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[Ambassador report] [FREE REPORT] Carbon markets: how trading can actually save the world

by Alice Ervaz | 13-10-2019 18:02 Comments 8 Comments recommendations 1 recommendations

If you have ever taken a microeconomics class – or you happen to be a fervent capitalism aficionado – you most certainly know that markets are supposed to be the most efficient way to allocate goods to those customers that value them the most. And by valuing them the most, of course, we mean those who are willing (or are wealthy enough) to go through with the purchase. In a free market, the tenner you hold in your wallet represents a token, a vote that you cast in favor of every product you pick from the shelf, might it be a carton of milk or a diamond ring.

In year 2019, capitalism has plastered a price tag on almost everything, from organ black market to body-advertisement – but how about emissions? How do markets enter the field of climate change? It is indeed no secret that the current economic order is all but sustainable and the consumeristic lifestyle pushed down our throats by society will, in the long run, cause irreversible damage to the planet. However, some policymakers postulated that the very same dysfunctional capitalistic system that is endangering the planet might be the solution to our air pollution issues.

Enter ETS, a short name for Emissions Trading System – a ‘cap and trade’ strategy designed and implemented by the European Union in order to limit and reduce the greenhouse gasses produced by the Union. The philosophy behind the system is literally putting a ‘price tag’ on companies’ right to pollute by creating allowances that can be traded in an internal market. The limited number of such allowances gives them value and allows the supranational bodies to track and cut the amount of pollution released in the air every year. The official motto of the project is “to promote reductions of emissions in a cost-effective and economically efficient manner”.

Involved parties must report an EUA (EU Emissions Allowance) for each tonne of carbon dioxide equivalent (CO2 eq) they produced in the year. This structure puts companies in an interesting position indeed: the dilemma between buying more allowances or finally take actions to render the business more sustainable. Up to now, the ETS is active in in 31 countries (all 28 EU countries plus Iceland, Liechtenstein and Norway), covering 45% of EU emissions.

But what are the figures? The EU planned to reduce the emissions of greenhouse gasses of 21% by 2020. Reports clearly point that we are currently on track with the objective, overachieving the goal by one percentage point three years before the deadline, while also registering a 58% economic growth since 1990. Given the significant figures, in the next ten years the Union strives to double up on the results, cutting the emissions of about 43%.

While Emissions Trading might seem the most viable option to fight climate change, it was not exempted from a fair share of critiques in the setting. Most detractors ground their commends on an ethical basis, defining the atmosphere as a non-commodable good – something that should not be priced in any case. Others maintain that climate action is a commitment that all the Nations (and the stakeholders) should undertake equally and it is therefore a responsibility that should be equally split worldwide and not alienated to somebody else.

Finally, as Michael Sandel contends in his book What money can’t buy: the moral limits of markets, Emission Trading Systems might turn the fine and the social stigma associated with it into a fee, devoid of any judgement in terms of polluting. In other words, ETS might be depriving wrongful acts such as the contamination of the environment of a morally objectionable connotation. Pollution might become, according to this reasoning, a perfectly tradeable good.

In conclusion, Emissions Trading System might be a perfectly applicable solution in order to reduce, not only European emissions, but also worldwide pollution. If adjustments are taken and more ethical standards are met, it will be imaginable to export it to other continents and possibly diminish the total amount of smog in the air. One thing is sure, though: climate change is a challenge that must be tackled globally and needs therefore a supranational approach – as long as nations do not commit fully to the final goal, not even ETS might save us from an environmental catastrophe.

emissions trading


Yerdaulet Rakhmatulla

  • Yerdaulet Rakhmatulla says :
    Alice, thank you for the idea and contemplation of emissions as the good. I'd recommend your report, so keep writing more about green economics.

    Posted 30-11-2019 12:01

Hyeongmin Mentor

  • Hyeongmin Mentor says :
    Hi Alice!

    It was a very informative and insightful report about ETS.
    Implementing the policy all around the world might contain some friction in it, but as you mentioned, it can definitely be a productive way of dealing with environmental pollutions.

    My little concern is that since the cost of making products rise with ETS, product prices may also go up. In addition, companies with a lot of money are willing to pay the cost and feel no guilt in causing the emission.

    Thank you for the informative report!
    Posted 21-10-2019 11:11

Lisa Mentor

  • Lisa Mentor says :
    Hey Alice
    this is Lisa your mentor:)

    Wow! you've got some great work here:)
    I am also an Economics major and the carbon market is definitely my field of interest!
    As you have well put, I agree with you that the market mechanism cannot always be a valid solution to solve the climate issue. Putting the cash value on carbon emission could just end up in those with capitals throwing moral responsibility to those who don't and the world would just end up in a place where the poor are faced with all the harsh standards and rich free of all the burdens and thus could focus on increasing their wealth.
    Climate responsibility, as well as many other moral and social duties, are things that we all as the social members carry and I think these are something that are embedded within us. Yes, the carbon market does function well but I think it is only a temporary solution, not a sustainable mechanism to carry on through our future.
    ETS could serve as complementary means as you have said, but it is not a stable solution where we could rely our future, our life and our earth on.

    Thanks for bringing us the topic to think about:)
    I really am looking forward to what you have got to bring us next time!

    Keep up the green work:)
    Posted 16-10-2019 14:00

Sandhya Adhikari

  • Sandhya Adhikari says :
    Hello Alice

    I do hope that you are fine and doing great with your works.
    Thank you for your report about carbon markets, how trading can actually save the world.

    Keep writing such a great report,
    Looking forward to read much more from you,
    Sandhya Adhikari
    Posted 15-10-2019 11:28

Madhu Aryal

  • Madhu Aryal says :
    Hello Alice,
    Thank you so much for your report on arbon market.

    Madhu Aryal
    Posted 14-10-2019 19:23

Asmita Gaire

  • Asmita Gaire says :
    Hello alice
    I hope you are well.

    What money can't buy, the moral limits of markets... Wow it's very interesting!

    Thank you so much !

    Green cheers

    Asmita Gaire
    Posted 14-10-2019 11:45

Kushal Naharki

  • Kushal Naharki says :
    Hello Alice

    I do hope that you are fine and doing great with your works.
    Thank you for your report about arbon markets: how trading can actually save the world

    Green Cheers from Nepal :)
    Keep writing great reports.
    We are eager to read more reports from you.

    Kushal Naharki

    Posted 13-10-2019 18:55

Meena Pandey

  • Meena Pandey says :
    Hello Alice!!!
    I hope you are fine and doing great.
    Thank you for an informative piece of writing.
    Hope to know more from you.
    Keep writing and shining.
    Warm regards,
    Meena Pandey
    Posted 13-10-2019 18:45

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