Are carbon markets the solution to climate change?

Written by Olivia Arigho-Stiles on . Posted in Current features, Features, Uncategorized

In the run-up to COP21 in Paris in December, EUI Times is publishing a series of features and interviews with leading academics and policymakers on the climate crisis and how Europe should respond. COP21 (Conference of Parties) will bring together 195 countries in pursuit of a legally binding and universal agreement on keeping global warming below 2°C. Here Jean-Michel Glachant, Director of the Florence School of Regulation (FSR) argues for a response based on market principles.

glachantTackling climate change is universally recognised as the defining policy objective of the 21st century.  But despite the proliferation of NGOs, think-tanks and policy centres devoted to proposing solutions, the world has edged only marginally closer to a tangible response to the issue.

Director of the EUI’s Florence School of Regulation (FSR) and former Economics professor at the Sorbonne, Jean-Michel Glachant believes that the climate change can be mediated against through market strategies. He is also chief-editor of Economics of Energy & Environmental Policy (EEEP) journal which two weeks ago published a special issue on the economics of international climate policy negotiations featuring contributions from Nobel laureates Jean Tirole and Joseph Stiglitz. The articles are free to download here.

Capitalist, free market-based solutions have been contested by those including journalist Naomi Klein whose book This Changes Everything: Capitalism vs. the Climate was published last year to critical praise and has since become the bible of the anti-capitalist green movement. Following the logic of the free-market, it is argued, simply replicates the same logic of consumption and production which has generated the climate crisis in the first place.

But Glachant disagrees. “Should markets be killed or repressed because they are unable to stop polluting? Forty years ago we were depressed in the UK and the US because of acid rain which was killing the forests. How did we stop it? We created a market for pollution.  It is totally counter-intuitive, but a market for pollution can stop pollution. Markets if they are arranged in a particular way, can help stop pollution.”

Glachant sees huge potential in carbon pricing, an idea which has also been publicly advanced by Nobel laureate Jean Tirole and Christian Gollier. ‘’Carbon should have cost”, Glachant explains enthusiastically. “Everyone emitting carbon should [pay the price]. It is the economic approach.”

In a recent article for EEEP, Tirole and Gollier affirm that ‘the climate change global commons problem will be solved only through coherent carbon pricing’. Carbon pricing works by attempting to reduce carbon dioxide emissions by levying a charge on polluters. This is done through an emissions trading scheme (ETS) whereby a fixed number of emissions permits are issued and a cap is set on the total emissions allowed. Oil and gas firms who pollute more can cover their higher emissions by buying more permits from those firms who pollute less.  Brussels based economics think-tank Bruegel identifies carbon pricing as central in combating climate change at an international level, though on the flip-side, a recent blog post from the New Economics Foundation cast heavy doubts on the apparent success of carbon markets.

As such, Glachant is highly sceptical of de-growth arguments which hold that human production must be downscaled and GDP decreased in order the meet the long-term needs of the planet. “Why not growth?” Glachant frowns. “Depletion [of planetary resources] is what you do when you tap fossil fuels. If you tap non-fossil, or renewable fuels, you have unlimited offerings. The sun is producing enough to do everything on earth but we have to tap it. And this is a typical capitalist industry because wind and solar are extremely capital intensive and technology consuming.’’ Glachant is adamant that climate change can be addressed by modifying the existing economic system, and creating incentives where appropriate. “Already the banks have shifted. If you look at the investment banks which are the most capitalist part of the banks, they are already turning away from oil companies because they think they are not sustainable.’’

Yet the pace of change at a global level remains sluggish in spite of the agreed urgency of the problem. It is often assumed that the major sticking point in climate change policymaking is the apathy of national governments and negotiators. Additionally, NGOs such as the Corporate European Observatory (CEO) also highlight the influence of lobbyists from the extractive oil and gas industries who frequently enjoy privileged access to officials and politicians in Brussels and have a vested interest in preserving the status quo.

But Glachant thinks the answer lies closer to home. ‘’The political resistance is mainly people and not political parties or governments. This is your aunt, your neighbour, the average guy in the street. And why? Because [renewable technology] is expensive. Why are we polluting so much? Because everyone agrees something should be done but by somebody else. It’s a failure of policy, but the roots of failure are in the mind-sets of our compatriots. Polluting industries are protected by people, by voters.’’

Nevertheless, Glachant is ‘’both optimistic and pessimistic’’ about the prospect of progress at COP21 in Paris later this year. ‘’Maybe for the first time we will have a world agreement, including the US, Brazil and China. Most of the other big countries will be there and will commit to doing something.’’

Yet with a hugely diverse and contradictory array of political opinion around the causes and solutions to the climate crisis, it is debateable whether COP21 will break the cycle of climate conferences which have ended in lacklustre promises and lukewarm agreements. But for Glachant, one thing is clear; the solution must include the big industry players willing to play clean. ‘’See [electric car manufacturer] Tesla in California.’’


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