The Rock Ethics Institute

Home > Everyday Ethics > The Ethics of Carbon Cap and Trade Continued: Going Deeper On Our Original Analysis

Everyday Ethics

The Ethics of Carbon Cap and Trade Continued: Going Deeper On Our Original Analysis

This post continues exploration of ethical issues raised by the numerous carbon cap and trade regimes that have arisen or are under consideration around the world. One of the happy surprises of publishing ClimateEthics is that occasionally we get comments on our entries that raise very important and thought-provoking questions about our initial ethical analysis. This is a response to helpful comments by Robert Sullivan on our recent entry on the Ethics of Carbon Trading. This post originally appeared at: http://sites.psu.edu/rockblogs/2010/06/15/ethical-issues-raised-by-carbon-trading/. The section numbers referenced below refer to sections in the original article. In that article, ClimateEthics examined ethical questions that arise in cap and trade programs. These ethical questions fell into the following categories: (a) Justice of the Cap, (b) Creating Property Rights in the Atmosphere, (c) Environmental Effectiveness, (d) Distributive Justice, and (e) Procedural Justice

I. Introduction.

This post continues exploration of ethical issues raised by the numerous carbon cap and trade regimes that have arisen or are under consideration around the world.

One of the happy surprises of publishing ClimateEthics is that occasionally we get comments on our entries that raise very important and thought-provoking questions about our initial ethical analysis. This is a response to helpful comments by Robert Sullivan on our recent entry on the Ethics of Carbon Trading. This post originally appeared at: http://sites.psu.edu/rockblogs/2010/06/15/ethical-issues-raised-by-carbon-trading/. The section numbers referenced below refer to sections in the original article. In that article, ClimateEthics examined ethical questions that arise in cap and trade programs. These ethical questions fell into the following categories: (a) Justice of the Cap, (b) Creating Property Rights in the Atmosphere, (c) Environmental Effectiveness, (d) Distributive Justice, and (e) Procedural Justice

In the last post, ClimateEthics explained that the purpose of the analysis was not to resolve all the many ethical issues raised by cap and trade but to encourage further exploration of these ethical issues. Thanks to the comments of Robert Sullivan, this post attempts to go deeper on some of the issues raised in the earlier post with the goal of continuing the exploration of the ethics of cap and trade regimes.

II. Specific Issues

1: Justice Of The Cap

In the original post, ClimateEthics argued that if the total society-wide cap, before it is allocated among emitters within the jurisdiction of the government allocating the cap, is less than the government's fair share of safe global emissions, then the cap is not environmentally just particularly to those who are vulnerable to harsh climate change impacts. We also claimed that most existing cap and trade regimes could be accused of being insufficient as a matter of justice.

A. Comment -Mr. Sullivan says:

The first issue is justice of the cap. I agree with you that the world is not doing nearly enough to even put us on a pathway to avoiding catastrophic climate change let alone following that path. However, I don't see a failure of caps being strict enough as an indication of the inherently unethical or unjust nature of cap and trade or emissions trading per se. Without having read any of the references you include on countries' obligations, I am not sure I agree with the statement "many cap and trade regimes do not derive the quantity of the cap from these international obligations". There is an international obligation under Article 2 of the UNFCCC to prevent "dangerous anthropogenic interference with the climate system", and this is further articulated in the QELRCs set out in the Kyoto Protocol (see the first part of Art 2 of the UNFCCC which links into the KP, and also note the clarifying text at the end of Art 2 around also ensuring sustainable development). While I agree that the Kyoto caps are insufficient to meet Art 2 of the UNFCCC over the long term, the Kyoto caps do indeed reflect the most detailed set of international obligations with respect to GHG caps to date. I would argue these are the dominant obligations of countries under public international law, and the cap and trade system set up by the Kyoto Protocol complies with these obligations as does the European Emissions Trading Scheme. However, I also acknowledge that here you may be drawing a distinction between a countries legal obligations under public international law and some other sort of other (ethical?) obligations premised on cuts that are needed to avoid catastrophic climate change and some means of allocating these cuts amongst countries.

Whether or not a cap and trade represents a "fair share" is another issue. The caps are the result of political negotiations, and if there was no cap and trade there may still be emission reduction commitments and targets but I don't think they would necessarily be any fairer simply because they were not linked to cap and trade. If anything developed countries would be less willing to assume steeper cuts, making cap and trade an ethical imperative as the most likely means of achieving the steepest global reductions.

B. Our Response

Mr.. Sullivan probes appropriately about elements of our claim that if the cap is unjust the entire cap and trade regime may be unjust. It appears to us that there are several different questions Mr. Sullivan raises.

First, Mr. Sullivan asks what is the basis for our claim that many caps do not meet a nation's fair share of safe global emissions.

Answer, there is a growing scientific consensus that to prevent dangerous climate change the world most likely needs to reduce global emissions by between 25 to 40 per cent by 2020.

A rich literature on this issue exists. In citing this literature it is important to acknowledge that because there is uncertainty about climate sensitivity, that is we don't know for sure how much warming will be experienced at equilibrium from different concentrations of CO 2 equivalent in the atmosphere, various emissions reductions targets are recommended to give different levels of confidence that warming will be limited to additional warming targets such as 1.5 0C or 2 0C. We must also acknowledge that there is great controversy about whether 20C.should be the global warming limit target or 1.50C or even lower temperature should be the target. In addition, it should be recognized that there is no ethically neutral way of making this decision because of the inherent uncertainty in the climate sensitivity coupled with uncertainty about at what temperatures the Earth will experience rapid non-linear responses of the climate system. For this reason, determining a global target raises a host of ethical questions which are beyond the scope of this post. These ethical questions include who should have the burden of proof about what temperature levels are safe and what quantity of proof should satisfy the burden of proof. Nevertheless, there appears to be a growing scientific consensus that 20C should be, at the very minimum. a global warming temperature limit target that should be the goal of the UNFCCC.. However, as we will see, we don't have to decide this to conclude that current caps are ethically problematic (see below). For a discussion of what reductions are needed to achieve a 20C, see.

See for example,

A. Emissions Cut Of 40% Below 1990 Levels By 2020 Needed For Industrial Countries For 2�C Limit, Potsdam Institute for Climate Research, http://www.pik-potsdam.de/news/press-releases/emissions-cut-of-40-below-1990-levels-by-2020-needed-for-industrial-countries-for-2b0c-limit
B. How To Avoid Dangerous Climate Change, Union of Concerned Scientists, http://www.ucsusa.org/assets/documents/global_warming/emissions-target-report.pdf
C. Climate targets 'must be bolder' a statement of one group of scientists on this issue: http://www.sciencealert.com.au/news/20091809-19778.html

However, given that global emissions most likely need to be reduced by at least 25% below 1990 levels by 2020 at the very minimum to give any reasonable confidence that the world will avoid rapid non-linear warming, one can conclude that national commitments made pursuant to the Copenhagen Accord will not achieve what is needed to achieve the 25% minimum reductions by 2020 because they just don't add up to 25% reductions. A fortiori, individual high-emitting nations can be accused of not meeting their fair share of safe global emissions because fairness would require that high-emitting nations would have to achieve lower emissions than what is needed for the globe, yet no high emitting nations have made commitments at a levels which now appear to be necessary to achieve the 20C target for the entire world..

For this reason, a strong case can be made that existing caps on high-emitting countries do not achieve what justice would require of high-emitting nations to avoid dangerous climate change to others.

Second, Mr. Sullivan appropriately asks ClimateEthics whether given some of the caps that nations have agreed to are now legally recognized by international law such as the Kyoto Protocol, how can we say they are unethical.

We would argue that legal validity does not equal ethical sufficiency given that: (a) nations have never claimed that the emissions reductions commitments they have agreed to in accepting a cap represent their fair share of safe global emissions, (b) nations seem to base the legitimacy of their emissions reductions targets on national self-interest not international responsibility, and (c) nations have negotiated the cap that they have accepted on the basis of what was viewed by them to be politically viable. . We, therefore, don't agree that legal commitments can be construed to satisfy ethical obligations.

One could of course argue, that making any legal commitments in a cap is better than no commitments. We would agree. However, ClimateEthics believes it is important to acknowledge that existing caps do not achieve what would be required of nations if they took their ethical responsibilities seriously to reduce their emissions to their fair share of safe global emissions.

Along this line, we believe it would be an improvement to require in international negotiations that each government be required to expressly articulate what atmospheric concentrations of ghg emissions their commitments are designed to achieve. No national target makes any sense unless it is seen implicitly as a position on a safe global atmospheric concentration target but nations are not asked to explain what global targets will be achieved by their voluntary targets and why their emissions commitments should be understood to constitute their fair share of total global emissions.

Third, we understand Mr. Sullivan to be asking once the cap is agreed in international negotiations, can we claim that the entire cap and trade regime is unjust.
We think this question raises interesting ethical issues not yet dealt with. Another way of stating this question is- if the world has agreed to caps in an international agreement, given the agreement how can we say the entire cap and trade regime is unjust. We believe the trade features of cap and trade could lead to seeing the entire scheme as unjust if the cap is unjust for the following reasons. If country A only agrees to a 10% reduction by 2020 when their fair share is 25% for instance, and they actually achieve 15% reduction they can sell the 5% excess tons to country B to be counted against country B's target. This then creates two injustices. First country A has not achieved its fair target. Second it gets unjust revenues because the cap was set too low. This also gives the buying entity, country B a right to exceed its fair share of safe global emissions because it has bought credits from country A. From the standpoint of a country that is very vulnerable to climate change impacts, the trading scheme is unethical. .

2. Allocating Global Commons Resources for Private Consumption

In our original article we explained why cap and trade regimes may be ethically problematic if they give property rights to the atmosphere, a resource understood to be part of the global commons. One feature of global commons resources is that they are owned by all people and as a consequence no person or entity can acquire a private property right that excludes others from the use of that resource. It is also generally understood that governments have a duty to protect commons resources for the benefit of all peoples and that such responsibilities include obligations to prevent entities from using the commons for private uses. For this reason, if cap and trade regimes implicitly give emitters property rights to the atmosphere this could be ethically problematic. See section III of the original post.

A. The Comment-Mr. Sullivan says:

The first point I would like to make here is that in many jurisdictions allowances and credits are explicitly defined as not being a property right. This is true in the Kyoto trading mechanisms along with a number of national jurisdictions. The Kyoto Protocol rules states that "the Kyoto Protocol has not created or bestowed any right, title or entitlement to emissions of any kind on parties included in Annex I". This is also expected to be the case in any future US emissions trading scheme. All the recent bills state this explicitly - for example see section 721(c)(1) of the American Power Act states: "An allowance or an offset credit established by the Administrator under this title shall not constitute a property right". The reason for this is precisely so that the US government can take away or reduce this right in the future without paying any compensation to emitters. There are also limits on banking offsets in the Kyoto Protocol.
While emissions trading has not privatized the atmosphere, I do agree that it has created certain rights to emit GHGs. In some instances these rights may amount to a species of property right in a number of national jurisdictions, but in many others they are not. However, even if rights to emit GHGs can be construed as a property right, this right is not held to the exclusion of others. The Kyoto Protocol and EU ETS do not prevent or restrict any rights of developing countries to produce GHG emissions. In fact the situation is quite to the contrary as there are no restrictions placed on them. On the broader argument of protecting the global commons, you indicate that it is the role of the government to protect this for the greater good rather than allocating use or access rights to private individuals. Looking at the analogous case of forestry, in many developing countries forests are owned by the national government even though indigenous and other local communities may be living in and dependent on the forest with bona fide claims of use rights if not ownership of the forest. There is ample evidence that recognition of these rights helps protect rather than damage the forest. This does not mean that we should privatize the atmosphere, but it does demonstrate that granting rights with respect to a global commons can have a positive rather than a negative impact on preserving that resource.

B. Our Response

First we point out that our position was that the nature of the property right given under a cap and trade regime could be an ethical problem although we agree that cap and trade design can minimize the problem by express limitations on the nature of the right granted by allowances and some cap and trade regimes have included some of the express restrictions mentioned by Mr. Sullivan.

However, we do not believe some of these restrictions go far enough. It is one thing to say that no property right has been granted when allowances are issued but something else may be needed to make sure that atmosphere is being treated as if it is a public trust resource being protected for the interests of all people including:(a) the absolute right to revoke allowances at any time if it becomes evident that total allowances granted are not sufficient to prevent dangerous climate change, (b) including more specific limitations on banking for future commitment periods in this regard, and (c) the acceptance of some courts jurisdiction to enforce these limitations. Under the current regimes we believe there is no effective remedy for a developing country who believes, based upon new scientific information, that total allowances are excessive and are leading to environmental damage, and to have excess allowances revoked.
We agree there is no limitation on the developing country as far as commitments from them about their emissions limitations, yet it is another thing to give those who are harmed by excess allowances rights to petition a court of competent jurisdiction to revoke those allowances that are causing harm to them for cause. If the atmosphere was treated as a legitimate public trust resource, a government should be expressly granted the authority to revoke any temporary use that had been previously granted for cause including prove that the public trust resource was being damaged. We know of no equivalent mechanism under cap and trade regimes.

However, we believe these issues warrant further consideration.and are thankful to Mr. Sullivan for raising them.

3. Environmental Effectiveness

In Section IV of the original article we claimed that a cap and trade regime can be unjust if it is does not sufficiently protect those who are vulnerable to climate change. We also explained how many design features of cap and trade regimes can lead to inadequacies of the environmental protection effectiveness of the regime even if the cap is initially sufficiently protective.

There are a number of points under this heading addressed by Mr.. Sullivan:

3.1 Conflicts and permanence.

We explained in our original article that there are conflicts between minimizing transaction costs and maximizing environmental effectiveness in monitoring and verification of carbon projects. And because of these conflicts. Accounting procedures for measuring actual CO2 reduced by projects was a huge design challenge.

A. The Comment-Mr. Sullivan says

Both of these points are directed primarily at emission reductions or removals associated with forests and other land use projects, with some permanence questions directed to CCS. However, carbon credits from forests currently make up less than 1% of the cap and trade systems established under the Kyoto Protocol. The EU ETS prohibits them outright, so they do not form a part of that system at all. CCS is also currently excluded for all cap and trade regimes, though there are a number of groups lobbying for its inclusion. This technology is 20 years or so away for commercialization, so its ethical impact on current cap and trade systems is unclear. (Other ethical considerations around CCS have been raised elsewhere though.)
I also disagree that the monitoring and accounting err on the side of reducing transaction costs - the monitoring and accounting for forest carbon is sufficiently robust and in fact errs on the side of being conservative. Any potential conflicts are further removed by third party verification of any carbon credits. The rules for forest carbon are also sufficiently robust to take into account any permanence risk. The Kyoto rules for developing countries does this through temporary credits that need to be re-verified by independent auditors every 5 years. If the forest is found not to exist, the credits are in effect canceled and whoever has used them for compliance must replace them with other credits. For developed countries it is accounted in part of its national inventory obligations, though I would agree the rules for this are a bit of a mess! For the bulk of carbon credits traded in a cap and trade system it is relatively straightforward to do the accounting.

B. Our Response

It may be true that some cap and trade regimes have limited the participation of forests and land use projects until technologies and accounting procedures that assure that emissions reductions anticipated by these kind of projects are developed that will give confidence that these projects will successfully achieve their stated emissions reductions goals, yet it is not clear that all cap and trade regimes that have announced that they will allow forest and land use projects emissions reductions credits are willing to take a wait and see approach. In the United States there have been several programs initiated that have announced that they will allow off-sets from forest and land use projects and it is yet to be determined that they will not give credits until technologies and accounting procedures have been perfected. We further understand that even if there is an intention to do so, it may be difficult to develop accounting processes for some kinds of forest and land-use offsets that will give high levels of confidence that one can both predict and determine the number of tons of CO2 equivalent that the project will save.


3.2 Leakage

In our original article we explained why many proposed projects for carbon trading raise serious questions about whether carbon reduced by a project at one location will result in actual reductions in emissions because the activity which is the subject of the trade is resumed at another location. This problem is usually referred to as the leakage problem.

A. The Comment-Mr. Sullivan says

Leakage within the cap is not an issue as it is picked up in national accounting. For example, if a steel factory moves from the UK to Germany this is captured in both the UK and the German national accounting systems. They are both within the Kyoto cap, so this leakage is captured within the cap's accounting. The only situations where leakage comes into it is: i) where you have a source moving from a capped to non-capped country (e.g. the UK to China) or ii) credits being created outside the cap that are imported into a capped country to meet emission reduction commitments in the cap, and there is leakage associated with those credits. Broadening the cap or national monitoring and accounting to include all major economies is one solution to the first issue. The CDM is an example where this is in theory a risk with ii), but where it is relevant it is addressed in the project accounting rules. In some carbon credit projects leakage is not a problem - e.g. capturing and destroying methane at a land fill or piggery will not lead to someone uncovering a landfill in another location. You are correct, however, that there is leakage potential with forestry projects but leakage is accounted for in the project design, monitored and discounted from the project's credits. If the leakage cannot be monitored it is assumed to exist and discounted anyway based on principles of conservativeness to ensure environmental integrity in the system. I agree that if you can't quantify leakage from a forest project let alone monitor it you don't have a bona fide carbon credit project, but such projects would not be registered under the CDM. The cap and trade rules are such that these projects would never be formally recognized or admitted into a cap and trade system.

This solution aside, as noted above forest projects form a fraction of a percent of the credits in cap-and-trade systems anyway (no Kyoto forest carbon credits have been issued or traded yet - the only ones would likely be in the NSW scheme in Australia).
This may change if credits from reducing deforestation are included in a cap-and-trade system, but this is still undecided and as already argued - the rules are sufficiently robust to ensure environmental integrity. Given the huge number of social, biodiversity, and other environmental benefits that come from well designed forest projects, these types of activities should be encouraged wherever possible.

B. Our Response

We agree with Mr.. Sullivan that leakage does not necessarily have to be a problem, but we note that Mr.. Sullivan admits it could be a problem. We also agree with Mr.. Sullivan that if a emitter that seeks to get a credit for reducing ghg emissions is entirely located within the jurisdiction of the area capped then leakage problems can be avoided by looking at how the entire area of the cap has been affected by production changes. Yet, not all emitters have all activities that could be leakage sites within the jurisdiction of the cap. We also agree that good system design can minimize potential leakage problems however, we would note that some yet to be developed global program is probably necessary to assure leakage is not created when a production process moves to another country. It is true that some internal accounting rule can minimize this type of leakage but some care in design of the cap and trade rules is necessary to prohibit leakage losses.

3.3 Additionality

In the original post we explained why a project subject of a trade will also not be environmentally effective if the project would have happened anyway for other reasons. This is so because a trading regime assumes that a ghg emitter should get credit because of their willingness to invest in projects that reduce carbon emissions that would not happen without the incentive to get credit for carbon reductions. If the project would happen without the investment of the emitter, than the investment in the project is not "additional" to business as usual. This is the problem usually referred to as the "additionality" problem.

A. The Comment-Mr. Sullivan says:

Additionality has been argued back and forth in many other fora. It does not warrant a long discussion here other than to note that it is not so much of an issue in a capped system as it is for offsets from non-capped areas being brought into the cap. The biggest example of this is the CDM, but in the CDM the additionality testing is very strict. There may be the odd project that "beats the system" but far more bona fide projects are kicked out of the system than fraudulent ones admitted. Some voluntary systems such as the CCX have very weak additionality criteria and I agree these are problematic.

B. Our Response

Again we agree that careful system design can minimize or eliminate additionality problems, however, determining that a new project has actually been created with the goal of reducing greenhouse gas emissions and would not be done for other economic purposes is difficult to determine even if careful questions are designed to get at these issues. There is also a problem of requiring too much information from an applicant. Therefore program design to assure additionally is challenging


3.4 Enforcement

In the original post, we explained why a trading regime is environmentally ineffective if its conditions can not be enforced.

A. The Comment-Mr. Sullivan says:

The discussion on enforcement seems to be based on a misunderstanding of cap and trade systems. In the Kyoto and European cap and trade systems caps are set for industrialized countries or industry in those countries, and it is the responsibility of those countries to enforce these laws. In both there are legally binding penalties for failure to meet the emission reduction targets. These are stricter in the EU system (which from memory is a fine of EUR 100 per tonne of emissions over the cap) than the Kyoto Protocol. While I agree that there is a general enforcement problem of public international law, this does not seem to be the point made in this section.
In the offset segments of these systems "enforcement" is not an appropriate term. The verification of the validity of credits is conducted by independent third parties to ensure environmental integrity, that is then re-checked by regulatory authorities. If the auditors did a shoddy job and certified more credits than should have been the case, they are liable for this. There have been a couple of instances of the third party auditors being suspended by the Kyoto regulators where there was concern over their quality control procedures. This demonstrates that they system of checks and balances to ensure environmental integrity works.

B. Our Response

The enforcement problem the original article referred to was largely motivated by concern for projects in poor developing countries and the need to reach assurance that the CO2 that has been sequestered in forests or land use changes will stay out of the atmosphere for ever. Auditing projects are a reasonable hope to determine if a proposed project is constructed as designed, however, projects that rely on carbon storage in particular create enforcements or compliance issues that are quite daunting. A cap can be enforced if emissions exceed allowances, there are few insurmountable problems here. Yet a trade is often trading emissions reductions for carbon stored. To have an equivalence of effect, the stored carbon must stay out of the atmosphere for ever. This creates huge challenges for forest and land use change projects.

A. The Comment-Mr. Sullivan says:

3.5 Delay in investing in new technology

In our original article we explained that the ability to buy credits in a trade can create incentives to delay in making the transition away from fossil fuels that is likely necessary to avoid dangerous climate change.

A. The Comment-Mr. Sullivan says

I agree that investment in new technology should not be delayed, and there should not be incentives in place to build new coal fired power stations or dissuade R&D in renewable energy, energy efficiency etc. However, if a long term cap is set that progressively tightens over time, this will send the long term regulatory and market signals that are needed to dissuade high carbon development. Emissions trading offers the least cost option to make the steepest cuts in emissions in the short term. A coal fired power plant built 5 years ago will be around for another 40+ years - it is politically and financially unrealistic to expect this to be shut down overnight. Claims that this be done have the potential to backfire and result in no constraints on GHG emissions rather than stricter ones, leading to significant delays in the investments we both think are necessary.

B. Our Response

Although it is true that tightening emissions caps should create an incentive to begin to invest now in new technologies that will reduce ghg emissions, given that most businesses operate on short- to medium-term profitability goals and that at the present time there is no reason to believe one can achieve medium term caps by additional trading, it is speculation, at best, to assume that long-term tighter caps will motivate investment in clean technologies as long as trading options exist.

4. Distributive Justice

4.1 Diminishing cheap projects in developing countries

ClimateEthics argued in the original article that if developing countries in some future international climate regime are asked to meet targets, they run the risk of having sold their cheapest carbon reduction projects to developed country interests by participating in the CDM, thus making achievement of any national target more expensive in the future

A. The Comment-Mr. Sullivan says:

I agree that some countries (such as China) have expressed this concern. The solution posed by China has been to limit approval of CDM projects to the first commitment period, thereby opening up the potential for the government to claim subsequent emission reductions. However, the point of the CDM is to help developing countries develop in a sustainable, low carbon manner that will help avoid them needing to adopt steep emission reduction commitments in the future. Is the logical conclusion of the issue posed here to allow developing countries to develop in manner that is damaging to the climate, just so the country can cheaply reduce these emissions in the future? This seems like an odd position to argue... Isn't it better to support low carbon development now, and in the future?

B. Our Response

ClimateEthics agrees that there are green energy benefits that accrue to developing countries through the CDM and that such benefits help developing countries develop on a green energy path, however, only time will tell whether developing countries that agree to allow other actors to get carbon credits from projects that provide the most credits per dollar invested is in the long-term interest of developing countries.

4.2 Diminishing ODA

In the original post we explained that some countries have announced that they will move official development assistance monies (ODA) into CDM projects thus moving funds that would benefit the quality of life in the developing country to energy projects. This could have significant impact on monies that would be otherwise available to help poor nations with such dire emergencies such as health care or nutrition

A. The Comment-Mr. Sullivan says:

While it can be hard to accurately track ODA and any re-purposing of ODA, the Kyoto Protocol explicitly prohibits the use of ODA to purchase offsets in developing countries. The CDM rules explicitly state "public funding for clean development mechanism projects from Parties in Annex I is not to result in the diversion of official development assistance and is to be separate from and not counted towards the financial obligations of Parties included in Annex I".

B. Our Response

We are not sure how this restriction on transferring ODA in the Kyoto Protocol can be enforced because ODA is completely voluntary and levels rise and fall from year to year. For this reason, it would be difficult to determine whether any reduction in ODA is a direct response to increases in CDM projects.

4.3 Distributive justice and internal allocation of government-wide cap

In the original post, ClimateEthics explained how a cap is allocated among entities within a government creates many potential distributive justice problems. Governments sometimes distribute a cap they have by giving away allowances, auctioning allowances, and other ad hoc considerations that often take into account political feasibility. Each of these methods of distributing a cap raises distributive justice issues that are often ignored for political reasons.

A. The Comment-Mr. Sullivan says:

The first comment here is that current cap and trade systems do not allocate the cap at the household level. However, I do acknowledge that energy prices should increase with cap and trade which may place a disproportionate burden on low income households. That said, energy prices should increase no matter what system is put in place to capture the full cost of burning fossil fuel - this is the failure of current market forces that do not put a price on GHG emissions. The price increase of fossil fuel and energy in general would happen if there was a GHG tax or fee - cap and trade is no different. The draft US cap and trade bills, however, provided compensation to lower income households to offset this increased energy bill. I can't recall the exact formula, but I think it was a tax credit or something similar. In any event, this potential problem is readily mitigated.

B. Our Response

ClimateEthics agrees that the current cap and trade system does not allocate the cap at the house hold level, however, how emissions allowances are allocated could have different effects depending upon how the allowances are allocated. If allowances are given freely to coal companies, for instance, while natural gas companies must pay for allowances, then energy users who have invested in gas because gas reduces their carbon footprint are penalized to keep coal companies happy. How allowances are allocated will always have distributive effects and justice requires that decisions that affect the burdens and benefits of solving a problem should be based upon morally relevant criteria not simply political expediency. It is true that poor people's interests that are adversely affected by carbon allocation decisions can be compensated by providing some compensation from revenues obtained from auctioning allowances, the ClimateEthics article simply attempted to make the point that this is matter of distributive justice.

4.4 Distributive justice and revenue from allowances

In the original post, ClimateEthics explained how when allowances are auctioned or otherwise purchased, governments must make decisions about how to use allowance revenues and that these decisions raise questions of distributive justice.

A. The Comment-Mr. Sullivan says:

This is an interesting thought, but why can't it be raised for any government spending? Similarly, why can't it be addressed through a democratic process, or is the logical conclusion of this issue that any government spending raises distributive justice questions and is therefore unethical and should not happen?

B. Our Response

We agree that in democracy can assure that issues of distributive justice entailed by how revenue streams are allocated can be effectively dealt with. We also don't deny that this issue is not different from other revenue allocation issues. We did not intend to claim that cap and trade raised unique problems of how to distributive justice in regard to revenue streams, only to point out that there were justice issues entailed by revenue stream allocation decisions.

Issue 5. Procedural Justice

5.1 The right to participate in cap decisions.

In the original post, ClimateEthics noted that because carbon trading design has distributive justice implications, those whose interests may be affected by design considerations have procedural justice rights to participate in decisions on trading design.

A. The Comment-Mr. Sullivan says

This issue is premised on there being distributive justice issues, which I have raised questions over above. This aside, caps to date have only been applied to developed countries, so the concerns over marginalized groups in developing countries not participating in decisions is not quite accurate, unless it is raised in the context of everyone being able to participate in decisions on caps even if they are not subject to them. While this could be nice, it is not realistic to argue everyone should participate in the decision on, for example, what sort of cap the US should assume. This type of decision making process is likely to prevent rather than promote strong caps, so could arguably be seen as an approach that itself creates graver ethical considerations than the current process.

That said, participation of women, indigenous groups, and other non-state actors has been traditionally weak within the climate change negotiations. This is perhaps in part over issues of standing in international negotiations, but in a number of developing countries these issues also exist even though standing should not be an issue in those fora. There is greater consideration of minority groups in the REDD debate which is encouraging, but I do agree that stakeholder representation in the climate change negotiations generally is weak. However, this criticism is not directed at cap and trade per se - it is applicable to all of the national and international climate change negotiations and would be true for most, if not all, international issues ranging from the environment, to trade, to security. As such its efficacy as a moral hazard peculiar to cap and trade that warrants the abandonment of this mechanism is questionable.

B. Our Response

Mr. Sullivan seems to agree that rights of participation in cap and trade design can be improved in some parts of the world. The need to do t his was the basis of our original comment. We would also agree the need to do this is not limited to cap and trade decisions, but that insight does not undermine the observation that fair participation is a design issue that is should be considered in constructing cap and trade regimes.

5.2 The technical ability to participate in cap and trade regimes

In the original post, ClimateEthics commented on how the Kyoto Protocol has created a staggeringly complex system for those who seek to sell or purchase carbon credits makes it difficult for many to adequately participate in decisions about cap and trade design. In fact, oOnly those who can hire consultants and experts can effectively participate in the creation of trading projects and the development of the rules of the trading regime. For this reason, design of trading regimes that have been created often reflect the economic interests of those with the financial ability to participate in the design of much more than the interests of those who cant afford to hire experts and lobbyists.

A. The Comment-Mr. Sullivan says

I also agree on this point - even many professionals and consultants don't understand all the nuances of cap and trade. However, as with the last point, I think this problem is not peculiar to cap and trade - it is true of all the climate change and many other international negotiations. Additional support to developing country delegations to participate in the negotiation is needed.

B. Our Response

It would seem that we agree that there are potential problems with the complexity of cap and trade regimes that lead to some people being disenfranchised in the design of regimes yet we agree with Mr.. Sullivan that this is a problem that is not unique to cap and trade.
III. Conclusions

We believe Mr. Sullivan has raised good questions about the ethics of cap and trade and our original analyses of these issues. We are grateful for him for so doing.

This post is not exhaustive of ethical issues raised by cap and trade nor even of the issues discussed herein. We encourage further reflection on these issues.

By:

Donald A. Brown,
Associate Professor, Environmental Ethics, Science, and Law
Penn State University.
dab57@psu.edu