouse Gas Control 3(2): 237-248.
Newig, J. (2007) Symbolic environmental legislation and societal self-deception. Environmental Politics 16(2): 276-296.
Parry, M., J. Palutikof, C. Hanson and J. Lowe (2008) Squaring up to reality. Nature Reports Climate Change 2(June): 68-70.
Passey, R., I. MacGill and H. Outhred (2008) The governance challenge for implementing effective market-based climate policies: A case study of The New South Wales Greenhouse Gas Reduction Scheme. Energy Policy 36: 3009-3018.
Revelle, R. and H. E. Suess (1957) Carbon dioxide exchange between atmosphere and ocean, and the question of an increase in atmospheric CO2 during the past decades. Tellus 9(18): 18-27.
Rose, A., B. Stevens, J. Edmonds and M. Wis (1998) International equity and differentiation in global warming policy: An application to tradable emissions permits. Environmental and Resource Economics 12: 25-51.
Skjærseth, J. B. and J. Wettestad (2008) Implementing EU emissions trading: success or failure? International Environmental Agreements 8: 275-290.
Smith, A. (1982 ) The Theory of Moral Sentiments. Indianapolis: Liberty Fund.
Soman, D. (2001) Effects of payment mechanism on spending behavior: The role of rehearsal and immediacy of payments. Journal of Consumer Research 27(4): 460-474.
Spash, C. L. (1994) Double CO2 and beyond: Benefits, costs and compensation. Ecological Economics 10(1): 27-36.
Spash, C. L. (1997) Reconciling different approaches to environmental management. International Journal of Environment and Pollution 7(4): 497-511.
Spash, C. L. (2000a) Ecosystems, contingent valuation and ethics: The case of wetlands re-creation. Ecological Economics 34(2): 195-215.
Spash, C. L. (2000b) Ethical motives and charitable contributions in contingent valuation: Empirical evidence from social psychology and economics. Environmental Values 9(4): 453-479.
Spash, C. L. (2000c) Multiple value expression in contingent valuation: Economics and ethics. Environmental Science & Technology 34(8): 1433-1438.
Spash, C. L. (2002) Greenhouse Economics: Value and Ethics. London: Routledge.
Spash, C. L. (2006) Non-economic motivation for contingent values: Rights and attitudinal beliefs in the willingness to pay for environmental improvements. Land Economics 82(4): 602-622.
Spash, C. L. (2007) The economics of climate change impacts à la Stern: Novel and nuanced or rhetorically restricted? Ecological Economics 63(4): 706-713.
Spash, C. L. and N. Hanley (1995) Preferences, information and biodiversity preservation. Ecological Economics 12(3): 191-208.
Stephens, B. B., K. R. Gurney, P. P. Tans, C. Sweeney, W. Peters, L. Bruhwiler, P. Ciais, M. Ramonet, P. Bousquet, T. Nakazawa, S. Aoki, T. Machida, G. Inoue, N. Vinnichenko, J. Lloyd, A. Jordan, M. Heimann, O. Shibistova, R. L. Langenfelds, L. P. Steele, R. J. Francey and A. S. Denning (2007) Weak northern and strong tropical land carbon uptake from vertical profiles of atmospheric CO2. Science 316(5832): 1732-1735.
Stern, N. (2006) Stern Review on the Economics of Climate Change. London, UK Government Economic Service. www.sternreview.org.uk.
Thaler, R. (1980) Toward a positive theory of consumer choice. Journal of Economic Behavior & Organization 1(1): 39-60.
The Economist (2006) Sins of emission. The Economist 380(8489): 15.
Traynor, T. L. (2003) The impact of safety regulations on externalities. Atlantic Economic Journal 31(1): 62-70.
Vira, B. (2002) Trading with the Enemy? Examining North-South Perspectives in the Climate Change Debate. Economics, Ethics, and the Environmental Policy. D. W. Bromley and J. Paavola. Oxford: Blackwell Publishing: 164-180.
Wettestad, J. (2005) The making of the 2003 EU Emissions Trading Directive: An ultra-quick process due to entrepreneurial proficiency? Global Environmental Politics 5(1).