The Africa Carbon Exchange: the Commodification of the Environment

In March this year, Kenya launched the Africa Carbon Exchange (ACX) with the aim of encouraging industry to adopt more environmentally-friendly practices. If successful, the project will make the development of sustainable technology and the protection of forests and their biodiversity economically attractive. Additionally, it is hoped the exchange will attract foreign direct investment through the ‘production’ of carbon offsets. In reality, however, the scheme is based on a flawed and volatile market system and is so far merely distracting international attention from the issue it is meant to address.

The ACX attempts to combat global warming by accounting for greenhouse gases as part of heavy industries’ production, so that, in theory, pollution costs; units of greenhouse gases are essentially commodified into carbon credits which may then be traded. One form this practice can take is in offsets, which, under the targets of the Kyoto Protocol, can be purchased and count towards rich Annexe 1 signatory nations’ emissions reductions. Another scheme, Cap and Trade, creates a legal cap on the emissions of heavy polluting industries. Lowering that cap each year encourages businesses to find ways to reduce their emissions so that they can either make money from selling surplus credits or avoid losing money by having to buy extra credits - for a neat outline, see this video, for an in-depth critique, this book.

The project thus relies on the elusive and invisible hand of the market to guide industries towards reducing their greenhouse gas emissions. Being a market mechanism, however, it primarily encourages industries to adopt the cheapest solution which may not be the same as the best long term solution nor necessarily socially just. Furthermore, Cap and Trade, as a bureaucratic legal system, contains a number of loopholes currently being exploited. In Indonesia, for example, Murini Samsam’s palm oil factories claim credits for ‘renewable’ energy production from waste products, yet palm oil production is the force behind rapid deforestation and clearances of the vast stores of carbon in the country’s peatlands. Similarly, Oxfam has reported land grabs in Uganda for reforestation, biofuel and food-for-export projects under the aegis of creating carbon credits. In addition to such problems, Cap and Trade faces various day-to-day functional challenges. An online trading platform purportedly registers and tracks who owns what carbon. As there is no tangible product to hold, however, the security of this system is particularly vulnerable to cyber attacks. In July 2010, the European trading scheme's central website was hacked and shutdown, and in early 2011 €28million worth of carbon credits were reportedly stolen.

With these flaws in mind, the Carbon Trade is what sociologist Nico Stehr and climate scientist Hans Von Storch would call a "technocratic mode" of climate change mitigation: that is, one assuming total knowledge and control of both human behaviour and the climate system. Legal loopholes, limited bureaucratic controls, online security failures, huge uncertainty in estimating emissions and the sheer impossibility of accounting for every carbon-emitting activity testify to the fiction of such notions of control and knowledge. Nevertheless, in 2010, the value of the global carbon market was an estimated $120.9 billion, and some in the Global South are looking to take an active role in the carbon trade through institutions like the ACX.

Like any other commodity on the market, carbon credits fluctuate in price in different places, at different times. Consequently, they are bought speculatively. The ACX will harness this, opening at first as a futures market to accumulate its initial capital. The source of much of this capital will be the multinational banks who step in to mediate the global exchange processes. South Africa's Standard Bank and JP Morgan Chase's ‘Climate Care’, a carbon subsidiary, have expressed interest in the newly instigated exchange system. With such capital, ACX chairman John Kihumba and his associates hope to encourage growth in the number of Clean Development Mechanism (CDM) projects in the region whilst, at the same time, aiding liquidity in the exchange through greater numbers of accessible credits.

In 2010, the offsets market alone was worth $5.7 billion in Europe. This declined later that year following a near collapse in the international trading of all carbon credits however, and the World Bank is leading warnings of its fragility on account of uncertainty over the Kyoto Protocol's future. That said, offsets are hoped to be the primary export traded through the ACX.

The most attractive offsets for EU investors are those awarded to Clean Development Mechanism (CDM) projects. Projects which have attained CDM status from the UN by fulfilling certain sustainable development criteria are awarded carbon credits called Certified Emissions Reductions. It is these carbon credits which have been pouring into the EU market. Most of these originate in India and China, which together account for 80% of CDM projects, while Africa holds only 2% of the global share. Isabel Hagbrink of the World Bank attributes this small share to a number of barriers, including “lack of financing, lack of experience and technical skill, land titling and monitoring challenges, and the complexity of Clean Development Mechanism (CDM) rules”. It is believed the Africa Carbon Exchange will help companies overcome the barriers outlined by Hagbrink in a number of ways. Firstly, by tapping into global finance, such as from South Africa's Standard Bank and JP Morgan Chase's "Climate Care" subsidiary. Secondly, by training employees and pooling knowledge of the CDM’s complex application process and carbon accounting methodology. And thirdly, by acquainting companies with the voluntary, private organisations that award carbon credits.

Carbon trade offers a new source of investment in the developing world and purportedly encourages the reduction of carbon emissions. Indeed, pollution may be reduced in participating countries - although the knock-on effect of ‘leakage’, whereby emissions are simply shifted to another country with a less strict climate policy, is practically impossible to track. If the ACX can attract investment and if Kyoto-based emissions-trading continues beyond its ‘expiry’ date in 2012, carbon trading may well offer positive opportunities for Kenya and neighbouring nations’ sustainable development. Nevertheless, one cannot help thinking that the vast quantities of money involved in the uncertain business of offsetting might be better spent on progressively reducing emissions in the Global North whilst facilitating adaptive mitigation strategies for those facing the negative realities of climate change in the Global South.

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