Carbon trading must be globally regulated
By Simon Linnett
Published: 11:00AM GMT 31 Jan 2008
Simon Linnett, Executive Vice-Chairman of Rothschild, has called for a new international body, the World Environment Agency, to regulate carbon trading.
In a recently published paper, Trading Emissions, for the Social Market Foundation, Mr Linnett argues that the International problem of climate change demands an international solution.
Unless governments cede some of their sovereignty to a new world body, he says, a global carbon trading scheme cannot be enforced and regulated.
* The full paper - Social Market Foundation
"An urgent global response." This was how Nicolas Stern described the problem of carbon dioxide emissions, in his recent review of the economics of climate change. The sense of an impending crisis infuses our all debates on this issue.
The human causes of climate change are now well established. The overall measures we must take - a reduction of our emissions - is painfully obvious.
But like a group of rabbits caught in the headlights, our actual means of escape remain unclear. We know what our end goals are, but how do we get there? How can governments achieve delivery?
The first step must be to recognise the scope of the problem. Unlike other pollutants, such as litter or nuclear waste, CO2 emissions have impact on a global level - and only on a global level.
This means we have to deal with the issue internationally. The problem is literally too big for any one country to handle. Old alliances, divisions and 'special relationships' are a meaningless hindrance.
I believe it is essential that governments and the private sector work together to solve the problem. As a banker, I suppose I would say that, but only such a partnership will we be able to harness what Al Gore called the multitude of little solutions, which all add up to a better outcome.
Only the private sector can successfully develop those solutions, but only governments can provide a framework for them to be applied internationally.
As a banker, I also welcome the fact that the 'cap-and-trade' system is becoming the dominant methodology for CO2 control. Unlike taxation, or plain regulation, cap-and-trade offers the greatest scope for private sector involvement and innovation.
Furthermore, taxation and regulation can only be levied at local or national levels, whereas cap-and-trade can operate on a global level. And remember, the problem is global.
But for the private sector to participate enthusiastically in a global carbon trading market, governments must collectively establish a robust framework within which trading can occur. It must be long, loud and legal:
* Long: it is going to be around for a long time;
* Loud: it will be the dominant mechanism for sponsoring changes in behaviour and we are going to make this perfectly clear to the world's people; and
* Legal: we will enforce it through law.
A key implication of creating a legal yet global system of trading, is the loss of sovereignty it implies. Governments must be prepared to allow some subordination of national interests to this world initiative, on the issue of emissions. This need not mean a new system of government, above individual nations.
But it would mean a change to the way treaties are agreed and worded. Instead of saying "we will cut emissions by x per cent by date y" (pledges which are inevitably broken), such statements will have to morph to "we will make our contribution to a scheme which cuts, across certain industries and gases, emissions by x per cent by date y."
The European nations already do this, on certain issues, yielding sovereignty to the EU. And in time, the EU itself will eventually have to yield to a larger body - one which includes the economic powerhouses of India and China.
The cynicism that greets such programmes is well known, since the Asian economies seem bent on rapid expansion. However, I believe that both India and China will soon recognise the benefits of joining a global carbon trading scheme.
First, a properly constituted, one-member-one-vote system would mean that they have a proper 'say'. More importantly, since the allocation of the emissions cap might trend towards recognising world populations rather than current levels of emission, both countries would stand to gain a great deal.
If emissions trading could expand into different areas of economic activity, so too could its message. When an individual receives an electricity bill, they will come to know what the cost of turning on the gas or a light was to the environment.
Perhaps they will gain a new appreciation of their burden on the broader world. Similarly, if the scheme were to expand geographically to include India, China and, ultimately, the US, so too could the prospect be realised of such allowances becoming the reserve currency of the world, taking over that role held for most of the 20th century by gold.
So emissions trading could establish a new world order for a sustainable planet, one based on the sharing of the earth's ability to absorb harmful emissions. To allocate that 'resource' fully and properly will, in turn, require resourcefulness and imagination across the globe.
*Simon Linnett is an Executive Vice Chairman of Rothschild. He has enjoyed 25 years of privatisation and PPP experience with the Bank, leading that effort for the majority of that time.
For the last 10 years, Simon has been in dialogue with both UK and, more recently, EU administrations about the future evolution of emissions trading of which he has long been a proponent. This paper represents his personal views only.
Stop. Think. Observe the pattern.
This issue becomes easier to conceptualize if you begin to think of it in terms of a list of general themes which present a matrix of challenges to global governance. Try to think of it in terms of a set of themes which are said to require supra-national collective action and global solutions. The financial crisis, the war on terrorism, proliferation, the management of pandemics, alternative energy, climate change, international standards of trade, border control, state failure, genocide: all of these, at one point or another, have been citied as key issues which permit no national or regional solution.
Compare. Contrast. See associations.
Carbon trading must be globally regulated:
"A key implication of creating a legal yet global system of trading, is the loss of sovereignty it implies. Governments must be prepared to allow some subordination of national interests to this world initiative, on the issue of emissions. This need not mean a new system of government, above individual nations."
Sovereignty and globalisation:
"The world’s 190-plus states now co-exist with a larger number of powerful non-sovereign and at least partly (and often largely) independent actors, ranging from corporations to non-government organisations (NGOs), from terrorist groups to drug cartels, from regional and global institutions to banks and private equity funds. The sovereign state is influenced by them (for better and for worse) as much as it is able to influence them. The near monopoly of power once enjoyed by sovereign entities is being eroded.
As a result, new mechanisms are needed for regional and global governance that include actors other than states. This is not to argue that Microsoft, Amnesty International, or Goldman Sachs be given seats in the United Nations General Assembly, but it does mean including representatives of such organisations in regional and global deliberations when they have the capacity to affect whether and how regional and global challenges are met.
Moreover, states must be prepared to cede some sovereignty to world bodies if the international system is to function.
This is already taking place in the trade realm. Governments agree to accept the rulings of the World Trade Organisation because on balance they benefit from an international trading order, even if a particular decision requires that they alter a practice that is their sovereign right to carry out.
Some governments are prepared to give up elements of sovereignty to address the threat of global climate change. Under one such arrangement, the Kyoto Protocol, which runs through 2012, signatories agree to cap specific emissions. What is needed now is a successor arrangement in which a larger number of governments, including the United States, China and India, accept emission limits or adopt common standards because they recognise that they would be worse off if no country did.
All of this suggests that sovereignty must be redefined if states are to cope with globalisation."
See the dots. Connect the dots.
Carbon trading must be globally regulated:
"The first step must be to recognise the scope of the problem. Unlike other pollutants, such as litter or nuclear waste, CO2 emissions have impact on a global level - and only on a global level.
This means we have to deal with the issue internationally. The problem is literally too big for any one country to handle. Old alliances, divisions and 'special relationships' are a meaningless hindrance."
"The ultimate challenge is to shape the common concern of most countries and all major ones regarding the economic crisis, together with a common fear of jihadist terrorism, into a common strategy reinforced by the realization that the new issues like proliferation, energy and climate change permit no national or regional solution."
Remember, the problem is global.
Remember, the problem is global.
Remember, the problem is global.
