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The real free market is making the fake carbon markets pointless

In a nutshell, this new study adds numbers and detail to a home truth that the grown ups in the room know already.  Basically humans  want cheap energy. The free market, powered by human creativity and mass demand, will always find ways to circumvent national policies that try to force people to use more expensive energy.

In the absence of a global ruler (Copenhagen anyone?), the only way to reduce fossil fuel use is to invent or discover a better energy source. Any other national policy is simply pushing rocks uphill, like poor old Sisyphus. Manufacturing will always move to countries where cheap energy is still available.

Researchers Andrew, Davis and Peters conclude that national climate and “carbon” policies are becoming less effective every year

Global trade in energy intensive goods is growing faster than global trade in carbon credits. So as some countries slow production and reduce their emissions, they are simply buying those goods instead from other countries. The energy is still used to make the goods, but it’s done in countries that have less regulation on carbon emissions.

The figure 1 graph below is one of the most information dense graphs around. It’s a story of global geostrategic transformation (click to enlarge). It shows which countries are the largest extractors, producers, and consumers of fossil fuels, and whether they use it domestically or provide it for export. The US was the largest source of fossil fuels (bigger than China and the middle East) but since 2004 has shrunk to be smaller than both. It was the largest “producer” in 2007 but China was catching up so fast that I suspect it will lose the top dog status there too. The US is still the largest consumer and half of that consumption is now imported. Australia is so insignificant it scores a couple of reddish bars in “extraction”, but does not even rate a mention for production or consumption.

Figure 1: (Click to enlarge) Fossil-fuel CO2 emissions, 1997–2007, allocated to each of the three accounting points: (a) extraction (highlighting emissions embodied in domestic consumption and those consumed elsewhere), (b) combustion (highlighting whether the fuel was extracted domestically or elsewhere), and (c) consumption (also highlighting whether the fuel was extracted domestically or elsewhere). Countries in the EU27 are grouped.

3. Results and discussion
We find an across-the-board increase in carbon being traded internationally, both as fossil fuels and embodied in products, resulting from growth in international trade. Over the period of analysis, carbon in traded fossil fuels increased at an average rate of 3:1% yr-1, from 8.0 GtCO2 (36% of global CO2 emissions) to 10.8 GtCO2 (37%), while the carbon embodied in internationally traded products increased at an average rate of 4:6% yr-1, from 4.3 GtCO2 (20%) to 6.9 GtCO2 (24%). Combined, traded carbon grew from 12.3 GtCO2 (55% of global emissions) in 1997 to 17.6 GtCO2 (60%) in 2007 (3:7% yr-1).

Figure 1 shows fossil carbon is highly concentrated at each of the three different accounting points (extraction, production, and consumption), with the top-five regions at each point making up approximately two-thirds of global emissions throughout the period. In 1997 and 2001, the US held the top position under all three accounting methods: it was the largest extractor of fossil carbon, the largest emitter, and the largest consumer of embodied emissions. But in 2004, China took over as the largest global extractor of fossil fuels (figure 1(a)), as its domestic coal mining expanded in support of rapid industrialization (Minx et al 2011). By 2007, China had also displaced the EU27 as second-highest emitter of CO2 (figure 1(b)). Positions of consumption emissions were more stable, with the US, the EU27, and China as first, second, and the period (figure 1(c)). However, Chinese consumption emissions grew rapidly over the period, and other reports indicate that they surpassed those of both the EU27 and the US in 2009, and were 21% higher than those of the US in 2010 (Le Qu´er´e et al 2013).

About one-third of fossil-energy use worldwide relies on imported fossil carbon. However, dependence of energy use on imported carbon increased markedly in the US and the EU27 between 1997 and 2007: from 27% to 35% in the US and from 55% to 69% in the EU27 (excluding trade within the EU; figure 1(b)). In contrast to the US and EU, a large majority of the fossil fuels combusted in China, Russia, and the Middle East are extracted domestically. Yet production emissions in China became significantly more dependent on imported carbon between 1997 and 2007, increasing from 5% to 10% over the period (from 150 MtCO2 to 589 MtCO2, mostly as traded oil).

The researchers use their work to argue that we need to consider “cross border carbon adjustments”. Instead I suggest we need to get the science right. Everything in this paper assumes that reducing CO2 would be a net benefit, when there is no empirical evidence that supports that, and indeed there are hundreds of observations that show the models don’t work, and that our CO2 emissions make little difference to the climate. Even if there was a reason to reduce CO2, investing in research to produce cheap alternative energy is the most direct way to change our energy source. If solar, wind or tidal worked without subsidies, we wouldn’t need a carbon market at all, everyone would simply buy the cheap energy.

At the moment, the carbon market aims for two outcomes: 1/ It hopes to0 reduce CO2 enough to change the weather (which is abjectly futile), 2/ aims to artificially produce enough profits for manufacturers of alternative energy sources that they can use some of the profits to pay for R&D and finally discover the holy grail of energy production.

It’s another example of how “big government” comes to bizarre and unlikely uses for your tax dollar. Who’d spend their own money on this?


Andrew, R.M., Davis, S.J. and Peters, G.P. (2013): Climate policy and dependence on traded carbon, Environ. Res. Lett., Vol 8  034011 (7pp) [Abstract]

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