At the time I wrote this article just a few short weeks ago, climate change seemed to be the issue that most glaringly exposed capitalism's inability to deal with a global crisis. Now, of course, Covid-19 has exposed its failures on a much more rapid timescale.
Both crises have laid bare how the capitalist nation state and production for private profit have to be urgently replaced by the building of a socialist world.
Self-isolation and social distancing perhaps mean more people than usual have time on their hand to read at present - so please see what you make of this article - carried in the upcoming edition of Socialism Today, the monthly magazine of the Socialist Party (England and Wales)
|On the climate strike, Liverpool, September 2019|
Pricing out greenhouse gases?
1997, the Kyoto protocol established the setting of a price for carbon as
capitalism’s solution for reducing atmospheric greenhouse gases, chiefly carbon
dioxide, in order to prevent a critical increase in global temperatures. The
treaty was meant to establish a global market for trading carbon permits that,
through the magic of the market, would incentivise individual nations and
companies to cut their greenhouse gas emissions and invest in low-carbon
market model at the outset was an international cap-and-trade system. The idea
was that countries would be set a limit on emissions totalling an overall
global cap. If one nation – or a business given its own limit by a government –
wanted to exceed its cap, it would have to buy additional emission rights from
the carbon market. If it managed to reduce emissions beneath the cap, it could
sell the unused allocations on the market as well.
The plan was that
the overall cap would be reduced gradually, leading to a phased reduction in greenhouse
gases over time. Over twenty years later, it is self-evident that the market
mechanisms proposed in Kyoto have completely failed to prevent continued global
The latest scientific data show that all key indicators of
climate change are worsening. Levels of greenhouse gases in the atmosphere
continue to rise rapidly. Glaciers and ice sheets are retreating. Global
temperatures and sea levels continue to rise, as does the frequency of extreme
Far from the
situation improving, the pace of global warming is accelerating faster than
most scientists expected. Capitalism has launched us on a catastrophic
trajectory that is forecast to see global temperatures rising to 3.5°C above
pre-industrial levels by the end of the century. Unless reversed, that would
mean irreversible tipping points are reached that result in permanent catastrophic
change for humanity.
is, of course, a global problem that demands global co-operation and planning. Kyoto,
and all the climate summit failures since, have shown without doubt that
capitalism cannot meet that demand. A world made up of competing nation states
and economic blocs was never going to agree on a global cap and carbon price
that could really tackle global warming with sufficient urgency.
How could such a
cost be meaningfully arrived at in the first place? It would require setting a
price on the effects of fixing climate change now and into the future. That
cannot be done through the capitalist market where, in practice, decisions are
largely dependent on political compromises allowing agreements to be stitched
together between nations with competing short-term economic interests.
inability to overcome these national differences was glaringly obvious in the
fact that neither China’s regime nor the USA administration adopted binding
targets after 1997. Yet these two nations alone accounted for 44% of the
world’s CO2 emissions in 2018.
The US refused to
ratify the Kyoto treaty. US capitalism was not prepared to weaken its economic
position by adopting measures that could undermine its profitability, particularly
the influential big coal and oil interests. Later, Canada also withdrew from Kyoto
on similar grounds. It had committed to cutting its greenhouse gas emissions to
6% below its 1990 levels by 2012, but by 2009 its emissions were 17% higher.
argues that it cannot be expected to take on the economic costs of a global
problem unless its economic and strategic rivals commit to do the same, not
least China. In 1997, China was still classed as a ‘developing country’ and was,
therefore, exempted from Kyoto targets. Now, however, it is the world’s biggest
net emitter of greenhouse gases, although not per head of population. In turn,
China’s regime argues that it should not have to pay the cost for a problem
first created by imperialist countries.
between global competitors will remain a major stumbling block in reaching any
global agreement on a capitalist basis.
As a result,
despite all the climate summits and the mounting evidence of accelerating
climate change, no single global market has been created and 80% of greenhouse
gases are still not covered by any price. Nonetheless, some markets were set
up, most notably, the Emissions Trading System (ETS) established by the
European Union in 2005.
Yet the ETS has shown
the limitations of such a market mechanism. Rather than make businesses pay for
their allowances, the ETS distributed credits to them freely. Global recession
in 2008 then resulted in reduced demand leaving many firms well beneath their
allocated caps. So, rather than driving genuine change, the unused credits
generated windfall profits for shareholders.
Even if operating
as planned, however, a market based on one region cannot resolve a global
problem. While the EU has cut its carbon emissions, particularly from burning
coal, those reductions have been counteracted by importing goods from other
regions, particularly China, where emissions are increasing.
big-business-sponsored Carbon Pricing Leadership Coalition (CPLC) points out: “Even in regions with
established carbon pricing initiatives and declining territorial emissions,
such as the European Union, the overall carbon footprint has actually increased
in certain years, when accounting for the (consumption-based) CO2
emissions embodied in internationally traded goods”.
The EU claims
that the carbon content of imports is now falling. However, its calculations are based on the
assumption that “imported products are produced with production technologies
similar to those employed within the EU-28” member states – 27 now, of course,
with Brexit. In reality, most will have been produced in economies reliant on
higher greenhouse emissions.
business has also complained that it has been difficult to plan investments
because of uncertainty about the level of carbon pricing. As with any traded
market, carbon prices within the ETS have varied widely. In recent years the EU
has intervened to reduce the supply of emission allowances. That has driven up the
carbon price which now stands at around $25 a ton. That is a significant
increase on the period between 2012 and 2017 when, in the wake of the global
recession, the price fell beneath $10 per ton. Before that, in 2007, an excess
of supply over demand had seen the carbon price during the pilot phase of the
ETS collapse, effectively, to zero.
A similar crash
in prices torpedoed another market mechanism set up as part of the 1997 Kyoto protocol,
the Clean Development Mechanism (CDM). The CDM was an ‘offset’ programme that
allowed industrialised countries to turn their support for greenhouse emissions
reduction projects in a developing country (mainly China, in practice) into a
credit that allowed them to exceed their own emissions targets.
In the face of
market uncertainty following the global recession, CDM credit prices fell
beneath $1 and led to the mechanism’s complete collapse. The ongoing wrangle
over whether unclaimed CDM credits might still be honoured as part of a new
global offset scheme was one of the sticking points that could not be resolved
at the latest climate summit, COP25 in Madrid, last December (see: Bad Cop,
Socialism Today No.235, February 2020). It is far from clear how much genuine
offsetting occurred under the CDM and how much proved to be merely an
accountancy exercise allowing big business to get around emissions limits while
proclaiming its ‘green’ credentials.
profiteering inevitable under capitalism has been exposed in some of the
‘voluntary’ offset programs that have also been created. Forestry offset
projects, where businesses have claimed to be supporting reforestation programmes
in return for continued greenhouse gas emissions, have been particularly
criticised. It is rarely clear whether a forest has really been conserved and
whether any protection is ongoing.
A recent Daily Telegraph investigation suggested that much of
the deforestation offsetting backed by companies like British Airways, easyJet,
BP and Shell achieves little beyond greenwashing their reliance on fossil
fuels. It quoted Doug Parr, Greenpeace UK’s chief scientist, explaining that
“what customers aren’t told is that this market is an unregulated Wild West,
and there’s little evidence that offsetting schemes generally work”.
report concluded that “the solution is a properly regulated market” – not
necessarily a conclusion shared by the proprietors of this right-wing,
Tory-supporting newspaper! But how can one set of profiteers be trusted to
regulate other profiteers? Working-class oversight, through the democratic
public ownership of industry and finance, is the only way to ensure the future
of the planet.
to economic rivals
The lack of a
global agreement increases the risk that any reductions in greenhouse gas emissions
made in one part of the world would be undermined by greater emissions
elsewhere. Some capitalist economists are raising the danger of carbon
‘leakage’ where, rather than being ‘incentivised’ towards lower carbon
production, a multinational operating in an area covered by a carbon market
could simply opt to move production to another region that is not. In reality,
of course, these commentators are not only concerned with global emissions, they
also fear the hit to profits that could result.
warn that capitalist supply and demand could have other unintended consequences
if, for example, the oil price falls as more industries move to sustainable
energy resources. That might then drive up oil consumption in areas without a
They also discuss
the risk that goods produced more cheaply in countries without the overheads of
a carbon tax or cap could gain a competitive advantage over their rivals who
do. This is a particular concern for energy-intensive sectors like steel,
aluminium and cement. For example, when Arcelor Mittal announced cutbacks to its steel production in France and
Germany last year, it cited rising carbon prices as part of its reasoning.
operating in those sectors are pushing for the threat to their competitiveness to
be countered by ‘border carbon adjustments’, essentially, additional tariffs
levying a domestic carbon price on imports from jurisdictions that do not price
carbon. However, other capitalist interests oppose measures that risk adding to
protectionism and a reduction in world trade. These conflicting interests are
only going to diverge further in the face of a new world downturn.
the global carbon price
Up to now, the
risks posed to corporations and nation-state economies through localised carbon
markets have not been particularly significant because prices have been kept at
such a low level. Globally, the IMF estimates they average no
more than $2 a ton of CO2. However, in turn, there is also general
agreement among capitalist economists that carbon pricing, therefore, has
failed to address climate change in the way that their market-driven theories
A section of capitalist
economists recognise that their market-based solutions require carbon prices to
increase substantially. In the face of the damning evidence that urgent action
is needed, it has fallen on the IMF to carry out an analysis to estimate how
high global carbon prices would need to be set.
The 2015 Paris accord
agreed an international goal of at least preventing global temperatures
increasing beyond 2°C above pre-industrial levels – without any binding targets
to achieve it! Climate scientists have since warned that 2°C is too high to
avoid severe consequences and that even deeper greenhouse gas emissions cuts
and swifter action are required. Nevertheless, the IMF decided to calculate
what global carbon price would be required to meet that Paris goal, concluding that
it required a rapid increase to $75 a ton of carbon dioxide by 2030.
The IMF is not
alone in concluding that such a steep carbon price increase is necessary. In
2017, the High-Level Commission on Carbon Prices, chaired by economists Joseph
Stiglitz and Lord Nicholas Stern, also concluded that carbon needs to be priced
between $40-80 by 2020, then rise to $50-100 by 2030, to achieve the Paris
target. Of course, 2020 has already arrived, so this remains another recommendation
where international capitalism is showing itself to be incapable of even acting
on its own advice.
a capitalist solution be found?
will never accept that their system is the problem. Instead, acting through
bodies like the Carbon Pricing Leadership Coalition, they continue to try and
find a global market-based solution. The CPLC claims the backing of 34 national
and sub-national governments, including the UK, France, Germany, Japan and
Canada. It is also supported by over 160 businesses, including BP, Shell, Nestlé,
Siemens, Unilever and other major firms. Its conclusions offer a good idea of
how capitalism thinks it might yet manage an “orderly transition to a low-carbon
resilient global economy”.
questioning capitalist methods, the CPLC maintains that the market can still
provide a solution, just as long as carbon prices are applied globally at the
high levels recommended by the IMF. At the same time, it acknowledges business
concerns about “the potential for international competitors to have an unfair
advantage if they do not face a similar carbon price”. It offers reassurance that
these fears are exaggerated and that other variables, such as wages and
corporate tax rates, can be adjusted to “alleviate competitiveness concerns”.
In other words, the costs can be passed on to the working class, and profits
can be protected!
Of course, if
that does not work and profits are threatened, the pure ‘free market’ can be
put to one side. The CPLC recommends “temporary or partial exemptions for
certain specific industries or regions competing heavily on a global scale”. So,
in the final analysis, the requirement for short-term profit outweighs its
faith in the ability of the market to solve climate change.
support for a carbon price hike is evident in the responses from big business
on the CPLC website. For example, Cefic,
the European Chemical Industry Council, agrees that “carbon pricing is a
crucial tool”, but “best would be a global carbon price for all”. For now,
however, it says that, “as regions implement climate policy at different speeds…
measures to overcome the impact on competition can and should be part of a
carbon pricing scheme”. Meanwhile, Michelin’s chief executive commented that the
“Michelin Group has always been in favour of pricing carbon”, on condition that
“the system is transparent, rewards best performers, and ensures a level playing
searching for an agreement that cuts greenhouse gas emissions while protecting
existing big-business interests from being undercut by global competitors. But
that’s simply beyond its means. The higher the price set for carbon, the more
big businesses will plead for special protection to safeguard their profits. The
more exemptions that are agreed, the lower the carbon price will be, driven
down by the market.
A solution can
only be achieved through a socialist global plan, motivated by the joint
interests of the world’s workers and poor in reversing climate change, rather
than the short-term profit motives of capitalism.
initial preferred mechanism for applying carbon pricing was a cap-and-trade
system that set a ceiling on global emissions. Now, given the glaring failure
of the Kyoto protocol, capitalist economists are increasingly backing an
alternative approach: applying carbon taxes directly to households or
businesses. It was on this basis, having tried to determine the social cost of greenhouse
gas emissions and climate change, that the IMF arrived at its figure of $75 a
In practice, it has been estimated that a carbon tax levied at that
level could see the price of, for example, natural gas – still widely used for
power generation and household use – increasing by 70% on average. But what
effect would that have on both the production costs for capitalism and the
living standards of workers?
Supporters of taxation
measures point to Sweden – where a carbon tax of $140 per ton has been levied –
as reassurance that it would not hold back economic growth. Its introduction was
combined with a reduction in income tax to offset the effect on individual
household income. An expansion of district heating networks also meant that
most homes no longer rely on buying in their own fuel. Electricity generation from
fossil fuels has been cut through the expansion of alternatives, including hydropower,
biofuels and wind energy. As a result, greenhouse gas emissions have fallen by 26%, although they
remain high in the transport sector.
a carbon tax to a developed economy with the resources to invest in alternative
technology would not translate so easily into a global model. Moreover, the
carbon tax is facing growing opposition within Sweden, particularly in rural
areas where workers rely on cars for transport. Economists have also pointed
out that, as emissions fall, the income generated by the carbon tax falls with
it. The Swedish government is now investigating introducing a per-kilometre
road tax to generate further income. Once again, workers will foot the bill
rather than big business.
costs make up a greater share of the budget of low-income families, a carbon
tax will inevitably fall hardest upon the working class. But as discussed
already, significant carbon taxes will also face resistance from big business
and governments worried about being undercut by rivals without the same
overheads. These concerns will grow sharper as the tensions between different
trading blocs increase against the background of world economic slowdown. International
efforts to find a capitalist solution based on a global price on carbon dioxide
emissions will undoubtedly continue. They will also continue to fail to reach
any meaningful agreement.
thinkers of capitalism are only too aware that climate change is an existential
threat that needs urgent action. Their proposals, however, are always
constrained by the limits of the system they defend. Without addressing the
twin barriers of the nation state and the profit system, their market-based
solutions have not – and cannot – succeed. Capitalism is incapable of taking
the united international action needed to reverse climate warming. Only a
system change that replaces it with a global socialist plan can achieve that