A solution to climate change economics – a carbon swap bank
The original impetus of the Copenhagen Treaty in 2010 to solve the problem of climate change using a carbon emissions trading scheme has hit ground zero. The failure to advance various proposed bills in the USA and Australia has faltered on the role of agriculture, the failure to ensure that high carbon dioxide polluting industries actually alter technologies, the creation of excessive derivatives, the lack of control of the offset market, how permits are allocated, and the distortion of macro and micro gains by imposing effective taxes on some of the most efficient and essential industries in the most advanced economies. This paper proposes a new alternative – a carbon swap bank where direct deposits of sequestered carbon and withdrawals of emission rights can be made, facilitated by direct swap arrangements between a supplier of carbon sequestering technologies and methods, and those of the carbon polluter.1
1 Introduction – the history of a carbon emissions trading scheme (CET)
The term ‘emissions trading’ refers to “a market where, for specified pollutants, parties can buy or sell allowances or permits for emissions, or credits for reductions in emissions” (Canada National Round Table, 2001), where emissions are capped by governmental decree, or where sales can occur voluntarily for those wishing to portray an environmentally friendly image. Sales can occur across a region, country or internationally, with tradable units allocated either by a regulatory body, or produced by greenhouse gas (GHG) emission reduction projects, where the project that “demonstrate GHG emission reductions compared with what would have happened otherwise” (Clarke, 1996; Bayon et al., 2007). An alternative is a baseline and credit programme, whereby polluters that are not under an aggregate cap can create credits, usually called offsets, by reducing their emissions below a baseline level of emissions. Such credits can be purchased by polluters that do have a regulatory limit.
For a market to grow, there needs to be proper measurement and accounting systems, but also the recognition that certain human activities contribute to increasing carbon emissions, and this increase in turn is precipitating detrimental climate change – both these claims have been subject to huge dispute with the result that there are no credible, voluntary standards for carbon emissions (Capoor and Ambrosi, 2007). The market has also been held back by political fears of voter backlash as well as recent claims that Goldman Sachs was pushing for the market to create another profit source.
The idea for an emission trading scheme first emerged in the 1960s in the USA. Cap and trade is essentially an invention by economists, and particularly a Canadian economist called JH Dales, writing in 1968. The principles were also taken up by Coase (1960), Crocker (1966), Dales (1968) and Montgomery (1972). The USA Environmental Protection Agency added to the credibility of such ‘cap-and-trade’ approaches to air pollution in a series of micro-economic computer simulation studies between 1967 and 1970 for the National Air Pollution Control Administration (now the Office of Air and Radiation). These studies used mathematical models of several cities and their emission sources in order to compare the cost and effectiveness of various control strategies (Burton and Sanjour, 1968, 1969, 1970). Each abatement strategy studied by the National Air Pollution Control Administration was compared with the ‘least cost solution’ produced by a computer optimisation programme to identify the least costly combination of source reductions in order to achieve a given abatement goal (Burton and Sanjour, 1969-03). In each case it was found that the least cost solution was an emissions trading scheme, compared to any conventional abatement strategy, such as those involving government penalties (Burton and Sanjour, 1970).
This led to trading of emission certificates based on the ‘offset-mechanism’ taken up in Clean Air Act in 1977. The first ‘cap-and-trade’ system was launched as part of the US Acid Rain Program in Title IV of the 1990 Clean Air Act, officially announced as a paradigm shift in environmental policy, as prepared by ‘Project 88’, a network-building effort to bring together environmental and industrial interests in the US.
A major impetus was also provided by the introduction of cap and trade in the USA for sulphur dioxide, which was a by-product of electric power stations, particularly those that burn coal. The legislation was introduced in 1990 and trading began in 1995. To reduce sulphur dioxide by traditional means would have required prohibitive legislation penalising any power station that emitted more than a certain proportion of sulphur dioxide. Costs of such legislation were the monitoring and imposition of fines. The idea of cap and trade is that the flexibility that the trading gives a company enables it to make the reductions a bit more cheaply. Economists who have analysed the American sulphur dioxide market did indeed find that that was the case. So the cap was met, but the costs of doing it via trading were something like half of what they would have been if traditional means had been used.2
Emissions trading became part of the Kyoto Protocol because of the Clinton Administration, which viewed the success of such a cap and trade scheme applied to the US sulphur dioxide market. In particular, they were influenced by the fact that the costs of making the necessary reductions, seem to have been pretty low. They adopted the attitude – “We’ve found an effective tool, domestically, for controlling emissions, and let’s try it internationally.”
2 What is wrong with a CET?
An emissions trading system requires measurements at the level of operator or installation. These measurements are then reported to a regulator. For GHGs, all trading countries need to maintain an inventory of emissions at national and installation level. For trading between regions these inventories must be consistent, with equivalent units and measurement techniques.
In some industrial processes emissions can be physically measured by inserting sensors and flow metres in chimneys and stacks, but many types of activity rely on theoretical calculations for measurement. Depending on local legislation, these measurements may require additional checks regulator.
Another significant, yet troublesome aspect is enforcement (Ott, 1998). Without effective measuring, reporting and verification (MRV) combined with enforcement the value of allowances are diminished.
Enforcement can be done using several means, including fines or sanctioning those that have exceeded their allowances. Concerns include the cost of MRV and enforcement and the risk that facilities may be tempted to mislead rather than make real reductions or make up their shortfall by purchasing allowances or offsets from another entity. The net effect of a corrupt reporting system or poorly managed or financed regulator may be a discount on emission costs, and a (hidden) increase in actual emissions.
The counter argument was that the Kyoto Protocol and the European Commission could and would enforce by reviewing the total number of permits that member states proposed to allocate to industries. The problem with this scheme has been proven – regulatory agencies run the risk of issuing too many emission credits, which can result in a very low price on emission permits [CCC, (2008), p.140]. This reduces the incentive that permit-liable firms have to cut back their emissions. On the other hand, issuing too few permits can result in an excessively high permit price [Hepburn, (2006), p.239]. This is one of the arguments in favour of a hybrid instrument that has a price-floor, i.e., a minimum permit price, and a price-ceiling, i.e., a limit on the permit price. Although hybrid instruments are a solution, being potentially helpful under uncertainty, they can lead to shortages and surpluses given fixed quantities of permits.
Another argument against permits sourced internationally is the difficulty in enforcing international rules against sovereign states, so that development of the carbon market would require negotiation and consensus-building (Burniaux, 2009).
Others have argued that offsets for emission reductions were no substitute for actual cuts in emissions. Kill (2006) stated that “[carbon] in trees is temporary: Trees can easily release carbon into the atmosphere through fire, disease, climatic changes, natural decay and timber harvesting.”
It has also been argued that emissions trading is not incentive compatible and can result in perverse incentives. If, for example, polluting firms are given emission permits for free (‘grandfathering’), this may create a reason for them not to cut their emissions. This is because a firm making large cuts in emissions would then potentially be granted fewer emission permits in the future [IMF, (2008), pp.25–26]. On the other hand, allocating permits can be used as a measure to protect domestic firms who are internationally exposed to competition, which is an argument used in the EU.
Due to the perverse incentive argument, auctioning has been suggested with revenues going to the government to be used for research and development of sustainable technology, or to cut distortionary taxes, thus improving the efficiency of the overall cap policy [Fisher et al., (1996), p.417].
Another argument is the potential effects on low income households, in terms of increasing costs of basics such as electricity, for which subsidies have been suggested as providing consumer relief.
The biggest push for a trading scheme has come from developing nations as explained by an article in this edition. According to these authors, India and Sri Lanka have instituted a CET scheme as they expected carbon to emerge as the largest commodity traded, yielding over US$1.3 billion per annum.
3 Alternatives to trading schemes
It is possible for a country to reduce emissions using a command-control approach, such as regulation, direct and indirect taxes. The cost of that approach differs between countries because the marginal abatement cost curve (MAC) – the cost of eliminating an additional unit of pollution – differs by country. It might cost China $2 to eliminate a ton of CO2, but it would probably cost Sweden or the US much more. International emissions-trading markets were created precisely to exploit differing MACs. Emissions trading through ‘Gains from Trade’ can be more beneficial for both the buyer and the seller than a simple emissions capping scheme. This can be justified using a Lagrange framework to determine the least cost of achieving an objective, in this case the total reduction in emissions required in a year. In such a scenario, the Lagrange multiplier represents the market allowance price (P) of a pollutant, such as the current market allowance price of emissions in Europe and the USA. Since carbon is not a local pollutant but a global one, it has been argued that all countries should face the market allowance price that exists in the market that day, so they are able to make individual decisions that would minimise their costs while at the same time achieving regulatory compliance.
Once again, debate has centred on the fact that an emission cap and permit trading system is essentially a quantity instrument because it fixes the overall emission level (quantity) and allows the price to vary. Uncertainty in future supply and demand conditions (market volatility) coupled with a fixed number of pollution credits creates an uncertainty in the future price of pollution credits, and the industry must accordingly bear the cost of adapting to these volatile market conditions. The burden of a volatile market thus lies with the industry rather than the controlling agency, which is generally more efficient. However, under volatile market conditions, the ability of the controlling agency to alter the caps will translate into an ability to pick ‘winners and losers’ and thus presents an opportunity for corruption.
In contrast, an emission tax is a price instrument because it fixes the price while the emission level is allowed to vary according to economic activity, tracking profits but not guaranteeing the environmental outcome, but limiting hedging and making the government bear the risk of not meeting emissions targets. Corruption is limited by a more transparent system.
What is needed to resolve the debate between a taxes, or a trading scheme is how a known level of GHG concentration or a known emission pathway will contribute to climate change. However, since this cannot be resolved, a third alternative which allows adjustment for both price and quantity may be a solution more capable of achieving the most economically efficient decision based on the equi-marginal principle. When the same product or service is being produced in two or more units of production, in order to get the maximum total output, resources should be allocated among the units of production in such a way that the marginal productivity of each resource is the same in each unit of production.
Such an arrangement could be a carbon swap whereby a firm, farm or any type of entity capable of reducing carbon emissions through sequestration enters into a contract with a carbon producer, such as a coal fired power station. The sequestration that occurs will give the polluter time to adjust his technology in order to capture carbon. An example could be between farmers adjoining a polluter planting trees or changing their agricultural methods to ensure soil content contains more carbon. Such adjustments to soil content could be measured by the CSIRO.4 Value exchanged could be way of shares in the polluter or payment of ‘interest’ to the farmer on the value of the ‘carbon free period of time he receives’. The incentive to enter such a contract could arise from a government directive to reduce carbon emissions below a certain level by a certain time or face sanctions in terms of higher taxes or fines. It could also be induced by a positive incentive, such as tax relief.
Carbon capture technology (CCT), coal bed methane (CBM) technology, carbon dioxide and natural gas (sequestration), geo-sequestration, geo-chemical carbon sequestration, ocean carbon storage/ocean hydrates – all these technologies in conjunction with use of renewable energy forms (biomass, biogas, solar, hydro, wind, geothermal, nuclear, etc.) can be very effective in retarding emission levels and substantially contributing towards abatement of global climate change.
Before expounding on the exact mechanics of such an alternative to a CET and any advantages or disadvantages in such a method it is necessary to explore the meaning of carbon sequestration and swaps.
4 Carbon sequestration
Carbon sequestration is a process of increasing the carbon stored in a carbon pool other than the atmosphere and can occur through natural or engineered processes. Carbon dioxide is usually captured from the atmosphere through biological processes provided by plant photosynthesis, and the natural capture of carbon in soils by vegetation. However man made chemical or physical processes can achieve the same effect.
Carbon sequestration has been proposed as a way to mitigate accumulation of GHGs in the atmosphere, which are released by burning fossil fuels. Biosequestration or carbon sequestration through biological processes has a huge effect on the global carbon cycle over the life of the planet, resulting in both ice ages and global warming. By manipulating such techniques, geoengineers seek to enhance sequestration. Methods such as ocean iron fertilisation are examples of such geoengineering techniques (Traufetter, 2009; Monastersky, 1995).
CO2 may be captured also as a pure by-product in processes related to petroleum refining or from flue gases from power generation. CO2 sequestration can then be synonymous with the storage part of carbon capture and storage, which refers to large-scale, permanent artificial capture and sequestration of industrially-produced CO2 using subsurface saline aquifers, reservoirs, ocean water, aging oil fields, or other carbon sinks. For instance, an engineered solution is a system for filtering CO2 out of the emissions of a coal-fired power plant and pumping the CO2 deep underground.
In discussing carbon sequestration, it is useful to distinguish between ‘biological, physical and chemical solutions’, as each of these would involve a distinct type of counterparty. For instance, encouraging oceanic phytoplankton with iron fertilisation or promoting algae blooms by pumping rich nutrients to the surface. This could lock up carbon on the seabed and is an example of biological processes, but who is the counterparty? If the sequestration takes place off the Argentinian coast, is it their government who is the counterparty? If it occurs outside their oceanic territory who then is the provider? If, however, a commercially run enterprise engineers a project where outcomes can be clearly identified does it pass the counterparty test? For instance, Australian company Ocean Nourishment Corporation (ONC) plans to sink hundreds of tonnes of urea into the ocean to boost CO2-absorbing phytoplankton growth as a way to combat climate change. In reality, to relate this to a NSW based coal fired power station would involve the MVC problems of trading.
Hence, each solution should be confined to a locality and region where ownership and responsibility of the carbon sequestered or carbon dioxide emitted can be clearly identified. Hence, forestry and agriculture appear eminently preferable solutions if carried out in area that can be clearly tagged to the polluter. Replanting trees on marginal crop and pasture lands qualifies, while ensuring carbon dioxide does not return to the atmosphere from burning or rotting when the trees die. To this end, it would be important to either manage such forests in perpetuity or use the wood from them for biochar, bio-energy with carbon storage (BECS) or landfill (McDermott, 2008).
Carbon emission reduction methods in agriculture can be grouped into two categories:
- Reducing and/or displacing emissions, by using more fuel efficient machinery, eliminating stubble burning
- Enhancing carbon removal, by reconstructing streams in order to promote flooding and permanent retention of This in turn promotes growth, photosynthesis and produces more soil carbon. Use of natural fertilizers such as composts, using different tillage methods, avoiding irrigation – all of these methods can result in a dramatic change in the carbon content of soils.
Globally, soils are estimated to contain approximately 1,500 gigatons of organic carbon, more than the total of carbon in vegetation and the atmosphere (Batjes, 1996). Reduced or no-till farming requires less machine tillage and correspondingly less fuel burned per acre of production. Modification of agricultural practices is a recognised method of carbon sequestration as soil can act as an effective carbon sink offsetting as much as 20% of carbon dioxide emissions annually. Using crops to return biomass to the soil is a most effective method of carbon sequestration which can be achieved by planting in native pasturelands or ensuring no field lies fallow by using grasses and weeds as temporary cover or even covering bare fields with hay or dead vegetation.
Other methods are rotational grazing so that grass roots grow deeper and natural tillage and fertilisation occurs. Restoring degraded land increases carbon capture. The effects on crop yield of such methods are documented, but despite this voluntary adoption of such techniques there is a need for an incentive stimulus to create change – for instance more peat bogs. This is particularly so when agriculture and forestry may be suffering depressed profits due to droughts and floods caused by inappropriate land and water management.
Other biological methods include the creation of biochar which is simply charcoal created by pyrolysis of biomass, which is then use as landfill, encouraging bulking with new organic matter, which gives additional sequestration benefit (Lovelock, 2009; Vince, 2009). This occurs by removing carbon available for oxidation to CO2 and consequential atmospheric release. The mechanisms related to the carbon sequestration properties of biochar, is referred to as bio-energy with carbon storage, BECS. Using this technology with sustainably produced biomass would result in net-negative carbon emissions, as the carbon sequestered during the growth of the biomass would be captured and stored, thus removing carbon dioxide from the atmosphere (Azar et al., 2006). Burying trees and landfill of trash also mimics nature and physically sequesters.
‘Physical processes’ include injecting carbon dioxide into depleted oil and gas reservoirs and other geological features, or storing in pure form in the deep ocean. CO2 has also been used extensively in enhanced crude oil recovery operations. Chemical techniques remove carbon dioxide by mineral carbonation by reacting carbon dioxide with abundantly available metal oxides – either magnesium oxide (MgO) or calcium oxide (CaO) – to form stable carbonates using high temperatures. The high temperature speeds up the process which would occur naturally over a far longer geologic time frame.
Carbon dioxide sequestration in oceanic basalt involves the injecting of CO2 into deep-sea formations. The CO2 first mixes with seawater and then reacts with the basalt, both of which are alkaline-rich elements. Underwater basalt offers a good alternative to other forms of oceanic carbon storage because it has a number of trapping measures to ensure added protection against leakage.
New industrial processes allow cement to absorb CO2 from ambient air during hardening or allow oil shale ash to be used as sorbents for CO2 mineral sequestration (Jah, 2008). Another alternative is chemical scrubbers using potassium carbonate or sodium hydroxide.
This brief review is to illustrate the principal point of this article – that many methods exist to reduce carbon emissions, but an open trading of permits, or direct or indirect taxes will achieve nothing unless the tool is related to a direct trading of carbon sequestration, with all the MVC techniques worked out in advance in a concrete contract. Permits can be bought and sold without one attempt to sequester carbon and reduce emissions occurring. There is no guarantee of anything other than a giant financial asset bubble being created as existing polluters compete to maintain the status quo.
The next sections details how a swap could work in this area to ensure carbon sequestration occurs and changes are made to permanently alter our reliance on burning fossil fuels.
5 Why a swap?
Derivatives allow risk about the price of the underlying asset to be transferred from one party to another, while fixing the quantity. The advantages of this arrangement in terms of meeting pre-agreed emissions targets and caps are immediately apparent.
Using our example of carbon sequestration in agriculture, a wheat farmer who can undertake a change in agricultural methods in order to capture carbon, as well as plant trees and restore degraded land, could enter into an agreement with a local coal fired power station or miner. They could sign a contract to exchange a specified amount of carbon by a certain time in the future. The power station signs up to continue his carbon dioxide emissions for a certain period while he adjusts his technology. The farmer agrees to progressively sequester carbon so that carbon dioxide emissions are reduced. By contracting locally, measurement problems, as well as those of verification and compliance are vastly simplified.
Both parties have reduced a future risk: for the wheat farmer, the uncertainty of the price at which the swap is made, and for the carbon polluter, the availability of carbon sequestration both now and in the future. What the contract could incorporate to cope for price uncertainty is for the polluter to issue shares to the sequesterer, so that during the period of his share price might increase, due to his entering simultaneously into an agreement to change his production to one which produces fewer emissions. There would be clauses to allow mutual monitoring of progress towards carbon neutrality and thereafter to emissions reduction.
If the polluting party is a public utility, this could be a step towards privatisation. An alternative is to offer energy or product discounts, or an interest free loan necessary for the farmer to make changes. What is necessary apart from incentives described below, is to specify a structured time ladder at which points, MRV will occur, and when adjustments are to be made, if necessary, to the basic contact.
From another perspective, both the carbon sequesterer (CS) and the carbon polluter (CP) reduce a risk and acquire a risk when they sign the swap contract: The CS reduces the risk that the price of his ability to sequester carbon will lose value. He also is motivated to enter into more profitable farming practices that are sustainable in the long-term. However, he acquires the risk of forgoing a higher swap price in the future, and is dependent on the ability of the CP to make effective changes to his organisation, that maintain or improve the value of his shares, or ensure that the loan funds are available. Both parties acquire a mutual risk of making effective changes to their emission levels.
The CP on the other hand, acquires the risk that the price of the arrangements he has made to buy time to make changes, while another counterparty neutralises his emissions is too expensive – that is, the price will fall below the price specified in the contract (thereby paying more than he otherwise would). The CP effectively buys time to neutralise and change technology. Counterparty risk would be reduced by the creation of a government run or a number of privately owned carbon swap banks to arrange such deals after specific checks of MRV have been followed. Incentives will have to come via a command economy – the threat of significant fines, or extra taxes, or a positive incentive in terms of loans, subsidies and tax relief.
The advantages of such a carbon swap methodology to reduce emissions are five-fold:
- the macroeconomic significance of avoiding the free market flaws of volatility in price
- mitigation of the uncertainty that an emissions trading scheme will actually induce significant changes in technology
- the likelihood that changes will not be confined to the domestic economies of developed nations
- the cost of a permit may be significantly higher than carbon swap arrangements when corruption of the permit process and the profiteering evident in the EU are taken into account
- changes towards sequestration and emissions reduction can be identified and monitored and progress to lower carbon cap nationally assessed by listing all specific projects aimed to sequester carbon and reduce
Steps to enter into such swap arrangements must include exploring where emissions can be avoided or reduced, calculating the unavoidable emissions to be compensated for, and selecting a compensation project. Choices must be made from the sizable number of innovative technologies available to neutralise carbon which were discussed above. These steps follow a Carbon Neutral Protocol.
The role of swaps is purely a contractual assurance that steps will be taken to reduce carbon emissions, as the swap itself is merely a contract to exchange an asset on or before a specified future date, based on the underlying value of the carbon sequestered, and hence carbon emissions reduced. So what are the exact incentives for such an arrangement?
6 Incentives to enter into a carbon swap
The proposed arrangement above relies on a carbon neutral strategy. Carbon neutral is a term used to describe any organisation, entity, or process that has a net GHG emissions level of zero, so that organisations do not need to eliminate all carbon pollution to become carbon neutral. ‘Net emissions’ differ from ‘gross emissions’ in that gross emissions are the sum of all emissions released by the individual or entity, whereas net emissions are equivalent to the gross emissions minus any carbon offsets. A ‘carbon offset’ is any activity that reduces carbon emissions so as to exactly compensate for a carbon emitting activity elsewhere. If net emissions were greater than zero, the entity would be considered a net emitter of carbon. If they were less than zero, then the entity would be a net reducer of carbon. If the net emissions level was zero, then the entity would be carbon neutral.5 Companies or institutions that offset all of the gases resulting from the full spectrum of their internal operations could also receive a ‘Climate Cool enterprise certification’, that would then prove their right to receive government benefits, even if it is a simple fine avoidance.
Motivations to enter such arrangements promoting carbon neutrality until the CP can significantly change technologies can either be voluntary or regulated, where the latter is a tax on carbon emissions or could be even an incentive – such as a tax break where a swap is entered into and monies are borrowed to change technologies (http://www.icfi.com/markets/climate-change/doc_files/carbon-neutrality.pdf). Although voluntary incentives exist – such as the assistance changed technology gives to the cost and revenue profile of the company, and in promoting the company’s image giving it a marketing edge in corporate social responsibility, regulatory incentives are deemed essential.
Obviously, this offsetting strategy involves the organisation quantifying the volume of GHG emissions reductions achievable per annum through the ‘purchased’ swap as well as outlining the internal reduction programmes, the timescale for achieving the carbon neutrality strategy, and the geographic coverage of carbon neutrality. Companies could also focus on the offset of emissions associated with a specific product line by examining the emissions associated with the life cycle of the product. Life-cycle analysis quantifies the emissions from raw material extraction, through manufacturing, transportation, use, and eventual disposal. This is considered the most advanced method for quantifying GHG emissions and provides the most comprehensive carbon footprint.
The advantages of this carbon swap approach are that it uses a quantity target, ensuring that an attempt is made to reach a cap. Caps can be set geographically or by industry. The swap can be tailored made so that it reflects both the costs of change by all parties, as well as the incentives that are included – such as interest free loans or shares to the CS party, and the receipt of tax exemptions or some other form of relief to the CP party. The swap of itself cannot be traded avoiding the accusations of speculative bubbles and trading without making underlying changes. It also ensures the non creation of a spill over derivative market, and that both developing and developed countries make effective changes within their borders, without large capital outflows or inflows to buy or sell carbon credits or permits, with all the consequential destabilising effects.
7 Limits and what needs to be done
The mechanics of a carbon neutral strategy leading to eventual reduction has huge MRV problems to be resolved in the technology of carbon sequestration, and renewable energy sources. The supervision of the swap arrangement would require certification, which is why a government carbon swap bank is suggested, with an eventual goal of privatisation, once sufficient competent entities have entered the system, and the government has decided on targets, and incentives or penalties. This arrangement would give time to overcome two common problems of swaps – possibly high negotiation costs as the swaps are not standardised, although standard documentation may develop. A second problem is lack of liquidity, compared to a CET, a similar problem to forwards vs. futures markets.
The proposed carbon swap bank does not preclude the later introduction of some type of price mechanism for carbon. However, the scheme is based on Adam Smith’s concept of value in exchange, where each of the two parties would negotiate a price relevant to the technologies they need to introduce to sequester and to reduce emissions. In addition, there would be a different time element to each contract, and costs of monitoring. Carbon may be cheaper in some regions where carbon sequestration is not difficult to achieve but more expensive in others where changing technologies is expensive and time consuming. For instance, replacing all coal fired power stations with gas fired turbines, while introducing nuclear energy is a costly exercise for a developed country. While advanced nations are now hesitating on an emissions trading scheme, a government could experiment with the concept of a swap to benefit both its forestry and agricultural sector, while reducing its emissions, based on the concept of increasing productivity in the sequestering sector, while preserving non renewable resources for future generations.
Future research should focus on an exact risk analysis using explicit financial modelling of the concept of carbon swaps, using a model such as that of ANEMI as described by Davies and Simonovic in this special edition of the Interdisciplinary Environmental Review.
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- Rear Vision; on ABC Radio National, 25 February Quote by Donald Mackenzie who is a Professor of Sociology at University of Edinburgh and specialises in the sociology of financial markets. Downloaded from www.abc.net.au/rn/rearvision/.
- Climate Change Response (Emissions Trading) Amendment Act 2008 85, available at www.legislation.govt.nz. Parliamentary Counsel Office. 2008-09- 25.http://www.legislation.govt.nz/act/public/2008/0085/latest/DLM1130932.html.
- Commonwealth Scientific Industrial Organisation for Research in Australia has already established using Google Earth, a website which gives soil carbon levels throughout the word, called
- Carbon Neutrality, available at http://www.noco2.com.au/; Carbon Neutral Gold Standard; available at http://climateneutralnetwork.org/standards.php; Carbon Neutrality, available at http://www.icfi.com/markets/climate-change/doc_files/carbon-neutrality.pdf; Greenhouse Gas Inventory, available at http://www.lowcarbonsg.com/2009/05/08/measure-your-organisations- carbon-footprint-or-greenhouse-gas-inventory.
Reference to this paper should be made as follows: Currie, C.V. (2010) ‘A solution to climate change economics – a carbon swap bank’, Interdisciplinary Environmental Review, Vol. 11, Nos. 2/3, pp.236–247.
Biographical notes: Carolyn V. Currie has a total of five qualifications in politics, economics, finance, regulation, and forensic accounting. Her experience represents almost four decades in the public. She is currently the Head of her own consulting company, specialising in PPPs and promotion of renewable energy and sustainable land and water management. She has also specialised in regulation of financial systems involving corporate financial analysis, public finance (monetary and fiscal policy), accounting and auditing issues, economic growth issues. She uses these skills to advise banks on topical issues such as Basel II, and to counsel governments on the design of financial systems in order to prevent regulatory failure and promote economic growth.