Challenging “The Sin Exchange Market”

If you have not read my previous blog, “The Sin Exchange Market” [1] about carbon pricing and the potential of a global market and would like to learn more, I highly recommend reading it to better understand this blog.

It is apparent that “The Sin Exchange Market” was written from an economist’s side of the argument, portraying carbon pricing as an economical and flexible solution that can serve to stimulate competitiveness through sustainable developments. This blog, in contrast, aims to provide critical commentary on this WBCSD-led project, taking in different viewpoints and exploring barriers to a functioning carbon trading market.

In many senses, carbon pricing is an attempt at Shared Value Creation [2] because economic values are created alongside societal values by addressing its needs and challenges. “The Sin Exchange Market” touched briefly on this, asserting that carbon pricing can resolve the stalemate presented by economists such as Friedman. Shared Value Creation is not without critics, questioning its sufficiency in solving societal problems, as it is limited to those issues and concerns that promise economic value for business [3].

When the discussion of carbon pricing took place at the WBCSD, many companies expressed concerns over the mindset behind corporate engagement of the programme. To many, pay to pollute-as-usual cannot sit next to the Paris Agreement nor does it capture any of the WBCSD’s Sustainable Development Goals [4]. Carbon trading seems less a distribution of work but more a distribution of blame. Additionally, it does not reduce emission, only a compensation for the damages done that get converted to all manners of public funds [5]. I believe that if this money can go directly into public and private carbon removal efforts instead, it would give carbon pricing a much more positive purpose that people can stand behind.

There were other interesting queries regarding the practicality of a global carbon market raised:

Firstly, from a government’s standpoint, they too have carbon target either set by regional agreements or the Paris Agreement. Selling carbon allowances abroad means less headroom for the country and buying more means national target is at risk. This gives few reasons for governments to support active trading.

Secondly, the pricing of carbon is in scrutiny. The WBCSD estimates that carbon can be priced at US$40–80per ton in order to limit climate change to well below 2°C [5]. My three questions here are:

  1. Is this high enough to disincentivise companies from unsustainable practices.
  2. Is it attractive enough to gesture that there are ripe opportunities for trading.
  3. Is it supported by the current financial and legal system where a standardised protocol across jurisdictions can be established.

Unfortunately, when one accumulates the facts, the answer to all three questions is “no”. In my belief, for A and B to turn into a “yes”, we need to have faith in going all out with this measure. Per a suggestion of one delegate with a background in trading: the price of carbon should be at least US$200 per ton. At the same time, it will send a strong signal that carbon has the potential to take off. If a tech company can go public with US$150 per share, why can our planet not do the same?

By Nam Le

Image: Mark Dixon – Wikimedia Commons

[1] https://lumsatthewbcsd.wordpress.com/2018/05/03/the-sin-exchange-market/

[2] Porter, M., & Kramer, M. R. (2011). Creating shared value. How to reinvent capitalism and unleash a wave of innovation and growth. Harvard Business Review, January-February, 62-77

[3] Dyllick, T., & Muff, K. (2016). Clarifying the meaning of sustainable business: Introducing a typology from business-as-usual to true business sustainability. Organization & Environment, 29(2), 156-174.

[4] https://sdghub.com/ceo-guide/

[5] http://docs.wbcsd.org/2018/04/CARBON_Pricing_Report.pdf

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