The two stories I’ll be linking to in this post have something in common: the attempt to use “markets” to solve big problems. First, PBS Wide Angle profiles the Ethiopian economist Eleni Gabre-Madhin, who recently returned, after a long stint with the World Bank, to her home country to start a commodities exchange. The exchange’s principal focus is to trade grain – sesame, the all-important teff, maize and the like – in an efficient, transparent way. Whether such an idea will work is another question – and the documentary portrays well the immense challenges she faces.
What fascinated me most was that Eleni, in the years she was conducting academic research, tried her best to “follow the trail of grain”. That meant literally starting with the small farmer with the two acre plot who produces the crop, then moving to warehouses, the middlemen and traders, and finally to the actual markets. The lack of information along this chain and the fluctuations of supply and demand can cause wild price variations, which cripples small farmers. One such farmer in the documentary – a quiet, dignified man with a small plot that is in risk of failing this season because of drought – asks poignantly (I am paraphrasing here):
“Why is there variation in prices? Is there not a standard stable way of doing things? If there is a solution, I would like to know about it.”
The bigger context is Ethiopia’s famines: Eleni claims that it is the ideal of elimination of hunger that inspires her. In 1984, the year when famine took a terrible toll in one part of Ethiopia, a surplus existed in the southwestern part. If Eleni is successful -- and that's a big "if" -- her commodities exchange will become the standard way to trade grain throughout Ethiopia; it will ensure the quick transmission of price and quantity information, provide a regulated environment in which the shortages and surpluses cancel out, thus averting the possibility of famines.
An inversion of the shortages-canceling-surpluses concept recurs in another commodities exchange. And this is an unusual one: the carbon market. Here surpluses are excesses in greenhouse gas emissions (and hence a bad thing); the shortages are efforts or the promise of reduced emissions (hence good). The UN regulated market under which this system operates is called cap and trade, a result of the Kyoto Protocol of 1997. The EU and other developed countries – except the United States – are now part of it. In the US, cap and trade legislation is still under debate.
Trading in carbon is big business now: it’s the fastest growing commodity exchange market, already worth 150 billion dollars. The idea is simple: Companies whose emissions exceed a predetermined limit or cap can offset their excesses by purchasing carbon credits from other companies that are below the limit. Or, they can do it by investing in wind farms or biofuels or similar efforts which hold the promise of reducing emissions. These credits or carbon offsets, many of which are from the developing world – the developing world sees an economic opportunity in the rich world’s emissions – are often bundled together and sold in exchanges. This is fueling a "carbon boom" – which, of course, will end suddenly sometime, because it’s hard to measure what is being sold: measurement varies across the world, and the actual impact on emissions cannot be determined with any certainty.
You would think one clear-cut way of earning carbon credits is to avoid deforestation. Preserve a forested region full of trees that store carbon and you gain as many credits as the carbon estimated to be stored in the trees. Each tree has a price in other words (journalist Mark Schapiro is shown a tree that is worth a dollar because it contains an estimated hundred kilograms of carbon). With this in mind, General Motors, American Electric Power and Chevron chose to preserve huge tracts of relatively pristine land in the Cachoeira reserve in the Brazilian state of Paraná. They brokered a deal through Nature Conservancy and the local SVPS (Society for Wildlife Research and Environmental Education). Though the US is not part of the cap and trade system, these corporations presumably estimated that they would eventually earn from these credits, in addition to boosting their reputations as champions of preservation.
Avoiding deforestation, however, does not have a clear cut case for reducing emissions -- indeed the UN has disallowed this option. There’s the chance that the deforestation simply shifts to unprotected areas, creating no overall emissions reduction. And more fundamentally, as Mark Shapiro reports in an essay in Mother Jones,
"when companies create reserves on already forested lands, their contribution to the fight against climate change is limited: "Do they get the credit for simply enhancing what was there already?" José Miguez, one of Brazil's top climate officials, told me that during the Kyoto talks his government opposed using its forests to enable northern industries to pollute more. "The forest is there," he said. "You can't guarantee it will absorb extra carbon. The General Motors plan gives a false image to the public in the United States. For us, they are pretending to combat climate change."In the short yet revealing PBS Frontline World documentary, Brazil: The Money Tree, Shapiro reveals a deeper problem: what of the people who have been living in these forests and using its products? The commodification of trees by big corporations in the name of preservation has resulted in the use of coercive techniques – arrests and even armed patrols – to keep people, whose livelihood depends on the products they obtain from the preserved lands, off limits. This even in cases where the activities are not destructive to the forest’s existence.
Bring money into the picture and all sorts of conundrums pop up – even when the price tag is on something seemingly as innocuous as keeping a tree standing.