Rogue traders could save Kyoto

Carbon traders do not easily secure sympathy. Yet their role is vital.

Shed a tear for the carbon traders. At a Point Carbon trading conference in Amsterdam earlier this month, the air of despondency was more than palpable, it was physical. At the session I chaired, delegates sat slumped in their seats. There were few questions. Everyone I spoke to felt the same way. Copenhagen was a disaster. No one knew where things were headed now. Some were considering new careers.

Carbon traders do not easily secure sympathy. Many are well-off; they show no particular interest in saving the planet. Yet their role is vital. Via the markets they operate, they have put a cost on our use of the atmosphere as a carbon-dioxide dumping ground, "as if", as Al Gore puts it, "it were an open sewer".

Economists, politicians and campaigners all agree that putting a price on carbon is necessary to make the shift to a low-carbon economy real. As a result, non-fossil alternatives such as wind and solar become cheaper by comparison, and the worst polluters such as coal become relatively more expensive. With no price on carbon, dumping CO2 in the atmosphere is free. The big polluters, whether Peabody Energy or Exxon Mobil, are able to make billions because the cost to the environment of their products is borne by the rest of us. Price carbon properly and the fossil fuel behemoths can begin to pay us back.

Kyoto, for all its failings, began to weave this price signal through global commerce, and not just in the industrialised countries that took on its targets. In China and India, the Clean Development Mechanism (CDM) has become huge business - worth $6.5bn in 2008. It has driven millions of dollars' worth of clean investments into developing countries which otherwise have no incentive not to burn fossil fuels.

But the CDM appears doomed unless a new period of the Kyoto Protocol is negotiated to replace the current one when it runs out in 2012. But a new lease of life for Kyoto gets less likely by the day. The US pulled out under George W Bush, and will never rejoin - "Kyoto" is politically toxic in Washington. Canada, thanks in part to its tar sands oil extraction operations, is miles over its target, and seems not to care.

Even the EU, once the bedrock of Kyoto support, has gone cold. The main cheerleading now comes from the developing world, particularly China and India. But this is politics, too - China supports Kyoto because it divides the world into rich and poor. China is considered poor, so is exempted from targets and can go on building coal-fired power stations at a breakneck pace.The carbon trade is also important as it might have helped protect the world's tropical forests from the loggers, plantation owners and cattle ranchers who threaten their survival. With no price on carbon, there is no price on forests either - and their value as dead timber or cleared land will remain far higher than their value as irreplaceable stores of biodiversity and living carbon.

But the real reason for the latest bout of depression is not China, nor forests - but the US. Unless President Obama can find some way to force climate legislation through the Senate, the $2trn potential US carbon market will never materialise. Emitting carbon will continue to be free to American companies, weakening any argument for tougher regulation in India and China. All in all, the prospects currently look great if you are Exxon Mobil or Peabody Energy. And that is bad news for the rest of us.

This piece also appears in this week's issue of the New Statesman

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Mark Lynas has is an environmental activist and a climate change specialist. His books on the subject include High Tide: News from a warming world and Six Degree: Our future on a hotter planet.

This article first appeared in the 15 March 2010 issue of the New Statesman, Falklands II

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.