Will BRICS Carbon Traders Bail Out the Bankers’ Climate Strategy? Part II

This is part II of a two-part series.

Patrick Bond

An overriding danger has arisen that may cancel the deterrents to carbon trading: the international financial system has overextended itself yet again, perhaps most spectacularly with derivatives and other speculative instruments. It needs new outlets for funds. The rise of non-bank lenders doing “shadow banking,” for example, was by 2013 estimated to account for a quarter of assets in the world financial system, $71 trillion, a rise of three times from a decade earlier, with China’s shadow assets increasing by 42% in 2012 alone. The Economist last year acknowledged that “potentially explosive” emerging-market shadow banking “certainly has the credentials to be a global bogeyman. It is huge, fast-growing in certain forms and little understood.” As for the straight credit market, the main result of Quantitative Easing policies was renewed bubbling, with $57 trillion in debt added to the global aggregate from 2007-14, of which $25 trillion was state debt. By mid-2014 the total world debt of $200 trillion had reached 286 percent of global GDP, an increase from 269% in late 2007.

Global financial regulation appears impossible given the prevailing balance of forces, witnessed in failures at the 2002 Monterrey Financing for Development initiative and various G20 summits after 2008. As a result, the BRICS are especially important sites to track ebbs and flows of financial capital in relation to climate-related investments, what with so many expansive claims made about their counter-hegemonic character. In reality, in relation to both world financial markets and climate policy, the BRICS are not anti-imperialist but instead subimperialist.

The first-round routing of CDM funding went disproportionately to China, India, Brazil and South Africa from 2005 until 2012, but by then the price of CDM credits had sunk so low there was little point in any case. Moreover, according to Carbon Market Watch, “The environmental integrity of the other Kyoto offsetting mechanism Joint Implementation is even more questionable with over 90% of offsets issued by Russia and Ukraine with very limited transparency and no international oversight.”

As Naomi Klein pointed out in This Changes Everything, gaming the CDM became a profitable sport: “The most embarrassing controversy for defenders of this model involves coolant factories in India and China that emit the highly potent greenhouse gas HFC-23 as a by-product. By installing relatively inexpensive equipment to destroy the gas (with a plasma torch, for example) rather than venting it into the air, these factories— most of which produce gases used for air-conditioning and refrigeration—have generated tens of millions of dollars in emission credits every year.”

Similar problems of system integrity plague the carbon markets that have opened in China, according to a recent Carbon Tax Center report: “Authorities face high hurdles in program design, information provision and political acceptability if the eventual national program is to put an effective ‘price on carbon’ and actually constrain and reduce emissions.” China’s seven pilot projects launched in 2014 ostensibly cover 700 million tons of CO2 emissions (worth $135 million in deals last year), and when a national market emerges in 2020, there are estimates of a $3.5 trillion market. However, recall the frequent estimates of a $3 trillion global carbon market by 2020, and even one (from the lead Merrill Lynch trader) of $30 trillion (reported in the New York Times).

Within China, there is growing unease with carbon markets and at the Chinese Academy of Marxism, for example, Yu Bin’s essay on ‘Two forms of the New Imperialism,” argues that along with intellectual property, the commodification of emissions is vital to understanding the way capital has emerged under conditions of global crisis.

Regardless, an even greater speculative bubble in carbon finance can be anticipated in the next few years, as more BRICS establish carbon markets and offsets as strategies to deal with their prolific emissions. In South Africa, neither the 2011 National Climate Change Response White Paper nor a 2013 Treasury carbon tax proposal endorsed carbon trading, in part because of the oligopoly purchasing conditions anticipated as a result of two vast emitters far ahead of the others: the state electricity company Eskom and the former parastatal Sasol which squeezes coal and natural gas to make liquid petroleum at the world’s single largest emissions point source, at Secunda near Johannesburg. But by April 2014 carbon trading was back on the official policy agenda, thanks to the British High Commissioner whose consultants colluded with the Johannesburg Stock Exchange to issue celebratory statements about “market readiness.”

With all of South Africa’s carbon-intensive infrastructure under construction, the official Copenhagen voluntary promise by President Jacob Zuma—cutting GHG emissions to a “trajectory that peaks at 34% below a business as usual trajectory in 2020”—appear to be impossible to uphold, just four years after it was made. The state signaled its reluctance to impose limits on pollution in February 2015, when Environment Minister Edna Molewa gave Eskom, Sasol and other major polluters official permission to continue their current trajectories for another five years, ignoring Clean Air Act regulations on emissions of co-pollutants such as SO2 and NO2.

Other BRICS countries have similar power configurations, and in Russia’s case it led to a formal withdrawal from the Kyoto Protocol’s second commitment period (2012-2020) in spite of huge “hot air” benefits the country would have earned in carbon markets (for not emitting at 1990 levels) as a result of the industrial economy’s deindustrialization due to its exposure to world capitalism during the early 1990s. That economic crash cut Russian emissions far below 1990 Soviet Union levels during the first (2005-2012) commitment period. But given the 2008-13 crash of carbon markets—where the hot air benefits would have earlier been realised as €33/tonne “Joint Implementation” benefits (but by early 2013 fell to below €4/tonne)—Moscow’s calculation shifted away from the Kyoto Protocol, so as to promote its own oil and gas industries without limitation.

Binding emissions cuts were not in Russia’s interests, no matter that 2010-11 climate-related droughts and wildfires raised the price of wheat to extreme levels and did tens of billions of dollars of damage. The same kinds of self-interested albeit short-termist calculations are being made in the other BRICS, although their leaders regularly demanded (justifiably) larger northern industrial country cuts thanks to the historical legacy of carbon emissions.

The attraction of carbon trading in the new markets, no matter its failure in the old, is logical when seen within a triple context: a longer-term capitalist crisis which has raised financial sector power within an ever-more frenetic and geographically ambitious system; the financial markets’ sophistication in establishing new routes for capital across space, through time, and into non-market spheres; and the mainstream ideological orientation to solving every market-related problem with a market solution, which even advocates of a Post-Washington Consensus and Keynesian economic policies share. Interestingly, even Paul Krugman had second thoughts, for after reading formerly pro-trading environmental economist William Nordhaus’ Climate Casino, he remarked, “The message I took from this book was that direct action to regulate emissions from electricity generation would be a surprisingly good substitute for carbon pricing.”

That U-turn is the sort of hard-nosed realism that will be needed to disprove Klein’s thesis that capitalist crisis and climate crisis are conjoined. Instead, however, financial markets continue to over-extend geographically as investment portfolios diversify into distant, risky areas and sectors. Global and national financial governance prove inadequate, leading to bloated and then busted asset values ranging from subprime housing mortgages to illegitimate emissions credits. No better examples can be found of the irrationality of capitalism’s spatio-temporal-ecological fix to climate crisis than a remark by Tory climate minister Greg Barker in 2010: “We want the City of London, with its unique expertise in innovative financial products, to lead the world and become the global hub for green growth finance. We need to put the sub-prime disaster behind us.”

As BRICS are already demonstrating, though, new disasters await, for both overaccumulated capitalism in general and for what will be, for the next few years at least, under-accumulating carbon markets.

Triple Crisis welcomes your comments. Please share your thoughts below.

Triple Crisis is published by

Comments are closed.