Global Warming and Carbon Trading - Center for America · Global Warming and Carbon Trading: Failed...

Climate Changeand the Threat of Litigation:

Global Warming and Carbon Trading:

Failed SolutionJuly 29, 2008

Prepared for American Justice Partnership Foundation by

Global Warming Litigation Briefing Report • April 10, 2008

Note to the Reader:

The authors would appreciate having your feedback on this report and others in the Global Warming Litigation Project Series. It would be very helpful to learn what topics and questions you would like future reports to address.

Please call or email Todd Young, Policy Director, Southeastern Legal Foundation, 770-587-5733 or [email protected].

Southeastern Legal Foundation

Southeastern Legal Foundation is a constitutional public interest law firm and policy center founded in Atlanta, Georgia in 1976. The Foundation advocates constitutional liberties, free enterprise, and limited government in the courts of law and public opinion. The Foundation has litigated more than two dozen times in the Supreme Court of the United States.

For more information, visit www.southeasternlegal.org.

American Justice Partnership Foundation

The American Justice Partnership Foundation publishes research on issues that affect the priorities and performance of state civil justice systems.

For more information, visit www.AmericanJusticePartnership.org.

Original Material Copyright 2008 Southeastern Legal Foundation

American Justice Partnership • Southeastern Legal Foundation

ContentsIntroduction • 1

What is a Carbon Credit? • 1

Assumptions • 2

A Carbon Credit is a Carbon Creditis a Carbon Credit ... • 4

Would the Project Happen Anyway? • 4

GlobalWarmingLawsuitsandCarbonTrading • 5

Same Underlying Facts • 5

SamePurpose • 5

Carbon Trading as Evidence of Guilt • 6

Summary • 6

ExhibitA:RelatedMediaReports • 8

Global Warming and Carbon Trading:Failed Solution

by Shannon L. Goessling, Esq.Southeastern Legal Foundation

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American Justice Partnership Foundation • Southeastern Legal Foundation

Global Warming and Carbon Trading:Failed Solution

by Shannon L. Goessling, Esq.Southeastern Legal Foundation

Introduction

While politicians and scientists debate the merits of climate change causation, a multi-billion dollar financial sector has developed around the notion that “polluters” (i.e., anyone with a so-called “carbon footprint,” ranging from the world’s largest corporations to the family that cools its home and drives a car) can “offset” their carbon pollution with the purchase of a carbon “credit.”

In its ideal form, the concept of carbon trading is that market forces will create an economic incentive to decrease carbon dioxide emissions. However, critical questions are raised by the faulty assumptions underlying carbon trading, and by the incentive to profit by selling green projects that have been completed, may never be completed, or have dubious merit in terms of actual carbon dioxide reduction. Such questions include these:

Is carbon dioxide, specifically, carbon dioxide emitted through human activity, a 1. quantifiable cause of climate change?

Is the historically unprecedented financial program of carbon trading a legitimate 2. long-term strategy for carbon dioxide reduction?

Is carbon trading tied to the current wave of class action global warming lawsuits, 3. which seek billions in damages from producers of carbon dioxide?

As part of the continuing Global Warming Litigation Project, the American Justice Partnership Foundation and Southeastern Legal Foundation provide the following analysis of carbon trading and its relationship to the broader global warming litigation effort.

What is a Carbon Credit?

On an international scale, carbon credits represent units of monetary value assigned to carbon emissions “shortfalls” by a project, company, or other venture that fall below legally mandated emission caps. When a company produces less carbon dioxide than allowed, it can sell the difference as a commodity. Companies that produce more than the allowed carbon dioxide can purchase the carbon credits to offset their excess. Credits can be exchanged or sold in inter-national markets, with market prices set by demand.1 The stated policy goal of the programs is to reduce the overall carbon dioxide levels produced by human activity. (Trading programs exist for other greenhouse gas emissions. For purposes of this report, carbon dioxide (CO2) is

1 http://en.wikipedia.org/wiki/Carbon_credit, June 30, 2008.

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Global Warming Litigation Briefing Update • July 29, 2008

considered.)

In the United States, government-enforced CO2 caps have not been implemented but are under consideration by federal regulators and Congress (a carbon trading bill was recently defeated in the U.S. Senate). However, the Chicago Climate Exchange manages a voluntary carbon trading platform allowing companies to sell carbon credits to large-scale operations and individuals who view the unregulated credits as a chance to reduce their carbon footprint.2 To date, no official U.S. agency exists to validate the authenticity, short-term and long-term effects of a carbon credit-worthy project. The majority of the carbon credits traded in the U.S. stem from interna-tional sources.

At this point in the analysis, we will examine the underlying assumptions of carbon trading.

Assumption #1: Carbon Dioxide Causes Global Warming

The underlying assumption of international and most U.S. regulatory efforts, as well as asser-tions of fact offered by plaintiffs in a spate of multi-billion dollar global warming lawsuits, is that CO2, among other greenhouse gases, causes global warming.

This has been discussed at length in previous � Global Warming Litigation Project reports and presentations, available at www.americanjusticepartnership.org.

Despite contrary scientific evidence that the Earth may be undergoing a period of global cooling,3 as well as evidence that greenhouse gases are in large measure naturally occurring, the Intergovernmental Panel on Climate Change (IPCC), insists that global warming is directly related to CO2 emissions.

The IPCC is the United Nations body that has issued a series of reports asserting that �CO2 is a primary agent of global warming and which has served as a the basis for inter-national greenhouse gas emission treaties like the Kyoto Protocol.

On this basis, the European Climate Exchange, which has not enabled Kyoto-participating Euro-pean nations to meet treaty-mandated caps,4 developed a carbon trading platform to incentivize compliance.

Assumption #2: Carbon Dioxide Emissions from Human Activity Cause Global Warming

Based on the assumption that CO2 generally is a major cause of global warming, it is broadly accepted in international regulatory circles that CO2 emissions from human activity are in fact a cause of global warming, and this underscores the urgent need to decrease human-made CO2 emissions. A growing body of scientific evidence demonstrates the dubious nature of this assumption (see Exhibit A of this report). (This has been discussed in greater detail in previous reports in this Series.)

2 Id.3 “Temperature monitors report widespread global cooling,” www.dailytech.com, Feb. 26, 2008.4 “Europe fails Kyoto standards as trading scheme helps polluters,” www.bloomberg.com, July 16, 2008.

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Assumption #3: Efforts to Lower Carbon Dioxide Emissions Can Be Sold as a Commodity to Offset Carbon Emissions Elsewhere

As illustrated by the European exchange model, 11 of the 15 original European Union nations have failed to meet the treaty-mandated CO2 reduction markers. Nevertheless, Europe and other global regions, including the U.S., support vigorous and well-funded carbon trading exchange platforms.5 The global market for regulated carbon credits is expected to reach $68.2 billion by 2010, while the unregulated voluntary market is expected to reach $4 billion in the same period.6 Clearly, despite growing criticism about the verifiability and effectiveness of carbon trading on a mass scale, the carbon trading platform concept is profitable and growing.

Problems with Carbon Trading Paradigm

Treaty-mandated, regulated carbon trading platforms, particularly in Europe, do not result in overall reductions of CO2 emissions.7 Among a host of reasons cited by European officials, the list includes overcharges for European Union credits that plummet in value because they do not result in emission cuts,8 the lack of verification, even in the so-called “regulated” markets,9 and the initial allocations of credits that were too high and unwarranted by existing market condi-tions, such as rising fuel costs.10

In the voluntary and unregulated U.S. carbon trading market, 2007 was a record-setting growth year for the carbon offsetting industry.11 However, the theory that a consumer pays a third party for reducing an amount of CO2 equal to the amount emitted is, in practice, “unclear at best, and potentially fraudulent at worst, say experts.”12

One of the challenges facing the growing commodity industry is that there are no formal �certification or monitoring systems in place to verify the actual CO2 reductions that are purchased — in short, there are no standards, so the quality of offsets varies wildly.13

In late 2006, Clean Air-Cool Planet, a nonprofit group, released a first-ever ranking of carbon offsetters, grading 30 companies on a scale of 1 to 10. “[T]hree-quarters scored below 5.”14 Indeed, some of the harshest criticism of the carbon trading model comes from the activist environmental movement. Dan Becker, the Sierra Club’s global warming program director, said,“Ontheonehand,thereisthepotentialbenefitofeducatingpeoplethroughoffsets…on the other hand, if people view offsets like papal indulgences that allow you to continue to pollute, then it’s probably not a good idea.”15

Nevertheless, many companies are currently participating, or considering it, based on a desire

5 Id.6 “Industry caught in carbon ‘smokescreen,’” The Financial Times, April 25, 2007.7 “Europe fails Kyoto standards,” www.bloomberg.com.8 “Industry caught in carbon ‘smokescreen,’” The Financial Times.9 Id.10 “Europe fails Kyoto standards.”11 “Do carbon offsets live up to their promise?” The Christian Science Monitor, January 10, 2007.12 Id.13 Id.14 Id.15 Id.

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to define a green-friendly brand identity.16 Examples include HSBC, the first major bank to declare itself carbon-neutral with the 2006 purchase of 170,000 tons of carbon offsets, as well as Google and Ben & Jerry’s. Companies such as Travelocity and Expedia are now offering customers the option to purchase carbon offsets related to their travels.17 Approximately 15 percent of companies polled by The Conference Board in 2006 were trading, while another 40 percent were considering it.

While such efforts are well-intentioned and responsive to a growing marketplace demand for “green-friendly” programs, the programs are unlikely to result in any overall reduction of long-term CO2 emissions, based on the record established by the more mature European carbon trading platform.

ACarbonCreditisaCarbonCreditisaCarbonCredit…

A significant problem with carbon offsets is the complicated methods by which CO2 and other greenhouse gas emissions can be controlled or reduced, and how those methods are trans-formed into marketable commodities.

Carbon removal or reduction can be achieved by various methods and over varying degrees of time. For example, CO2 can be captured by trees, but there are no guarantees as to the longev-ity of a newly planted forest, and the effectiveness of a planted tree depends entirely on its global latitude (some plantings actually have the reverse effect).18 Greenhouse gas emissions can be prevented by burning gases like methane, which is 23 times more potent than CO2.19 Another option is to preempt the release of CO2 by building wind- and solar-powered facilities for power generation.20 Each method, among the myriad of additional examples, has differing values, timelines, and costs — yet each are “sold” at market prices for carbon credit offsetting.

WouldtheProjectHappenAnyway…?

There is a major debate among global warming activists, ranging from former Vice President Al Gore, (who founded and co-chairs Generation Investment Management, one of the world’s largest private investment firms profiting from the carbon trading industry), to a host of envi-ronmental activists who disfavor carbon trading. The debate centers around the question of whether a project whose purpose or resulting effect is a reduction of carbon emissions would be implemented even without the carbon trading “investment. The concept is called “additional-ity”, and it plagues the credibility of the entire carbon trading industry.

The question plays out like this: A “green home” building project in India seeks funding from various sources across the globe. Enterprising private equity funds and other sources agree to provide investment capital. Identified as a “green” project, brokers provide an additional stream of potential revenue by selling credits based on reductions of carbon emissions that may

16 Id.17 Id.18 Id.19 Id.20 Id.

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occur as a result of the new Indian housing project. Those credits are traded on the markets in Europe and the U.S. A carbon credit purchaser buys the Indian project credits to offset a portion of the purchaser’s CO2 emissions.

Would the Indian green building project have happened without the carbon credit investment? If the answer is yes, the offset does not have “additionality”. If the answer is no, then it would qualify as a legitimate offset. The question has deep significance in terms of potential abuse and/or fraud related to the valuation of and selling of billions of dollars of credits.

Global Warming Lawsuits and Carbon Trading

On the surface, it may appear that market-driven carbon trading and the current wave of multi-party lawsuits alleging global warming culpability against American industry, are unrelated. However, the two share a common worldview and common goals:

Carbon trading and global warming litigation are entirely based on the same underlying �assumption, namely, that CO2 produced by human activity causes global warming.

A critical policy purpose of much of the current global warming litigation is to drive the �U.S. government to recognize and regulate CO2 as a pollutant, thereby legitimizing a formal carbon trading platform similar to the European model. (The recently defeated federal legislation proposed a formal cap-and-trade carbon platform.)

The participation in carbon trading by potential global warming lawsuit defendants may �be identified as further evidence of alleged global warming liability.

Same Underlying “Facts”

In the Native Village of Kivalina v. ExxonMobil Corporation, et al., the prototype allegations reiter-ated from various lawsuits assume as fact that CO2 emissions produced by human activity are a primary cause of global warming. (This is explained more fully in previous reports in this Series.)

Similarly, the basis for carbon trading, whether formal and regulated (Europe/Kyoto Protocol) or voluntary and unregulated (Chicago Climate Exchange), is the assumption that CO2 causes global warming. Therefore, the logic goes, the goal of reducing emissions is best served by a market approach of trading carbon credits among CO2 producers because the reduction in CO2

production can be monetized, thereby offsetting the costs involved in creating the reduction. Thus, those creating the trend toward more lawsuits and those advocating carbon trading gener-ally operate on the basis of the same assumed facts and are natural allies.

Same Purpose

In several recent lawsuits, including a recent appeal to the U.S. Supreme Court, various states have argued that CO2 is a pollutant and that, as a result, it should be regulated in a meaningful way by the U.S. Environmental Protection Agency (EPA). (See previous reports in this Series.) While the Supreme Court stopped short of mandating that the federal government promulgate

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regulations, the Court held that CO2 is a pollutant. (It deferred the issue of mandates as a political question which should be left to the executive and legislative branches.) As mentioned earlier in this report, federal legislation was recently introduced and defeated that would have mandated CO2 regulation by the EPA as well as the establishment of a formal cap-and-trade carbon trading platform.

This Supreme Court decision was a setback for U.S. market proponents who know that the European Climate Exchange dwarfs the voluntary Chicago Climate Exchange in terms of trade volume. These proponents realize that the enactment of formal CO2 regulations and the endorsement of a formal, regulated carbon trading platform in the U.S. — whether by federal legislation or by court order — would produce a significantly higher carbon trade volume here.

Carbon Trading as Evidence of Guilt

As underscored in the Kivalina complaint, the plaintiffs’ attorneys allege that various green-friendly environmental efforts made by potential defendants constitute evidence of defendants’ knowledge that global warming has been and is being caused by emissions.

For example, the Kivalina attorneys cite defendant Edison International’s Global Climate Change Policy, which “calls for the company to promote responsible energy development and environmental excellence” as an admission that CO2 emissions are causing global warming. Membership in voluntary public policy coalitions (Global Climate Coalition, Greening Earth Society) is cited against defendants. Charitable funding directed to organizations which may take a position contrary to the plaintiffs’ assertions about global warming causation is also cited against defendants.

Within the range of activities cited by plaintiffs against the defendant energy companies in Kivalina, participation in carbon trading platforms is not cited specifically. Key to the Kivalina complaint is the overarching claim that the energy industry defendants know that the CO2 they emit causes global warming, and that every step taken to appear “green-friendly” is an effort to offset this culpability. However, as shareholders continue to mandate the adoption of corporate green policies, particularly those that include participation in carbon trading as a means of reducing carbon emissions, the litigation trend is clearly moving in the direction of including carbon trading as evidence of alleged global warming liability.

Summary

Carbon trading, whether in a formal, regulated context (Europe/Kyoto Protocol) or in a voluntary, unregulated context (Chicago Climate Exchange), fails to produce the overall result of reducing global greenhouse gas emissions, particularly CO2. Based on flawed scientific assumptions link-ing CO2 emitted through human activity with global climate change, the carbon trading industry has tremendous difficulty in creating stable, marketable commodities that retain consistent value, as evidenced by the collapse of prices in the European market in recent years. There have been no effective protocols or regulatory structures established to ensure that the various carbon offset credits sold are legitimate, verifiable, and non-redundant (“additionality”).

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Sharing the same underlying assumptions and worldview, the plaintiffs in the recent wave of global warming lawsuits against American industry and the proponents of the carbon trading industry share a similar goal: to compel the U.S. government to regulate CO2 in a manner that will include a cap-and-trade carbon platform. Based on developing litigation strategies used by plaintiffs in multi-party global warming lawsuits, the participation of potential defendants in carbon trading may be cited by plaintiffs as evidence of responsibility for global warming causa-tion.

Upcoming reports in this series will include:

Cap-and-trade, carbon tax, and how to stop lawsuits with proactive legislation �

The real consequences of CO � 2 — where it comes from and what it means for the environ-ment

Tracking � Kivalina — the next phase in global warming litigation

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EXHIBIT A

New Study Explodes Human-Global Warming StoryMonday, December 10, 2007

By: Philip V. Brennan, NewsMax.com

As much of the U.S. is being blasted by vicious ice storms, a blockbuster report published in a pres-tigious scientific journal insists that the evidence shows that climate warming is both natural and un-stoppable and that carbon dioxide (CO2) is not a pollutant.

Writing in the International Journal of Climatology of the Royal Meteorological Society, professor Da-vid H. Douglass (of the University of Rochester), professor John R. Christy (of the University of Al-abama), Benjamin D. Pearson and professor S. Fred Singer (of the University of Virginia) report that observed patterns of temperature changes (“fingerprints”) over the last 30 years disagree with what greenhouse models predict and can better be explained by natural factors, such as solar variability.

The conclusion is that climate change is “unstoppable” and cannot be affected or modified by control-ling the emission of greenhouse gases, such as CO2, as is proposed in current legislation.

According to Dr. Douglass: “The observed pattern of warming, comparing surface and atmospher-ic temperature trends, does not show the characteristic fingerprint associated with greenhouse warm-ing. The inescapable conclusion is that the human contribution is not significant and that observed in-creases in carbon dioxide and other greenhouse gases make only a negligible contribution to climate warming.”

One of his co-authors, Dr. John Christy, added: “Satellite data and independent balloon data agree that atmospheric warming trends do not exceed those of the surface. Greenhouse models, on the other hand, demand that atmospheric trend values be 2-3 times greater.

“We have good reason, therefore, to believe that current climate models greatly overestimate the effects of greenhouse gases. Satellite observations suggest that GH models ignore negative feed-backs, produced by clouds and by water vapor, that diminish the warming effects of carbon di-oxide.” (Emphasis added.)

And the third co-author, Dr. S. Fred Singer, said: “The current warming trend is simply part of a natu-ral cycle of climate warming and cooling that has been seen in ice cores, deep-sea sediments, stalag-mites, etc., and published in hundreds of papers in peer-reviewed journals.

“The mechanism for producing such cyclical climate changes is still under discussion; but they are most likely caused by variations in the solar wind and associated magnetic fields that affect the flux of cosmic rays incident on the earth’s atmosphere.

“In turn, such cosmic rays are believed to influence cloudiness and thereby control the amount of sun-light reaching the earth’s surface and thus the climate.

“Our research demonstrates that the ongoing rise of atmospheric CO2 has only a minor influence on climate change. We must conclude, therefore, that attempts to control CO2 emissions are ineffective

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and pointless — but very costly.”

© 2007 Newsmax. All rights reserved. (emphasis added)

Author’s Note

Within the past two years, a more formal “opposition” view of the scientific data has taken shape, led by a number of the world’s most prominent environmental scientists. The “alterna-tive” assessment of humanity’s impact on current climate change is powerful, well-documented, and based on conservative scientific modeling. In short, the scientific “consensus” built around public policy pronouncements offered by global environmental and quasi-governmental agen-cies and popularized by Al Gore’s promotional efforts, is indeed no consensus at all. Consider the following review issued by The Hudson Institute in 2007:

Challenge to Scientific Consensus on Global Warming: Analysis Finds Hundreds of Scientists Have Published Evidence

Countering Man-Made Global Warming Fears

WASHINGTON, Sept. 12, 2007 /PRNewswire-USNewswire/HUDSON INSTITUTE (www.hudson.org) -- A new analysis of peer-reviewed literature reveals that more than 500 scientists have published evidence refuting at least one element of current man-made global warming scares. More than 300 of the scientists found evidence that 1) a natural moderate 1,500-year climate cycle has produced more than a dozen global warmings similar to ours since the last Ice Age and/or that 2) our Modern Warming is linked strongly to variations in the sun’s irradiance. “This data and the list of scientists make a mockery of recent claims that a scientific consensus blames humans as the primary cause of global temperature increases since 1850,” said Hudson Institute Senior Fellow Dennis Avery.

Other researchers found evidence that 3) sea levels are failing to rise importantly; 4) that our storms and droughts are becoming fewer and milder with this warming as they did during previous global warmings; 5) that human deaths will be reduced with warming because cold kills twice as many people as heat; and 6) that corals, trees, birds, mammals, and butterflies are adapting well to the routine reality of changing climate.

Despite being published in such journals such as Science, Nature and Geophysical Review Letters, these scientists have gotten little media attention. “Not all of these researchers would describe themselves as global warming skeptics,” said Avery, “but the evidence in their studies is there for all to see.”

The names were compiled by Avery and climate physicist S. Fred Singer, the co-authors of the new book Unstoppable Global Warming: Every 1,500 Years, mainly from the peer-reviewed studies cited in their book. The researchers’ specialties include tree rings, sea levels, stalagmites, lichens, pollen, plankton, insects, public health, Chinese history and astrophysics.

We’ve had a Greenhouse Theory with no evidence to support it-except a moderate warming turned into a scare by computer models whose results have never been verified with real-world events,” said co-author Singer. “On the other hand, we have compelling evidence of a real-world climate

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cycle averaging 1470 years (plus or minus 500) running through the last million years of history. The climate cycle has above all been moderate, and the trees, bears, birds, and humans have quietly adapted.”

“Two thousand years of published human histories say that the warm periods were good for people,” says Avery. “It was the harsh, unstable Dark Ages and Little Ice Age that brought bigger storms, untimely frost, widespread famine and plagues of disease.” “There may have been a consensus of guesses among climate model-builders,” says Singer. “However, the models only reflect the warm-ing, not its cause.” He noted that about 70 percent of the earth’s post-1850 warming came before 1940, and thus was probably not caused by human-emitted greenhouse gases. The net post-1940 warming totals only a tiny 0.2 degrees C.

The historic evidence of the natural cycle includes the 5000-year record of Nile floods, 1st-century Roman wine production in Britain, and thousands of museum paintings that portrayed sunnier skies during the Medieval Warming and more cloudiness during the Little Ice Age. The physical evidence comes from oxygen isotopes, beryllium ions, tiny sea and pollen fossils, and ancient tree rings. The evidence recovered from ice cores, sea and lake sediments, cave stalagmites and glaciers has been analyzed by electron microscopes, satellites, and computers. Temperatures during the Medieval Warming Period on California’s Whitewing Mountain must have been 3.2 degrees warmer than today, says Constance Millar of the U.S. Forest Service, based on her study of seven species of relict trees that grew above today’s tree line.

Singer emphasized, “Humans have known since the invention of the telescope that the earth’s climate variations were linked to the sunspot cycle, but we had not understood how. Recent experi-ments have demonstrated that more or fewer cosmic rays hitting the earth create more or fewer of the low, cooling clouds that deflect solar heat back into space-amplifying small variations in the intensity of the sun.

Avery and Singer noted that there are hundreds of additional peer-reviewed studies that have found cycle evidence, and that they will publish additional researchers’ names and studies. They also noted that their book was funded by Wallace O. Sellers, a Hudson board member, without any corporate contributions. (Emphasis added)

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For more information on global warming litigation developments, background on climate change, reference materials

and web site links, please contact:

Southeastern Legal FoundationShannon Goessling, Esq., Executive Director

Todd Young, Policy Director6100 Lake Forrest Drive, Suite 520

Atlanta, GA 30328(404) 257-9667, Fax (404) 257-0049

[email protected]

American Justice Partnership FoundationDan Pero, President600 South Walnut

Lansing, MI 48933(517) 371-7276

[email protected] www.americanjusticepartnership.org

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