Environmental Leader has reported that Mexico’s proposal for a global climate change fund, instead of the rigorous cap-and-trade function favored by the European Union and President Obama, may win out for its pragmatic approach. It has cited as its source one of the EU’s top climate negotiators.
Mexico is proposing a central fund where each nation contributes according to a number of factors such as its GDP, current emissions and population. The fund woud then be divided against country needs to adapt to climate change and abilities to cut emissions or develop green technology.
Mexico's proposal, while seemingly late in the game, highlights some big issues for cap and trade.
Firstly cap and trade creates a new commodity, carbon, and we all know that commodities are volitile, and volitility is not always good for long term infrastructure projects. It is not clear that cap and trade will give carbon a price that will alllow large green projects to be easily funded. Secondly, cap and trade may not help the even distribution of the proceeds of cabon trading. Many who oppose carbon trading believe it is a disguised form of aid where the West helps subsidise the developing world's development. The evidence of an uneven distrbution from cap and trade is on Mexico's side. The countries that are benefiting most from credits being developed by the deployment of green technology are China, India and to a lesser extent Brazil. Smaller countries are being overlooked. This is because the West is choosing its partners, not the developing countries. Mexico's proposal seeks to take away that choice.
That doesn't mean that you can't have cap and trade and a central fund. As the report points out the are not mutually exclusive. But it does mean that cap and trade, a safe bet last year, is being questioned.
It does look as if cap and trade will stay. Ironically the biggest emitters generally prefer it. At Environment Magazine we have always favoured a carbon tax. In the meantime, cap and trade will go through its teething problems and as no one can predict the future, emitters will get windfalls and the benefits of technology and distribution of credits will be arbitrary.
