Don't let the reckless City trade carbon

As the City recovers from one disaster, the next is on its way – but carbon trading will damage the planet, not just the economy

Andy Atkins
guardian.co.uk, Thursday 5 November 2009 16.00 GMT

You couldn't make it up: in the middle of the most serious recession for decades, with banks bailed out with billions of pounds of taxpayers' money, the denizens of the City have sniffed out what they think is the next big money spinner: trading thin air. Of course, the traders aren't heckling over 50 tonnes here or there of bargain basement London smog or Somerset meadow fresh. It's carbon dioxide which is now big business – and could become even bigger if the government gets its way at the UN climate talks in Copenhagen this December.
At talks happening this week in Barcelona – the last round of talks before Copenhagen – British negotiators are pushing hard for the expansion of the global carbon market as their solution to slashing emissions. The principles are supposedly simple: if a factory with a cap of emitting 1,000 tonnes of carbon dioxide a year only emits 900 tonnes, it could sell the right to emit the remainder on the open market. The system's backers claim it will reduce emissions and provide cash to invest further in cutting emissions.
A carbon trading system is already in place in Europe, and is big business – the trade was worth $90bn in 2008, and globally is predicted to grow to up to $3.1 trillion in 2020.
But there's a catch – banks, investment funds and speculators have now become the middlemen in this shadowy trade and are packaging carbon credits into increasingly complex financial products, similar to sub-prime mortgages which triggered the recent economic crash. This risks the development of sub-prime carbon and financial crisis – with a double whammy this time of environmental catastrophe to match. It's no coincidence the government has been pushing carbon markets just as traders in the City have become the biggest buyers of carbon permits in the world.
The evidence that carbon trading doesn't work is vast. The EU scheme failed dismally in delivering emissions cuts in its first few years and looks set for further failure in its next phase because too many permits have been handed out to dirty industry yet again. The scheme also allows European business to wiggle out of their emissions reductions through offsetting, allowing for them to pay for cuts to be made overseas instead of at home. Trading also means politicians and industry aren't taking the bold steps needed to cut emissions now by investing in a massive rollout of renewable energy and energy efficiency. The time it will take to extend carbon markets globally will mean precious years wasted when governments could be taken action which is already proven to work.
So what are the solutions? Regulation, taxation and direct government investment in slashing emissions. First, rich countries must commit to slash emissions by at least 40% by 2020, without offsetting. Then we must transform our economy through tried and tested measures that are proven to have worked in the past, including carbon taxes, tougher emissions standards and a big increase in public investment to tackle the climate crisis.
Just when our leaders are slapping each other on the back for rescuing us from one financial crisis, with carbon trading they are already sowing the seeds of the next – with potentially devastating consequences for our economy, the planet and millions of its poorest people.
Friends of the Earth is demanding that the government changes its approach to climate change with its Demand Climate Change campaign. The green campaign group is asking everyone to sign its international online petition to world leaders for a strong and fair climate deal