A whole new level of crazy

Just what that will do to prices on the local market remains to be seen but, as noted in the Garnaut report “Emissions Trading Discussion Paper” (PDF 480KB) released in March, there is the problem of “additionality”. That is, how can we be sure that a carbon credit bought from an overseas project helped bring that program into being. To put it another way, has the payment for the carbon credit made any difference, or has it proved to be simply additional money for the developer of the alternative project?

Late last year, a US non-government organisation International Rivers issued a report noting that by the end of 2007, hydro projects were expected to make up 15 per cent of CERs. The bulk of those dam projects are in China, the world’s most prolific dam builder, with an astonishing 25,000 plus major dams.

As of late last year, says International Rivers, about 650 projects had gained, or were set to gain, carbon credits from the CDM for sale. Further, the recent influx of money from the CDM made no difference to the number of dams being built - the report notes that developers just seem to keep rolling them out.

China has considerably more scope for hydroelectric power than Australia, but there almost certainly is no overall energy strategy, or any assessment of what the dams may do to local ecology, or even the people they displace, and there have been suggestions that government officials are too closely involved in those projects.

As Australia’s ETS has yet to start, our money is not being thrust into the pockets of dam developers in China, at least not yet. However, if there are doubtful projects in China, then there are bound to be doubtful projects in Indonesia, or the Philippines, or any other country where taking down the foreign devils, with their odd fetishes about carbon, is a national sport.

Even if we find a host of honest, carbon-reducing projects in which to sink money, there are other problems. For if less carbon is being used in one project in one part of a foreign economy, how do we know there has been any overall saving? Investment in a dam or a windfarm may have diverted funds needed to make an old coal-fired electricity plant more efficient.

Perhaps it is not too late to consider a straight tax on carbon and be done with all these complications. But one not-incidental result of having a carbon market is to create a whole class of carbon traders, brokers, advisors and consultants of all stripes - all of whom would have a vested interest in ensuring that nothing is allowed to weaken the trading system (buying credits overseas may not be useful, but it is exciting) or the orthodoxy that industrial gases are contributing to climate change.

Temperatures may continue to fall, but still this new class of carbon-worker will loudly insist that there is nothing wrong with the theory. We need only wait a few more years and temperatures will finally start increasing.

And Australia’s ETS is just one, tiny piece, of the overall effort now being made to keep carbon emissions down - a colossal effort that may turn out to be a complete waste of time, if India and China refuse to take a hand. Developers and officials in both countries are unlikely to bother themselves too much about the Western obsession with carbon, when the CDM is prepared to hand them money for projects that they were going to do anyway. But that is a whole other level of crazy.