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THIS POST IS A DESCRIPTION OF CARBON CREDITs MARKETS AND THEIR ANOMALOUS FUNCTION IN CLIMATE ACTION. RELATED POSTS: [NET ZERO]  [THE CLIMATE AMBITION FALLACY]  [CLIMATE ACTION FAIL]  

NOTE TO READERS: A HANDS ON WAY OF STUDYING HOW THE CARBON CREDITS MARKET WORKS IS TO VISIT A TRADER. THERE ARE MANY TRADERS ALL AROUND THE WORLD. HERE IS ONE IN NEW ZEALAND CALLED CARBON MATCH.

https://www.carbonmatch.co.nz/

PART-1: ORIGINS OF EMISSIONS TRADING: JOHN DALES, HIS CAP AND TRADE INNOVATION, AND THE ACID RAIN PROGRAM. [SSRN PAPER ON THE ACID RAIN PROGRAM]  & [BLOG POST ON THE ACID RAIN PROGRAM]

Emissions trading is an innovation of the Acid Rain Program of the 1970s.  It iderives from the very different ways that SO2 emission reduction could be achieved. The two primary methods of lowering SO2 emissions from power plants are (1)fuel switching, which increases variable cost with minimal capital investment requirements, and the installation of (2)scrubbers and sulfur plants, that require significant capital investment with a minimal effect on operating costs. In general, the optimal combination of these methods varies among utility firms according to size, location, availability of fuel and technological options, future plans, and management or investor priorities. Also, the cost of cutting emissions in general is likely to vary among power plants according to plant size, level of technological sophistication, and access to technology. Therefore, the cost of meeting command and control regulations varies from firm to firm.

It was in this context that John Dales first proposed that to discover and minimize the marginal cost of aggregate pollution abatement the affected firms should cooperate and work together as a group to cut aggregate emissions of the portfolio of firms and that therefore environmental regulation should address aggregate emissions instead of firm by firm emissions on a command and control basis (Dales, 1968). This idea was first tried by the EPA with the 1977 Amendment to the CAA (EPA, 2001) (Halbert, 1977) and refined into a cap-and-trade emissions trading system called the Acid Rain Program described in Title IV of the 1990 Amendments to the CAA (Popp, 2003) (Waxman, 1991) (Ellerman, 2000). This innovation is recognized as a milestone in environmental regulation.

In the cap-and-trade market of the Acid Rain Program, the EPA issues allowances, or permits to pollute, in units of one million tons of SO2 per year. The sum of the allowances issued for each emission reduction period (ERP) is set to the limit or cap on aggregate emissions from all power generation units in the plan. The aggregate cap is gradually reduced in each subsequent ERP in accordance with a fixed emission reduction schedule for the duration of the plan. The allowances are distributed to the individual units in accordance with unit size measured as the total annual heat production in a defined historical reference period for which both heat production and emissions were measured and are known with some degree of certainty. Emissions at each unit are accurately measured during the ERP. At the end of the ERP each unit pays for its emissions with the allowances it had received at the beginning of the year. Units that do not have enough allowances to pay for their emissions are penalized. This mechanism is the cap component of cap-and-trade.

THE TRADE COMPONENT OF CAP-AND-TRADE is that during the ERP the participating units may trade allowances among themselves or with third parties in a market where clearing prices are determined by bids and asks as in commodities markets with the exception that with a limited number of traders, it is a thin and illiquid market lacking in the power of price discovery enjoyed by deep and liquid commodities markets. Holders of excess allowances, that is, those units that were able to cut emissions more deeply than required, can put their excess allowances up for sale in the emissions trading market at their ask price. Likewise, units that are unable to meet the cap can place buy orders in the emissions market at their bid price. When bids and asks cross the market clears, trades occur, and the marginal price of aggregate emission reduction is thus discovered (Chan, 2012) (Conniff, 2009) (Dales, 1968) (Ellerman A. , 2002).

In this way, emission allowances are traded among the regulated entities and the aggregate emission target is met without forcing each and every unit to cut emissions at the same rate or with the same technology as in command and control regulation. Thereby the overall cost of compliance is lowered to the aggregate marginal cost in accordance with the mechanism described by John Dales (Dales, 1968).There are certain positive features of the market for SO2 emissions that are relevant in its comparison with emerging markets for trading CO2 emissions (Jenkins, 2009). The most important of these is that the regulatory regime of the Acid Rain Program is well defined in terms of geography and legal infrastructure. The regulatory authority of the US Government and the rights and obligations of the regulated utilities are well defined by the constitution and the laws of the United States of America, the powers of the Federal Government, and the provisions of the Clean Air Act and its Amendments in 1970, 1977, and 1990, and Congressional authority that requires the EPA to limit SO2 emissions across state lines. At the same time the rights of the regulated utilities are protected by law and by a well-functioning judiciary. These necessary conditions and assumptions for a functioning emissions trading program does not exist in the AGW carbon trading scheme where the United Nations is in charge but with no legal vested authority or means of enforcement and with the additional complexity created by the UNFCCC that differentiate nations into those with emission reduction obligations and those with no emission reduction obligations but with both classes of nations asked to submit INDCs in the so called Paris “Agreement”.

THE APPLICATION OF THIS JOHN DALES/EPA EMISSION TRADING MODEL TO THE CLIMATE CHANGE ISSUE

The Carbon Credits Market is based on the idea that the success of the EPA emission trading scheme in solving the acid rain problem implies that the same emission trading model of the EPA can be used for reduction of global fossil fuel emissions in the aftermath of the failure of the UN to repeat its Montreal Protocol success in the climate change issue. This proposal is based on the assumption that the global fossil fuel emission reduction plan needed to arrest the rise in global fossil fuel emissions and therefore the rise in global mean surface temperature, has a sufficient correspondence with the acid rain program to repeat the success of the emission trading scheme of the EPA in the climate change issue. This assumption is deeply and comically flawed.

ORIGINS, PROBLEMS AND STRUCTURAL FLAWS

Carbon credits are created by the combination of permits, offsets, and tradability. The permit is permission granted to a country, company or organization to produce a certain amount of emissions any portion of which can then be sold in the carbon credits market if not used. A complexity in the carbon trading scheme is the offset provision. It provides an incentive to firms or countries with no emission reduction obligation to invest in climate action the net effect of which may be sold to countries, firms, or individuals to cancel out a portion of their emissions. This provision is commonly seen in air travel where airlines buy offsets that cancel out the emissions from a flight and then sell the offset to passengers who wish to be carbon neutral.However, unlike the emission trading in the acid rain program, the climate change implementation of what appears to be the same provision is less well defined and vastly more complicated. First, there is no well defined legal superstructure for its regulation and implementation such that the structure and procedures are poorly defined and poorly regulated. Secondly, the emission problem to be solved by emission trading is poorly defined.A specific issue pointed out in [Sovacool, “Four Problems with Global Carbon Markets, Energy & Environment, Vol. 22, No. 6 (2011), pp. 681-694] is non-linearity. As described in related posts on this site, a complexity with the carbon budget is that the remaining carbon budget cannot be computed by subtraction or by linear proportionality but must be recomputed because of the non-linearity of the progression of the carbon budget through the time span of its implementation [LINK] [LINK] . Yet carbon credit trading and carbon offset markets necessarily assume a linear relationship. Therefore the basis of the pricing changes over the time span of the credit but the pricing does not.In “Why are carbon markets failing? The Guardian, Fri 12 Apr 2013, Steffen Böhm, Professor of management and sustainability at Essex Business School points out the absence of government and regulatory oversight with well defined rules and definitions and their enforcement in the emission trading system of the carbon credit market. As pointed out above in the comparison with the Acid Rain Program, although the carbon credit market is derived from a comparison with the Acid Rain Program, the parallel is lacking the the well defined legal and governance superstructure that oversaw and ensured the success of the acid rain program. Dr. Böhm thus describes the carbon credit and offset market as inefficient and corrupt and says that the carbon trading system has failed citing these structural deficiencies as reasons for its failure. The essential problem here, not just in the carbon credits market, but in the entire enterprise for saving the planet with climate action, is that the government, regulatory, legal, and management superstructure is the United Nations which sees itself as the EPA of the world in the comparison with the Acid Rain Program but it is not the EPA and has none of the EPA’s governance and regulatory powers, skills, and ability that made the acid rain program a success. This is the fundamental flaw in the assumed parallel between the acid rain program and the carbon credits market.It is precisely this absence of governance and regulatory oversight that things like the Shell offset story can happen [Shell will spend $300 million to offset carbon emissions. Here’s the catch, By Akshat Rathi, Quartz, April 10, 2019]. Here Mr. Rathi reports that Shell sells carbon offsets to its customers in the Netherlands and uses those proceeds to buy carbon credits at the carbon credits market. If the carbon credits were truly a reduction that could be checked and verified and overseen by a professional body such as the EPA, it may have some validity but what we have is a dysfunctional bureaucracy at the UN as the sole governing and regulatory body of the carbon credits market. This regulatory vacuum also explains the ability of logging companies who plant and harvest trees anyway to sell carbon credits every time they plant. And in terms of climate action carbon budgets, the emission reduction in the books contains carbon credits purchased by Annex1 countries from dubious projects in nonAnnex countries such as the alleged “preservation” of forests that probably would have been there anyway.

THE STATE OF THE CARBON CREDITS MARKET IN 2018: REFINITIV REPORT [LINK]

What Refinitiv does: “This report is our assessment of the major global carbon markets in 2018, the aim being to show the main trends in global emission trading systems and areas where such systems are emerging. We collect data from official sources – most notably carbon trading platforms such as ICE, EEX, KRX, and the Chinese carbon exchanges – and, where relevant, estimate the size of non-market bilateral over-the-counter transactions to estimate the total volume traded.Carbon Credit Trading is Booming: World emission markets grew strongly in 2018, both in volume and in value. Strong growth in traded volumes and price rallies in Europe and North America led to a boom year in emission trading in 2018. Volume increased 45% to 9.1 gigatonnes worth of CO2 equivalents, the highest level since 2013. Thanks largely to the stellar rise in European allowance unit (EUA) prices in 2018, more than tripling from €8 to €25/t, the overall market value increased 250%, to €144 bn, and by far the highest level since the European Union Emission Trading System (EU ETS) was launched in 2005. Since then the EU ETS has represented the lion’s share of global carbon trading. The carbon team at Refinitiv attributes the European price rally mainly to anticipation of the Market Stability Reserve (MSR) that came into effect in January 2019. This instrument will significantly tighten the supply of emission allowances.

THE REFINITIV CARBON CREDITS MARKET REPORT FOR 2020

LINK TO PDF:   [LINK TO LARGE PDF FILE]  

SUMMARY:  THE MARKET VALUE OF THE GLOBAL CARBON CREDITS MARKET GREW 20% IN 2020 TO REACH 229 BILLION EUROS. THE TRADING IS MOSTLY IN EUROPE AMONG THE ADVANCED INDUSTRIALIZED COUNTRIES OF THAT REGION BUT EU AND NON-EU. THE YEAR 2020 IS THE FOURTH CONSECUTIVE YEAR OF RECORD GROWTH. TOTAL MARKET VALUE IS NOW 5X THE VALUE IN 2017. THE EUROPEAN EMISSION TRADING SCHEME (EUETS) ACCOUNTS FOR 90% OF GLOBAL EMISSIONS TRADING VOLUME. THE TOTAL AMOUNT OF EMISSIONS TRADED IN 2020 WAS 10.3 GIGATONNES IN A TOTAL OF 8 BILLION TRADES WITH AN AVERAGE OF 1.3 TONNES PER TRADE.

COMMENTARY: CURRENTLY GLOBAL EMISSIONS ARE MORE THAN 36 GIGATONNES PER YEAR  AND RISING BUT A DECLINE TO 32 GIGATONNES IN 2020 IS ATTRIBUTED TO THE PANDEMIC. THE TOTAL AMOUNT OF EMISSIONS TRADED IN 2020 THUS REPRESENTS ABOUT A THIRD OF GLOBAL FOSSIL FUEL EMISSIONS. IF TRADING IS A METHOD FOR EMISSION REDUCTION IT HAS FAILED BECAUSE NO REDUCTION WAS ACHIEVED. AS SHOWN IN A RELATED POST DESPITE THE EMISSIONS TRADING MARKET, DESPITE THE RAPID GROWTH IN THE INSTALLED CAPACITY OF RENEWABLE ENERGY “CAPACITY”, DESPITE ALL THOSE NET ZERO EFFORTS AT THE NATION STATE LEVEL, AND DESPITE THE EMISSIONS TRADING MARKET, THE NET ACHIEVEMENT OF CLIMATE ACTION HAS BEEN ZERO BECAUSE THE RATE OF RISE IN ATMOSPHERIC CO2 AND THE RATE OF RISE IN GLOBAL MEAN SURFACE TEMPERATURE HAVE CONTINUED  UNABATED.

CONCLUSION: GLOBAL WARMING IS A GLOBAL ISSUE THAT REQUIRES A GLOBALLY COORDINATED EFFORT TO ENFORCE A REDUCTION TO ZERO OF GLOBAL FOSSIL FUEL EMISSIONS. THE ILLOGICAL PROPOSAL WAS THAT SINCE THE UNITED NATIONS WAS ABLE TO PUT TOGETHER A “MONTREAL PROTOCOL” TO GET RID OF GLOBAL CFC EMISSIONS AND SOLVE THE OZONE CRISIS, SO THEREFORE THEY SHOULD BE ABLE  TO PUT TOGETHER A MONTREAL PROTOCOL FOR THE CLIMATE AND GET RID OF GLOBAL FOSSIL FUEL EMISSIONS. THIS ILLOGIC DERIVES FROM THE IMPOSSIBILITY OF EQUATING AN OVERHAUL OF HE WORLD’S ENERGY INFRASTRUCTURE TO A CHANGE IN REFRIGERANT.

THE BOTTOM LINE IS THAT THE UN HAS FAILED TO PUT TOGETHER A MONTREAL PROTOCOL FOR THE CLIMATE. THE DESPERATE MEASURES NOW BEING PROPOSED AS A RESULT ARE EMOTIONAL AND ILLOGICAL. THERE IS NO RELEVANCE HERE FOR AN EMISSIONS TRADING MARKET NOR FOR NET ZERO “AMBITIONS” OF NATION STATES AND THERE IS NO CORRESPONDENCE HERE BETWEEN THE ACID RAIN PROGRAM AND ITS RAPID RESOLUTION MADE POSSIBLE BY THE EMISSION TRADING SCHEME OF THE EPA AND THE CLIMATE CHANGE ISSUE OF THE NEED TO ELIMINATE FOSSIL FUEL EMISSIONS.

WHAT ARE THE LAWS? WHO IS THE REGULATORY AUTHORITY THAT WILL ENFORCE IT? AND HOW WILL NATIONS THAT BUY CREDITS REDEEM THESE CREDITS? WHO IS THE REGULATORY AUTHORITY THAT WILL ISSUE THE PERMIT TO EMIT THAT YOU CAN SELL?

BUYING CARBON CREDITS DOES NOT REDUCE EMISSIONS BUT PROVIDES ONLY A PROMISE TO REDUCE EMISSIONS IN THE FUTURE. THERE IS NO CORRESPONDENCE BETWEEN THE ACID RAIN MANAGED BY THE EPA AND THE GLOBAL EMISSION TRADING PROGRAM MANAGED BY GOD KNOWS WHO.

THE ASSUMPTION BY CLIMATE SCIENCE THAT THE EMISSION TRADING SCHEME OF THE ACID RAIN PROGRAM IS RELEVANT TO THE CLIMATE CHANGE ISSUE HAS NO BASIS.

CARBON CREDITS BIBLIOGRAPHY

1. Sedjo, Roger A., and Gregg Marland. “Inter-trading permanent emissions credits and rented temporary carbon emissions offsets: some issues and alternatives.” Climate Policy 3.4 (2003): 435-444.  Permit trading among polluting parties is now firmly established as a policy tool in a range of environmental policy areas. The Kyoto Protocol accepts the principle that sequestration of carbon in the terrestrial biosphere can be used to offset emissions of carbon from fossil fuel combustion and outlines mechanisms. Although the lack of guaranteed permanence of biological offsets is often viewed as a defect, this paper argues that the absence of guaranteed permanence need not be a fundamental problem. We view carbon emissions as a liability issue. One purpose of an emissions credit system is to provide the emitter with a means to satisfy the carbon liability associated with her firm’s (or country’s) release of carbon into the atmosphere. We have developed and here expand on a rental approach, in which sequestered carbon is explicitly treated as temporary: the emitter temporarily satisfies his liability by temporarily “parking” his liability, for a fee, in a terrestrial carbon reservoir, or “sink,” such as a forest or agricultural soil. Finally, the paper relates the value of permanent and temporary sequestration and argues that both instruments are tradable and have a high degree of substitutability that allows them to interact in markets.
2. Streetman, Foy. “Carbon credit marketing system.” U.S. Patent Application No. 10/753,291. 2005:  A carbon credit system includes a server computer operably connected to an Internet and having an operating system and a memory operably associated therewith, carbon credit software operably disposed in the memory and accessible through said operating system, wherein a carbon credit product or carbon credit service can be purchased through said carbon credit software and which carries a predetermined number of carbon credits and said purchase causes one of a good and service certificate bearing a carbon credit consumer symbol (“CCCP”) to be sent to said purchaser. A method of promoting carbon reduction is provided.
3. Benson, Sally M. “Monitoring carbon dioxide sequestration in deep geological formations for inventory verification and carbon credits.” SPE Annual Technical Conference and Exhibition. Society of Petroleum Engineers, 2006.  Large scale implementation of CO₂ Capture and Storage is under serious consideration by governments and industry around the world. The pressing need to find solutions to the CO₂ problem has spurred significant research and development in both CO₂ capture and storage technologies. Early technical success with the three existing CO₂ storage  projects and over 30 years experience with CO₂-EOR have provided confidence that long term storage is possible in appropriately selected geological storage reservoirs.  Monitoring is one of the key enabling technologies for CO₂ storage. It is expected to serve a number of purposes – from providing information about safety and environmental concerns, to inventory verification for national accounting of greenhouse gas emissions and carbon credit trading. This paper addresses a number of issues related specifically to monitoring for the purpose of inventory accounting and trading carbon credits. First, what information would be needed for the purpose of inventory verification and carbon trading credits? With what precision and detection levels should this information be provided? Second, what monitoring methods and approaches are available? Third, do the instruments and monitoring approaches available today have sufficient resolution and detection levels to meet these needs? Theoretical calculations and field measurements of CO₂ in both the subsurface and atmosphere are used to support the discussions presented here. Finally, outstanding issues and opportunities for improvement are identified.
4. McHale, Melissa R., E. Gregory McPherson, and Ingrid C. Burke. “The potential of urban tree plantings to be cost effective in carbon credit markets.” Urban Forestry & Urban Greening 6.1 (2007): 49-60.  Emission trading is considered to be an economically sensitive method for reducing the concentrations of greenhouse gases, particularly carbon dioxide, in the atmosphere. There has been debate about the viability of using urban tree plantings in these markets. The main concern is whether or not urban planting projects can be cost effective options for investors. We compared the cost efficiency of four case studies located in Colorado, and used a model sensitivity analysis to determine what variables most influence cost effectiveness. We believe that some urban tree planting projects in specific locations may be cost effective investments. Our modeling results suggest that carbon assimilation rate, which is mainly a function of growing season length, has the largest influence on cost effectiveness, however resource managers can create more effective projects by minimizing costs, planting large-stature trees, and manipulating a host of other variables that affect energy usage.
5. Laurance, William F. “A new initiative to use carbon trading for tropical forest conservation.” Biotropica 39.1 (2007): 20-24.  I describe a new initiative, led by a coalition of developing nations, to devise a viable mechanism for using carbon trading to protect old‐growth tropical forests. I highlight some of the practical and political hurdles involved in forest‐carbon trading, and explain why this initiative is rapidly gaining broad‐based political support.
6. Laurance, William F. “Can carbon trading save vanishing forests?.” BioScience 58.4 (2008): 286-287. Among the many nasty things that humans are doing to the environment, few rank worse than destroying tropical forests. Rainforests sustain an astonishing diversity of species, and they are vital for keeping our planet livable—they limit soil erosion, reduce floods, maintain natural hydrological cycles, and help to stabilize the climate. Yet around 13 million hectares of tropical forest are destroyed every year—the equivalent of 50 football fields a minute.If we hope to rein in global warming, the last thing we should do is raze tropical forests. Destroying these forests dumps vast quantities of greenhouse gases into the atmosphere—roughly one-fifth of all human carbon emissions, more than the entire global transportation sector. Further, tropical forests, which copiously transpire water vapor into the atmosphere as they photosynthesize, are major drivers of cloud formation. Clouds cool the planet by reflecting solar energy back into space, and they also sustain regional rainfall, which limits destructive forest fires. Undisturbed tropical forests may even be a major carbon sink, according to some studies, with Amazonia alone absorbing perhaps two billion tons of carbon dioxide each year. Hence, saving a hectare of tropical forest does far more to reduce global warming than does saving a hectare of temperate or boreal forest (Bala et al. 2007). In recent years, many scientists have advocated carbon trading as a way to slow tropical deforestation. The idea, known as “REDD” (reducing emissions from deforestation and degradation), is simple in concept. Under international agreements such as the Kyoto Protocol, participating nations agree to reduce their carbon emissions below a certain level. Nations that struggle to meet their emissions target can buy carbon credits from other countries that either have no target (as is currently the case for developing nations) or that produce fewer emissions than allowed. Like any tradable commodity, the price of carbon credits is largely determined by supply and demand. In theory, everyone should win with REDD. Wealthy nations could pay to help slow deforestation as part of an overall effort to meet their emissions target. Protecting an imperiled forest in Peru, for instance, might lead to the same net reduction of carbon emissions—and be considerably cheaper—than retrofitting a coal-fired generating plant in Ohio. In a transaction like this, dangerous carbon emissions are reduced, a biologically rich forest is protected, and Peru gains direly needed foreign revenues. For such reasons several influential studies, such as the widely heralded Stern Report in the United Kingdom, have advocated REDD as a vital and cost-effective strategy for slowing global warming. In any effort to slow harmful climate change, tropical forests are the low-hanging fruit
7. Hurteau, Matthew D., George W. Koch, and Bruce A. Hungate. “Carbon protection and fire risk reduction: toward a full accounting of forest carbon offsets.” Frontiers in Ecology and the Environment 6.9 (2008): 493-498.  Management of forests for carbon uptake is an important tool in the effort to slow the increase in atmospheric CO₂ and global warming. However, some current policies governing forest carbon credits actually promote avoidable CO₂ release and punish actions that would increase long‐term carbon storage. In fire‐prone forests, management that reduces the risk of catastrophic carbon release resulting from stand‐replacing wild‐fire is considered to be a CO₂ source, according to current accounting practices, even though such management may actually increase long‐term carbon storage. Examining four of the largest wildfires in the US in 2002, we found that, for forest land that experienced catastrophic stand‐replacing fire, prior thinning would have reduced CO₂ release from live tree biomass by as much as 98%. Altering carbon accounting practices for forests that have historically experienced frequent, low‐severity fire could provide an incentive for forest managers to reduce the risk of catastrophic fire and associated large carbon release events. (long term versus short term forest management dilemma).
8. Wara, Michael W., and David G. Victor. “A realistic policy on international carbon offsets.” Program on Energy and Sustainable Development Working Paper 74 (2008): 1-24. As the United States designs its strategy for regulating emissions of greenhouse gases, two central issues have emerged. One is how to limit the cost of compliance while still maintaining environmental integrity. The other is how to “engage” developing countries in serious efforts to limit emissions. Industry and economists are rightly concerned about cost control yet have found it difficult to mobilize adequate political support for control mechanisms such as a “safety valve;” they also rightly caution that currently popular ideas such as a Fed-like Carbon Board are not sufficiently fleshed out to reliably play a role akin to a safety valve. Many environmental groups have understandably feared that a safety valve would undercut the environmental effectiveness of any program to limit emissions of greenhouse gases. These politics are, logically, drawing attention to the possibility of international offsets as a possible cost control mechanism. Indeed, the design of the emission trading system in the northeastern U.S. states (RGGI) and in California (the recommendations of California’s AB32 Market Advisory Committee) point in this direction, and the debate in Congress is exploring designs for a cap and trade system that would allow a prominent role for international offsets. This article reviews the actual experience in the world’s largest offset market—the Kyoto Protocol Clean Development Mechanism (CDM)—and finds an urgent need for reform. Welldesigned offsets markets can play a role in engaging developing countries and encouraging sound investment in low-cost strategies for controlling emissions. However, in practice, much of the current CDM market does not reflect actual reductions in emissions, and that trend is poised to get worse. Nor are CDM-like offsets likely to be effective cost control mechanisms. The demand for these credits in emission trading systems is likely to be out of phase with the CDM supply. Also, the rate at which CDM credits are being issued today—at a time when demand for such offsets from the European ETS is extremely high—is only one-twentieth to one-fortieth the rate needed just for the current CDM system to keep pace with the projects it has already registered. If the CDM system is reformed so that it does a much better job of ensuring that emission credits represent genuine reductions then its ability to dampen reliably the price of emission permits will be even further diminished. We argue that the U.S., which is in the midst of designing a national regulatory system, should not to rely on offsets to provide a reliable ceiling on compliance costs. More explicit cost control mechanisms, such as “safety valves,” would be much more effective. We also counsel against many of the popular “solutions” to problems with offsets such as imposing caps on their use. Offset caps as envisioned in the Lieberman-Warner draft legislation, for example, do little to fix the underlying problem of poor quality emission offsets because the cap will simply fill first with the lowest quality offsets and with offsets laundered through other trading systems such as the European scheme. Finally, 1 We thank Kyle Danish, Michael Levi, Chris Mottershead, Billy Pizer, and Tauna Szymanski for their valuable comments on early versions of this manuscript; errors and opinions are fully our own. We suggest that the actual experience under the CDM has had perverse effects in developing countries—rather than draw them into substantial limits on emissions it has, by contrast, rewarded them for avoiding exactly those commitments. Offsets can play a role in engaging developing countries, but only as one small element in a portfolio of strategies. We lay out two additional elements that should be included in an overall strategy for engaging developing countries on the problem of climate change. First, the U.S., in collaboration with other developed countries, should invest in a Climate Fund intended to finance critical changes in developing country policies that will lead to near-term reductions. Second, the U.S. should actively pursue a series of infrastructure deals with key developing countries with the aim of shifting their longer-term development trajectories in directions that are both consistent with their own interests but also produce large greenhouse gas emissions reductions.
9. Mathews, John A. “Carbon-negative biofuels.” Energy policy 36.3 (2008): 940-945.  Current Kyoto-based approaches to reducing the earth’s greenhouse gas problem involve looking for ways to reduce emissions. But these are palliative at best, and at worst will allow the problem to get out of hand. It is only through sequestration of atmospheric carbon that the problem can be solved. Carbon-negative biofuels represent the first potentially huge assault on the problem, in ways that are already technically feasible and practicable. The key to carbon negativity is to see it not as technically determined but as an issue of strategic choice, whereby farmers and fuel producers can decide how much carbon to return to the soil. Biochar amendment to the soil not only sequesters carbon but also enhances the fertility and vitality of the soil. The time is approaching when biofuels will be carbon negative by definition, and, as such, they will sweep away existing debates over their contribution to the solution of global warming.
10. Lohmann, Larry. “Neoliberalism and the calculable world: The rise of carbon trading.” Upsetting the offset: the political economy of carbon markets (2009): 25-40.First proposed in the 1960s, pollution trading was developed by US economists and derivatives traders in the 1970s and 1980s and underwent a series of failed policy experiments in that country before becoming the centrepiece of the US Acid Rain Programme in the 1990s at a time of deregulatory fervour. In 1997, the Bill Clinton regime successfully pressed for the Kyoto Protocol to become a set of carbon trading instruments (Al Gore, who carried the US ultimatum to Kyoto, later became a carbon market actor himself). In the 2000s Europe picked up the initiative to become the host of what is today the world’s largest carbon market, the EU Emissions Trading Scheme (EU ETS) – although under Barack Obama the US may soon take over that position. Carbon markets now trade over US$100 billion yearly, and are projected to rival the financial derivatives market, currently the world’s largest, within a decade. Pioneered by figures such as Richard Sandor of the Chicago Board of Trade and Ken Newcombe, who relinquished leadership of the World Bank’s carbon funds to become a carbon trader at firms such as Goldman Sachs, carbon markets have recently become a magnet for hedge funds, banks, energy traders and other speculators. Carbon trading treats the safeguarding of climatic stability, or the earth’s capacity to regulate its climate, as a measurable commodity. After being granted or auctioned off to private firms or other polluters, the commodity can then be allocated ‘cost-effectively’ via market mechanisms. Obviously, the commoditized capacity in question was never produced for sale. Rather than being consumed, it is continually reused. Although difficult to define or even locate, the capacity forms part of the background ‘infrastructure’ for human survival. Framing it as a commodity, moreover, involves complex contradictions and blowbacks (Lohmann, 2009). Current efforts to assemble carbon markets are likely, when carried beyond a certain point, to engender systemic crises. The earth’s climate-regulating capacity is thus a quintessential Polanyian ‘fictitious commodity’. Accordingly, illuminating comparisons and contrasts can be drawn with Polanyi’s original ‘fictitious commodities’ of land, labour and money, as well as with other candidates for ‘fictitious commodity’ status that have been proposed since, including knowledge, health, genes and uncertainty. The attempt to build a climate commodity proceeds in several steps. First, the goal of maintaining the earth’s capacity to regulate its climate is conceptualized in terms of numerical greenhouse gas emissions reduction targets. Governments determine – although currently more on explicitly political than on climatological grounds – how much of the world’s physical, chemical and biological ability to regulate its own climate should be enclosed, ‘propertized’, privatised and made scarce. They then give it out (or, sometimes, sell it) to large polluters, before ‘letting the market decide’ on its final distribution (Lohmann, 2005; Lohmann, 2006). Making climate benefits and dis-benefits into quantifiable ‘things’ opens them up to the possibility of exchange. For example, once climate benefit is identified with emissions reductions, an emissions cut in one place becomes climatically ‘equivalent’ to, and thus exchangeable with, a cut of the same magnitude elsewhere. An emissions cut owing to one technology becomes climatically equivalent to an emissions cut that relies on another. An emissions cut that is part of a package that brings about one set of social effects becomes climatically equivalent to a cut associated with another set of  social effects. Where emissions permit banking is allowed, an emissions cut at one time becomes climatically equivalent to a cut achieved at another. Once all these identities are established, it becomes possible for a market to select for the emissions reductions (and, ipso facto, the climate benefits) that can be achieved most cheaply.   [FULL TEXT DOWNLOAD]
11. Fairbairn, Eduardo MR, et al. “Cement replacement by sugar cane bagasse ash: CO2 emissions reduction and potential for carbon credits.” Journal of environmental management 91.9 (2010): 1864-1871.  This paper presents a study of cement replacement by sugar cane bagasse ash (SCBA) in industrial scale aiming to reduce the CO₂ emissions into the atmosphere. SCBA is a by-product of the sugar/ethanol agro-industry abundantly available in some regions of the world and has cementitious properties indicating that it can be used together with cement. Recent comprehensive research developed at the Federal University of Rio de Janeiro/Brazil has demonstrated that SCBA maintains, or even improves, the mechanical and durability properties of cement-based materials such as mortars and concretes. Brazil is the world’s largest sugar cane producer and being a developing country can claim carbon credits. A simulation was carried out to estimate the potential of CO₂ emission reductions and the viability to issue certified emission reduction (CER) credits. The simulation was developed within the framework of the methodology established by the United Nations Framework Convention on Climate Change (UNFCCC) for the Clean Development Mechanism (CDM). The State of São Paulo (Brazil) was chosen for this case study because it concentrates about 60% of the national sugar cane and ash production together with an important concentration of cement factories. Since one of the key variables to estimate the CO₂ emissions is the average distance between sugar cane/ethanol factories and the cement plants, a genetic algorithm was developed to solve this optimization problem. The results indicated that SCBA blended cement reduces CO₂ emissions, which qualifies this product for CDM projects.
12. Hua, Guowei, T. C. E. Cheng, and Shouyang Wang. “Managing carbon footprints in inventory management.” International Journal of Production Economics 132.2 (2011): 178-185. There is a broad consensus that mankind must reduce carbon emissions to mitigate global warming. It is generally accepted that carbon emission trading is one of the most effective market-based mechanisms to curb the amount of carbon emissions. This paper investigates how firms manage carbon footprints in inventory management under the carbon emission trading mechanism. We derive the optimal order quantity, and analytically and numerically examine the impacts of carbon trade, carbon price, and carbon cap on order decisions, carbon emissions, and total cost. We make interesting observations from the numerical examples and provide managerial insights from the analytical results.
13. Bumpus, Adam G. “The matter of carbon: understanding the materiality of tCO2e in carbon offsets.” Antipode 43.3 (2011): 612-638.  This paper examines the socio‐natural relations inherent in the commodification of carbon reductions as they are generated in energy‐based carbon offset project activities, and abstracted to wider market systems. The ability to commodify carbon reductions takes place through a socionatural–technical complex that is defined by the material nature of technology’s interaction with the atmosphere, local social processes and the evolving governing systems of carbon markets. Carbon is not unproblematically commodified: some projects and technologies allow a more cooperative commodification than others. The examples of a hydroelectricity plant and an improved cookstove project in Honduras are used as empirical case studies to illustrate the difficulties and opportunities associated with the relational aspects of carbon commodification. Drawing upon select literatures from post‐structural thought to complement the principal lens of a more structural, materiality of nature analysis, the paper also outlines the reasons why carbon offset reform is needed if offsets are to more progressively engage debates about climate mitigation and North–South development.
14. Diabat, Ali, et al. “Strategic closed-loop facility location problem with carbon market trading.” IEEE Transactions on engineering Management 60.2 (2012): 398-408.  The burgeoning environmental regulations are forcing companies to green their supply chains by integrating all of their business value-adding operations so as to minimize the impact on the environment. One dimension of greening the supply chain is extending the forward supply chain to collection and recovery of products in a closed-loop configuration. Re-manufacturing is the basis of profit-oriented reverse logistics in which recovered products are restored to a marketable condition in order to be resold to the primary or secondary market. In this paper, we introduce a multiechelon multicommodity facility location problem with a trading price of carbon emissions and a cost of procurement. The company might either incur costs if the carbon cap, normally assigned by regulatory agencies, is lower than the total emissions, or gain profit if the carbon cap is higher than the total emissions. A numerical study is presented which studies the impact of different carbon prices on cost and configuration of supply chains.