Despite the optimism, it doesn’t take long wondering through meeting rooms here to realize that restructuring the global economy won’t be easy. I’m in a room with a few hundred other people listening to a panel of business representatives, analysts and investment bankers talk in mind-numbing detail about the intricacies of cap-and-trade systems. Terms like “additionality,” “fungibility” and “compliance eligibility risk” are bandied about with impunity.
The piece of “cap-and-trade” that most people care about and understand is the “cap,” which limits the sheer volume of greenhouse gases pumped into the atmosphere. That’s easy. Getting the “trade” piece right is difficult, and that’s what conferences like this one are all about. The goal is to set up a viable market for carbon dioxide and other greenhouse gases, which then enables one company that can cheaply reduce its emissions to sell pollution credits to another that cannot. As such, the market will help companies determine the cheapest methods of reducing emissions, and direct private money accordingly.
Sounds easy enough, but countless questions need to be answered if money is actually going to change hands. How do you verify that a carbon credit is actually linked to a tonne of carbon? How do you link various markets that are operating or under development around the world? And what about “offsets” – how many credits can be purchased abroad if the cheapest way to reduce emissions is by, say, curbing tropical deforestation?
US Senator Jeff Bingaman of New Mexico, a leading Democrat on energy and climate issues, riled the conference early on by saying offsets are “fraught with opportunity for game-playing, which will be exploited by lots of creative people.” Loaded words for a conference that is built around the notion that carbon markets can solve the climate problem, but these are the questions that politicians must deal with up-front.
Bingaman said Democrats are ready to push for a new round of energy legislation next year, which could a long-sought federal mandate for renewable electricity generation. Such a schedule likely pushes climate legislation into 2010, which naturally begs the question about whether an international climate agreement can be struck next year, as scheduled. More than one frustrated questioner raised the issue.
“I don’t know that what we are able to do domestically is going to be driven by any kind of international expectation of what we should do,” Bingaman replied.
Indeed. Barack Obama might well bring a new multilateral spirit to the United Nations climate negotiations in Copenhagen next year, but the rest of the world would be wise to remember that it is the US Senate that ratifies international treaties.