‘Carbon’ Trading: Sometimes It Pays to Pollute

Another important CSR issue in energy trading is the handling of environmental issues. Decades ago, environmental issues tended to be rather local (the leakage at Union Carbide in Bhopal) or at most regional (the Chernobyl nuclear disaster). Another historical example is one nation’s massive use of coal fires in each room of a house—each grate burning fossil fuels in a most inefficient manner and emitting black smoke up each chimney. Fortunately, at least for the governments of Great Britain, prevailing winds were north-easterly, making the pollution a problem for the governments of the Scandinavian countries to resolve. Today, and to a large extent, environmental problems are global issues. It is, however, very important to understand that the problems cannot be resolved without thoroughly developed local measures.

In the past, environmental control was related to defining limits to the emission of all types of pollutants to the air, to water, and in the form of solid waste. The objective of the environmental control was to create a healthy environment for the lives of people and nature as such. At the first UN environmental conference in Stockholm in June 1972, there were already discussions about the right to pay for the right to pollute. The conference delegates agreed on a number of principles. These included: the protection of the environment for future generations (including the pro­tection of wildlife and its habitat), the conservation of natural resources, the mainte­nance of the Earth to produce renewable resources (including the guarding of natural resources from being exhausted), and the prevention of discharge of toxic substances. At that time, there was a widespread consensus about the lack of ethics in this type of mechanism. Instead, the use of legislation, rules, and regulations was seen as the optimal method to be used in protecting the health of people and the environment.

Since then, the effect from pollution has been much more dramatic and public awareness has widened—particularly, the risk for destroying the globe’s environ­ment. This fact has put a focus on controlling the emissions of pollutions to the atmosphere. This has made it attractive to use market mechanisms as a controlling agent of air pollutants in order to restrain global warming. The free market has evolved and is now more integrated into the development of the society. In February 2006, the United Nations (UN)-Kyoto Protocols formally established the integration of environmental issues as a part of the market economy.

The new business sector of environmentally-oriented trading is the fastest grow­ing financial trading sector. Very likely it will continue to grow and outstrip other sectors of the financial services industry. Conservatively valued in 2007 at US$30 billion, the market in managing pollution emissions is expected to grow to US$1 tril­lion within ten years. Carbon trading, trading in emissions of carbon dioxide (CO2), is the current leading trading activity. Market growth is particularly fast in Europe. As the U. S. government considers fully the effects of global warming, the United States will probably soon catch up.

Presently centred on London, the market is ideally placed to respond quickly to EU pronouncements on environmental pollution. Traders are evolving systems of carbon credit exchange between companies that pollute and their greener counter­parts. Governments are in a position to set capping rates for different emissions. In this context, a cap is the maximum allowed atmospheric emission from industrial activity. In Europe this would be a role for the EU Commission; in the United States, state legislatures would likely assume this role. In essence, European traders monitor the proposed pollutant caps set by the relevant EU bodies. Some industrial processes pollute more than others. Polluters can buy credits that are surplus to the needs of nonpolluters. Those who pollute, pay; those who do not pollute, earn. This is the newest and most exciting segment of the thriving financial market. In its wake is pre­dicted to follow financing of projects that are energy-efficient and nonpolluting—a situation that is good for business and even better for the environment. The pressures of rational decisions made within the market economy can be a force for good, given the strength of the market economy globally. However, if rational decisions are made solely for the purposes of profit-seeking, the force may be more malignant.

One deficiency with the new system of CO2 or equivalent type of trading is that sometimes it pays companies to pollute. However, this is not the intention. Using market mechanisms to guide debate and action on environmental issues brings many limitations and difficulties in application. However, market forces have proven to be a very powerful mechanism for making changes and hopefully in the right direc­tion. In 2005, the systems of CO2 trading built on the UN-Kyoto Protocols, whose main objective is to tackle global climate change. There has to be a combination of measures in place that are part of the macro structure—for example, integrated into a market-economy type of energy trading incorporating trading related to CO2 equivalents concerning most different types of air pollutants and related interacting and facilitating variables. This type of macro mechanism must be supplemented by joint UN-supported declarations such as the Kyoto Protocols. But it is also necessary for nations and local communities to have their own systems to control unreason­able production emitted into the atmosphere, into the seas, and in the form of solid waste. It is important to find good mechanisms based on ecological principles in all types of man-made activities. We need to learn from nature and its ability to balance production and consumption.

8.3.5 Conclusions

There is great potential to meld emissions trading with energy trading in a symbi­otic relationship that is mutually beneficial. Here the different traders would work together to achieve the maximal benefit for each market (in that same way that a fuel-saving device in a vehicle indicates the speed at which fuel is optimally used). In this newly developing but fast-growing business sector, there are desirable out­comes for ergonomic design of processes, systems, and technology. In any data – driven industry, monitoring, control, and knowledge development are critical areas. Success often is decided by design of human-technology interfaces and timely ease of access to the databases. However, the additional dimension that the activities of the traders contribute to environmental protection means a stress-laden workplace situation in which the traders routinely operate. ‘Saving the planet’ is also a very strong motivational factor for people. In this way environmental trading is very dif­ferent from the usual concept of trading.

This does not, of course, mean that features of design can be overlooked or skimped; rather, they should be key features of this workplace. A small investment will realise large results, as we describe and discuss in our following proposals.