Although the politics of statistics and the power of numbers in global governance are most powerfully exemplified by the role of credit rating agencies, there are many other critical areas where measurements have taken centre stage in informing public policy. Environmental governance, and in particular the climate change debate, has been the field in which fully fledged ‘stat wars’ have been waged in the past forty years, with different camps using numbers, measurements, models and indexes to pursue opposing agendas. In this field, too, just like in that of ratings, a burgeoning industry of auditors has taken centre stage, with an enormous quantity of money to be made.
These four decades have been characterized by growing concerns regarding the overall state of the world’s environment, with a series of high-level summits inaugurated by the United Nations Conference on the Human Environment (usually referred to as the Stockholm Conference) in 1972 and the World Commission on Environment and Development, better known as the Bruntland Commission, which published the first report on sustainable development in 1987.1 With the creation of the Intergovernmental Panel on Climate Change (IPCC), established by the World Meteorological Organization and the United Nations Environment Programme in 1988, scientists from all over the world began to work on collating information with a view to generating consensus on the state of the planet’s climate. Their main goal was to review piles of numbers and clarify whether the globe was warming or not. Politicians waited for statistics to move forward, so scientists felt pressed to prove, beyond any reasonable doubt, that global warming was really happening. At the same time, a series of think-tanks and contrarian scientists began to produce alternative research with the aim of debunking the work conducted by the IPCC. In parallel, economists of all sorts introduced a variety of models to estimate the pros and cons of climate-change-inspired reforms, triggering debates, controversies and profound contrast within the social sciences. Among them, the battle of numbers saw a profound division between those who advocated action and those who demonstrated the economic advantages of inaction. Much was at stake, as environmental groups, social movements and various voices in civil society started calling into question the very foundation of the development model pursued by advanced economies since the Industrial Revolution.
During these years, the politics of numbers sealed the intimate connection between market approaches and the environment, eventually accepting – albeit indirectly, as we will see – the proposals put forward by climate sceptics and the fossil fuel industry. Narrow economic reasoning and some of its traditional methodologies, especially cost–benefit analysis, were introduced in climate change governance with a view to identifying acceptable equilibria between the interests of markets and those of nature.The apparent neutrality of numerical models ultimately led to a marketization of the climate debate.
One of the main accusations sceptics advance against climate scientists is that their conclusions on the state of the planet’s temperature have led to the creation of a moneymaking industry composed of ‘green economy’ investors, carbon trading markets and offset schemes. A report by climate sceptics points to this issue in a rather straightforward and aggressive way:
all ‘global-warming’ profiteers who are making money out of carbon-trading or ‘green investment’ or UN climate boondoggles of whatever kind should be warned, and clearly warned, that now that the basis for their profitable activities is known to be hollow and fraudulent, they themselves will be indicted, prosecuted, and jailed for fraud, and their profits confiscated as the fruits of money-laundering.
It is at least ungenerous (and, in some respects, offensive) to link climate scientists with speculators in the green industry. Climatologists have highlighted a problem (i.e. the rising temperature of the planet and the concentration of greenhouse gases), but have never taken a stance on what would be the best policy to tackle this issue. In fact, the ‘green growth’ paradigm has been invented by business and policymakers (and their economic advisers), not by climate scientists. Most investment in this field is actually coming from the very polluting corporations (from oil companies to extractive industries) that have long benefited from climate denialism and deregulation.
For many of them, climate change has become a lucrative business. As we have seen, climate sceptic Fred Singer was an influential champion of market-based solutions to address environmental concerns. The policy he supported, the Acid Rain Program, became the first large-scale system of emissions trading in history, which the rest of the world would use as an example to design market-driven mitigation policies for climate change. Carbon markets are nowadays available in most continents, including the European Union, North America (e.g. the Regional Greenhouse Gas Initiative and the new California cap-and-trade mechanism, the largest in the USA), New Zealand, Australia, Japan (in the city of Tokyo) and China.
There are various mechanisms for the design of an emissions trading scheme. The most general distinction is between ‘cap and trade’ and ‘baseline and credit’. In the former case, public authorities set a specific cap on emissions (e.g. by gauging the limit of greenhouse gases acceptable to avoid climate change’s disastrous effects) and then allocate or auction an equivalent number of allowances to polluting companies, which are free to use them as permits or trade them in the open market. In a baseline and credit system, specific performance targets (also known as ‘notional baselines’ set against business-as-usual estimates) are given to polluting companies, which can generate tradable credits by beating their emissions targets.
Advocates of these mechanisms claim that trading systems are more efficient and flexible than top-down regulatory policies (like, for instance, a carbon tax) because they capitalize on companies’ inherent drive for innovation. Unlike across-the-board regulations, which affect all industries in the same way, emissions markets are seen as building on ingenuity and comparative advantages, thus providing incentives for compliance. Companies that innovate more quickly and effectively can sell their permits to less innovative businesses, which are therefore given more time to catch up, thus allowing for a flexible and gradual transition to a low-carbon economy compatible with internal market dynamics. Moreover, trading would give entrepreneurs ‘the freedom to choose how to deal with their polluting activities’ by deciding ‘not only the extent of reductions that is cost-effective for their operations but also how to reduce emissions in order to reduce permit costs’. This would ensure that emissions are reduced at the most cost-effective location and that a clear price for carbon emissions is produced organically from within the market, instead of being imposed from the outside. It is also assumed that trading schemes lower regulatory costs because, once established, the market will run according to its own internal supply and demand. Moreover, these systems are said to reduce the dangers of regulatory capture – that is, the process whereby private interests control public oversight bodies – given that in a trading scheme markets basically control themselves.
However, despite a number of alleged virtues, emissions-trading schemes have evolved into precarious and potentially dangerous mechanisms, practically outweighing most (if not all) of their presumed strengths. In several cases, they have simply marketized climate change, turning it into another opportunity for speculation and financial hazard.
The European Union’s Emissions Trading System (ETS) was launched in 2005 as one of the founding pillars of the EU’s widely heralded approach to the fight against climate change. The scheme, which includes all twenty-seven Member States plus Norway, Iceland and Lichtenstein, is already into its third iteration, whose cycle will be concluded in 2020, when the EU is set to meet its reduction targets under current UN-backed protocols. The ETS covers over 11,000 factories, power stations and other types of installations (collectively responsible for 40 per cent of Europe’s total emissions), and in January 2012 was extended to the civil aviation sector. Despite having been presented as a global best practice by EU authorities, the ETS has been grossly flawed ever since its inception. The initial allocation of tradable allowances (Phase 1, from 2005 to 2007) was marred by lax targets, generous dispensations to powerful interest groups and overallocation of permits. Intense lobbying by the fossil fuel industry took place in Brussels and in European capitals, where the actual volume of allocations was being decided upon. According to the think-tank Open Europe, European governments ‘handed out permits for 1,829 million tonnes of CO2 in 2005, while emissions were only 1,785 million tonnes’. The scheme proved a source of windfalls for Europe’s worst corporate polluters, as free-of-charge allocations were based on each industry’s historic emissions (a process known as ‘grandfathering’) and gauged against their future projections, inevitably rewarding bad performers. In Germany, which is the most polluting nation in Europe and accounts for the largest carbon emissions market, the environment minister accused the country’s four biggest energy companies – Eon, RWE, Vattenfall and EnBW – of profiteering from the ETS at the expense of consumers by stoking earnings up to €8 billion in 2006. The environmental organization Greenpeace dubbed the ETS ‘a licence for polluters to print money’, arguing that relying on future emissions projections (which can be easily inflated by the industry) resulted in handing out permits for free that were then sold for profit.
In 2006, when such loose targets and overallocations were confirmed, the price of emissions credits crashed in a matter of days, from the official price of roughly €30 a tonne (which was considered the minimum to achieve reduction targets) to a meagre €9 a tonne. Then in mid-2007, the nominal value of permits plummeted to zero, with the carbon market grinding to a halt. According to the accounting firm Ernst & Young, the ETS created volatility in carbon prices rather than encouraging sustainable investment in renewable energies. Contrary to its alleged objectives, ‘the scheme has encouraged the short-term trading of positions to optimise return and minimise financial risk.’
This is an extract from How Numbers Rule the World, written by Lorenzo Fioramonti.