The Story of Cap n Trade...

Traders haven't got much of a good press recently as they have been blamed for excessive risk taking and nearly bringing down capitalism. It's a great story, but it ain't true. Retail banks - thats RBS to you and me - took excessive risks and brought down capitalism not the traders.

And so to another great story - the story of cap and trade.


The Story of Cap & Trade from Story of Stuff Project on Vimeo.




You have to hand it to Anne Leonard and her team - they know how to get press and get a great story out there. But let’s look closely at some of the accusations:


1. The cap and give away.
The free permits. I have discussed this earlier this year. Phase 1 (2005-2008) of the European Union Emissions Trading Scheme (EU-ETS) which this story is based on was a cap and giveaway. Billions were made by the utility companies in windfall profits. Which is why in phase 2 (2008-2012) and especially in phase 3 (2012-2020) the allowances will have to be bought at auction. The proposed US cap and trade scheme is also proposing auctions and the CRC Energy Efficiency Scheme - the UK's trading scheme for smaller businesses - has 100% auctions. In fact virtually every economist argues for it. It ain't a cap and giveaway anymore.


2. Caps too loose
In phase 1 for the EU-ETS, the caps were too loose which meant the carbon price fell sharply. But it’s been suggested that this was deliberate to secure buy-in from industry. Get them in, and then tighten the cap. In Phase 2 the EU rejected most national allowance plans - not the UK's - but virtually everyone else's. For phase 3, member states won't be allowed to set them - only the European Commission which means a tighter cap AND a wider cap that will include aviation and more industries. There is also a strong argument for a price floor which basically makes it a tax and cap and trade. The US proposal also suggests a price floor.

3. Offsetting
People really don't like offsetting, but lets get a few things right. There are two types - certified emission reductions (CERs) that are generated by Clean Development Mechanism (CDM) projects and voluntary emissions reductions (VERs) which are not.

CDM projects have to get verified by 12 UN bureaucrats and need to show that they are providing additionality (that a renewable project, for example, would only go ahead if there was income generated from CERs) AND that they are not just replacing home country emissions. If a utility company funded a project in China to reduce emissions of a coal plant, they would have to prove that they have reduced emissions at home first.

So, a utility company within the EU-ETS, may decide that it is more cost-effective to reduce emissions in another country (where coal fired stations are less efficient) than to reduce emissions further at home (where coal fired stations are more efficient). First, they have to get the project approved and that takes 18 months; remember, there are only 12 of these UN bureaucrats to approve 1000s of projects. Second, the EU-ETS only allows a small percentage of offsetting - around 10% - and once this has been reached there is no more allowed. Finally, they have to hope that their project in another country is built to spec and works to spec and reduces emissions. Oh, by the way, they can't use voluntary emissions to offset their own emissions as they are not regulated by the UN.

When CDM works well it can benefit countries through increased income and technology transfer. If China, India and Brazil want to grow, CDM projects can facilitate this without increasing carbon emissions.

So where does this leave us? Well, it's great story, but it's spoilt by the facts. Leonard is short on alternatives, but let’s visit them, briefly. First, we could have a carbon tax and there is a strong argument for this over cap and trade. The problem is that businesses and the public don't like them, accountants are great at reducing tax burdens and how do we harmonise a global carbon tax? There's no precedent.

What about simply telling business to meet a standard? Well, how do we define a global standard? Should it be the same for all countries? Also, command and control systems tend to reward complacency and companies that do the minimum. Companies that go beyond the minimum are simply not rewarded.

Ultimately, in my view, it's down to two things: first, the trading of carbon blows people's minds away. Think about it, it doesn't physically exist like coffee or oil or other commodities. Second, a vocal section of environmentalists don't like the profit motive or capitalism and see cap and trade as part of this problem. I don't see it as that way: it's government regulation using the profit motive. Without government, the carbon market wouldn't exist. The other benefit is that cap and trade is on the brink of securing a better climate change deal - that's some achievement.

Structural issues for sustainability

The holy grail of climate change - behavourial change - is beginning to get interesting. First the government has launched a series of ads that go beyond the concept of consumers behaving rationally to choices they have. I've posted about the Act on C02 ad and I've just seen another one in today's Observer - I can't find a link for it unfortunately - and yet another TV ad on driving. These ads go beyond the rational behaviour approach and attempt to use more pyschological approaches.

In fact, DEFRA have produced a very useful overview of environmental behaviour and combined with Futerra's rules of the game in climate change communication surely we have enough to get change behaviour started?

Well, not quite. Agency versus structure - the old social science dilemma. The issue is that most people believe that climate change is an issue, but that they are not willing to change their behaviour unless there is a a percieved (there often is a benefit, but it's not always seen in the short-term) financial benefit, or if it is easy or if others do so. Do we have time to experiment whether we can convince people or should we just focus on getting businesses to change and top-down government regulation? At the moment, the government is timid in its approach prefering choice editing and nudge economics.

On the other hand, there are flourishing, if niche, alternative community collective approaches to reducing carbon. For example, transition towns, organic box schemes and car pooling to name but a few.  Not all work, but some go beyond niche and become mainstream. Is Social innovation the holy grail of climate change?

The thing is time. We have 10 years to reduce carbon emissions by 34% and we're unlikely to make it: nuclear won't be back on line until 2020; wind, although growing, is not enough; the Severn Tidal barrier may be complete in 2020; wave energy is still in its infancy; there may be an increase in solar but it's not cost effective; and, yes, we'll have lots of anaerobic digestion or biomass, but it's just not enough. We have to have significant reductions in emissions and energy. It's not, in my opinion, going to come from consumers. We might get some interesting innovations from a few community projects, but it's more cost effective to change business behaviour.

What I can see, however, is some smart businesses realising that there is a lot of innovation from community groups. Would it be so crazy to imagine a large business offering to support community groups with the view that they might benefit from a new way of production or consumption? I can see developers offering land and contributions to people who want to build eco homes and go off grid. I can see supermarkets offering funding for local food networks to understand how it may work. We need radical ideas and smart businesses will know they ain't going to come from their own ranks. They will need to fund mavericks or employ them...

Fairtrade and WalMart in Greenwash claims

Recently we had two very interesting lectures from guest speakers. First was Dr Mick Blowfield from the Smith School of Enterprise and the Environment at Oxford University. His main specialism is Corporate Responsibility.

He gave an excellent overview on looking at which companies do CR well and those that don't. BAT (that's British American Tobacco) are one of the leaders and they are genuinely making serious attempts at CR. I just find it hard to take CR seriously from a company that, ultimately,  promotes death!

However, we were then treated to a sucker punch from Dr Blowfield who applied the same critical approaches to the Fairtrade standard.  And, do you know what? If you do apply the same standards of openess and transparancy you won't find answers on the FairTrade Foundation web site, nor will you find third party verification or criticisms. A superb lecture that challenged a sacred cow, but ultimately is right in its approach: you can't have one standard of reporting for Big Business and a different one for NGOs or social enterprises.

This week we were treated to lecture from Dr Tauni Lanier, who was the first Managing Director of the Dow Jones Sustainability Index was senior project manager at the World Business Council for Sustainable Development, where her responsibility was to construct the business case for Corporate Social Responsibility reporting. Another very good lecture looking at venture philanthropy and CR.

What struck me was her opinion on WalMart's Sustainability Index - something I had blogged about a few weeks back - in which she argued that it was greenwash to avoid making any progress on their labour rights.  Yet today, we had someone from the Carbon Trust who was extolling WalMart's decision.

It's about pragmatism in the end. Am I going to stop buying FairTrade coffee because it doesn't have the same transparancy as BAT? No, but my eyes are open and they need to make sure they don't get caught out on this. Is WalMart's decision greenwash or not? I want to believe that it's not and that by taking this decision it may start to encourage them to think about the benefits (ultimately to the bottom line, in the end) of better labour rights.

Naive? Maybe. What do you think?

400 complaints made about Climate Change Ad

It didn't take long, but I did wonder if anyone would complain. See Richard's news...

Is there a happy ending?

I have mixed feelings about this advert by Act on CO2 - the government's consumer campaign on climate change. I am haunted by my children's future questions of: "daddy, what did you do to stop climate change?" Indeed, what am I doing?

But, on the other hand, I also know that the majority of the population will turn away. Adverts are tricky to get right for one segment. To get right for all segments with one message is virtually impossible. Besides, TV ads are a risk now aren't they? Who watches TV? There needs to be an understanding that it's the middle classes that have to be targeted (they generate most of the emissions) and they tend to watch TV the least.  The message needs to be less overt and more covert. How? Don't sell stuff (stop climate change) sell a lifestyle. Sell Southwold and fish (pollock, remember!)  and chips rather than Australia. Sell working from home once a week rather than a commute for five days. Sell a banter in a shared car journey rather than a depressed M6 traffic jam solo journey.   Better still, sell fitness for free by cycling rather than a drive...

Book Review on Powerdown by Richard Heinberg

I am doing a book review on Powerdown by Richard Heinberg. Now, before I chose this book, I didn't know that it was one of the bibles of the Transition Town Movement. Essentially, Powerdown makes the case for peak oil and suggests we have four alternatives for the energy descent that looms.  These are: energy resource wars, technological fixes, powerdown - we cut energy use - and lifeboats where we create refuges where we can. Peak oil is a given. There may be debates on whether you include tar sands and the like, but economic if not physical peak oil is accepted even by the oil industry.

Resource wars are not a great idea, obviously, but there is a new "carve up" of resources (by this I include food and water as well as oil and minerals) already going on. What's interesting is the rejection of the technological fix and the focus on powerdown or creating refuges. Essentially, Heinberg argues that it's too late for technological fixes. So we have to powerdown, or at least some of us will do this with others following after the oil has run out. Powerdown is reducing dependency on oil by producing and consuming local food and energy sources, for example, to create resilient communities. It is the ultimate no growth strategy.

Transition Towns looks to be a genuine social movement that is rapidly growing. It's democratic, open and consenual with groups in the country and in the city. Although not mentioned in any of their literature it's very much following Gramsci's 'praxis'  - doing stuff rather than just a campaign group.

I have a few questions: first - how large and diverse is this movement in terms of numbers? Is it predominantly a liberal white middle class movement? At what point does this become a national powerdown (where you have convinced the majority of the population) rather than lifeboats? And, will this more likely and happen more quickly than the technological approach?

Second, where does business fit in this. If energy descent IS the only option, then Tescos and, perhaps, many more need to change their business model fast - very fast. Perhaps there is no room for Tesco! Is there room for Waitrose and the Co-op perhaps?

Third, what happens to tax revenues - presumably they decline in line with the descent and therefore education, health and so on decline too. I am assuming that defence cuts are one-off savings. Where does government fit into this?

Fourth, why is it energy descent as there is an abundance of energy out there: solar, wind, biochar, waste and, dare I say it, nuclear?

Anyone have any answers or comments?

The End of the Line

Last night I went to a viewing of The End of the Line sponsored by Adnams. It's a disturbing film made by the same director of Black Gold that highlights the problem of over fishing. Using figures from the Charles Glover's book, the film has a dramatic conclusion: all the fish we consume on a regular basis will disappear by 2050.

The science is there and pretty robust - there's a debate about exactly when the fish will run out, but everyone agrees that fish stocks are declining at a rapid rate. The solution is obvious, we need to consume fish more sustainably. This is one of the questions in this week's lesson in Sustainability. How DO we get people to consume more sustainably?

The film promoted the idea of sustainable consumerism. If we buy fish from sustainable sources, then businesses will match demand. At the same time businesses may stop selling fish from depleted stocks. Since the film, Marks and Spencers, Pret a Manger and Waitrose have all agreed to stop selling fish that are endangered. How can we help? We buy fish that is certified by the Marine Stewardship Council. Like Fair Trade, it has sustainability standards, a logo and is growing fast. But we need to be more proactive and demand sustainable fish at our restaurants, shops and even our chippies.

It's hard, isn't it, to change habits? Is Mary Janes at Cromer really going to offer sustainable fish and chips? Should I tell my kids that we won't be having cod anymore and their monthly treat is over? Sustainable fish is also more expensive. It's a hard sell.

There is also a strong argument that advertising and awareness doesn't work for sustainability campaigns: for every successful fair trade logo there are others that fail. Anyone using the carbon footprint logo, for example? We don't buy stuff according to neo-classical rationality. Behavourial economics suggests we buy depending on what others do - we are tribal.

So what do we do? For me, awareness, eco-labelling and campaigns are not enough - our consultancy project with Adnams was clear: people responded tribally, not because of climate change. We need to change businesses. Sometimes businesses change because people at the top want change. Cadburys is moving to fair trade chocolate not because of pressure from consumers, but because the board thought it was the right thing to do. But because not all businesses change we also need strong government legislation. Change the structures and attitudes will follow. However, structural changes that, for example, ban types of fish, require pressure from people lobbying politicians. Social movements get more access, and, ultimately, more success if they can show evidence of sustainable consumption.

We need consumers to lead change to get government to introduce policies to make businesses who haven't changed, change.  In the meantime, ask for pollock at your chippy.