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SOME businesses, politicians and environmentalists are promoting the concept of emissions trading as a way of preventing global warming. However, at best, emissions trading is a compromise policy that gives cost-effectiveness priority over environmental effectiveness. At worst, it is a con that will enable companies to continue their old polluting practices.
The idea of emissions trading is that companies that can reduce their emissions more cheaply can make profits from their "excess" reductions by selling credits for them to other companies for whom making these reductions would be more expensive. This is fine if minor pollution cuts are all that is required. But if substantial pollution reductions are necessary to prevent global warming, then more expensive reductions also have to be made and there is little point setting up markets that enable some firms to avoid making those expensive reductions so as to minimise their costs.
This became evident in Germany when it considered implementing an acid rain emissions program. The aim of the German program was a 90 per cent reduction in SO2 between 1983 and 1998. In comparison, the aim of the US emissions trading program, which has been hailed as proof of success of emissions trading, was only a 50 per cent reduction by 2010.
This meant that in the US there was much more scope for power stations to find cheaper ways to cut emissions, whereas in Germany, every power station had little choice but to fit their plants with flue gas desulphurisation and selective catalytic reduction for nitrogen oxides. This meant that there was no scope for trading. German power plants therefore met much higher standards than US plants, in a shorter time, under a traditional regulatory regime.
In other words, the more rigorous the emission reduction the less scope there is to find cheap solutions and sell excess allowances or reduction credits. In the case of global warming the required reductions in emissions of carbon dioxide cannot be achieved by merely undertaking the cheapest reductions.
Proponents of emissions trading might argue that this is just a first step. However, carbon credits can be generated by phoney reductions so there is no benefit at all to the environment. The most obvious example at an international level is the trading of emissions credits with Russia and other East European countries.
Post-Soviet economic decline meant that some countries in Eastern Europe have been emitting 30 to 45 per cent less carbon dioxide than in 1990 because of lowered production yet they can sell their rights to emissions they were not going to make, to the US or Japan in return for hard currency, with no net benefit to the planet. The reductions that would have occurred without emissions trading are now available to affluent countries to avoid their own emissions reductions. They are referred to as "hot air" or "phantom" reductions.
In Britain, where companies were given millions of dollars in incentives to join a voluntary emission trading scheme, an independent non-government group, Environmental Data Services, found that three of the chemical companies involved, including DuPont, claimed credit for reductions that they had been required to make previously under EU laws.
In NSW, the Greenhouse Abatement Scheme issues certificates to those who reduce greenhouse gas emissions that can then be sold to electricity retailers who must meet mandatory emissions reductions.
But a study by researchers at the University of NSW has found that 95 per cent of the certificates issued in the 18 months to June 2004 were for projects established before the introduction of the scheme and more than 70 per cent were awarded for emissions reductions that would have occurred anyway.
A Government spokesman defended the scheme, which is predicted to cost taxpayers $2 billion over nine years, saying: "It is not possible to distinguish between production or investment decisions made as a result of the scheme and those that would have been made anyway."
And there's the rub. The power stations get to avoid making their reductions in return for reductions elsewhere that would have happened anyway.
Professor Sharon Beder is author of Environmental Principles and Policies, which will shortly be published by UNSW Press, and Suiting Themselves: How Corporations Drive the Global Agenda (Earthscan).