REDD myth no. 8: Putting a price on carbon makes polluters pay

It’s burning fossil fuels that is driving the climate crisis, not the lack of a price on carbon.

PHOTO credit: The Story of Cap and Trade

Carbon market proponents claim that putting a price on carbon creates an incentive for corporations to include pollution in their cost-profit analyses. That in turn, they argue, creates an incentive to reduce emissions.

Putting a price on carbon, the argument goes, will make Big Polluters pay for their pollution.

But as the Dutch NGO Centre for Research on Multinational Corporations (SOMO) points out in one of its series of “Facing the facts: carbon offsets unmasked” this is a myth:

The extraction and burning of fossil fuels drive the climate crisis, not the lack of a price tag on carbon. The idea that pricing carbon will address the climate crisis is based on several fallacies and misconceptions.

SOMO addresses the following three fallacies and misconceptions.

1. Buying carbon credits ≠ Paying for the impacts of pollution

In theory, if corporations see the full costs, including the costs of pollution, reflected in the cost of production, this will lead to them changing how they operate. If pollution is priced, according to the theory, corporations will pollute less.

However, this rarely happens. Many corporations pollute and take the risk, if they are caught, of paying a fine. Often, they get away with it.

One horrendous example is the amount of raw sewage that pours into England’s rivers and seas. In 2023, according to the Environment Agency there were on average 1,271 spills a day of sewage into waterways.

The costs to society include stinking, polluted rivers, destruction of fisheries, dead rivers, and the health impacts of swimming in chicken shit.

England’s water companies were privatised in 1989. By 2022, 72% of the water industry in England was foreign owned.

George Monbiot writes that,

The owners of this essential public service included the Chinese state, the Qatar Investment Authority, the Abu Dhabi Investment Authority, the US company BlackRock and other private equity firms, the Hong Kong tycoon Li Ka-shing, the Malaysian magnate Francis Yeoh and opaque investment vehicles based in secrecy regimes. These are among the owners we know of – other proprietors are impossible to identify.

The underlying cause of the problem is Margaret Thatcher and her fondness for neoliberalism. The solution is not more neoliberalism.

A neoliberal solution would be to put a price on the shit in England’s rivers. Then create a shit trading mechanism to allow companies that pour less shit into rivers to sell shit credits to companies that have “hard to avoid” shit that they “need” to continue pouring into the rivers in order to continue making a profit.

A genuine solution would require the government to regulate the corporations that are pouring shit into the rivers. In addition, renationalising the water companies would be an excellent (and very popular) idea.

The costs to society of climate change include massive loss of life (4 billion deaths if global temperatures reach 3°C or more by 2050, according to a recent report), damage to the health and safety of huge numbers of people, ruined livelihoods, and homes and ecosystems destroyed.

Some of these impacts can be given a price. Many cannot. SOMO writes that,

Carbon credits do not even attempt to put a price on the climate impacts of a company’s extraction, burning or use of fossil fuels. They put a price on carbon molecules.

That price varies. Ecosystem Marketplace reports that average prices voluntary carbon credits were US$4.04 in 2021, US$7.37 in 2022, and US$6.97 in 2023.

The Platts carbon price explorer shows that since early 2022, the price of nature-based carbon credits (Platts CNC) has fallen steadily — the price in September 2024 was US$0.31, and the price today is US$0.45):

SOMO writes that,

The “price” companies pay for credits is nowhere near the social, environmental and human costs of their carbon emissions in the present, let alone their decades of past pollution. The price of carbon credits is insignificant compared to the massive profits these companies make and has also not deterred major oil and gas companies from pursuing new fossil fuel extraction plans.

And oil and gas profits are soaring:

SOMO notes that by the end of 2030, these six mega-polluters are planning to spend about US$690 billion on new fossil fuel projects.

2. Carbon pricing is a perversion of the “polluter pays” principle

The Polluter-Pays Principle appeared in the Report of the UN Conference on the Human Environment held in Stockholm, in June 1972:

States shall co-operate to develop further the international law regarding liability and compensation for the victims of pollution and other environmental damage caused by activities within the jurisdiction or control of such States to areas beyond their jurisdiction.

It also appeared 20 years later in the Rio Declaration on Environment and Development:

States shall develop national law regarding liability and compensation for the victims of pollution and other environmental damage. States shall also cooperate in an expeditious and more determined manner to develop further international law regarding liability and compensation for adverse effects of environmental damage caused by activities within their jurisdiction or control to areas beyond their jurisdiction.

In short, the Polluter-Pays Principle states that corporations or countries that produce pollution should pay the costs associated with their pollution.

It has since been watered down to a licence to pollute, thanks at least in part to lobbying by the fossil fuel industry. Carbon credits provide a licence to pollute — a mechanism that allows polluters to claim that they are addressing their greenhouse gas emissions, while continuing business as usual.

In 2024, Shell was by far the world’s biggest buyer of carbon credits, followed by other Big Polluters such as Microsoft, Eni, and Primax Colombia:

3. When costs increase, they are usually passed on to customers

The EU Emissions Trading Scheme (ETS) was introduced in 2005. For the first two phases, free EU Allowances were allocated according for historical emissions. The more emissions a corporation was responsible for, the more EU Allowances it received. This amounted to a subsidy to Big Polluters. Electricity companies increased electricity prices, resulting in windfall profits.

EU Allowances were handed out free to the iron and steel industries, and to oil and gas refineries. Despite the fact that these cost nothing, companies increased the price of products to consumers. For example, a 2010 study by CE Delft found that when the price of EU Allowances increased, within two weeks prices diesel and petrol prices in Germany increased.

The result was windfall profits for polluters.

In March 2024 Transport & Environment published an analysis of the first carbon market for shipping, the EU shipping ETS. This started on 1 January 2024. For the first year, shipowners have to buy emission allowances for 40% of their emissions. This increases to 70% in 2025, and 100% in 2026. “In response,” Transport & Environment found, “the largest shipping companies — all specialised in transporting containers — announced that they would pass on the ETS costs to their customers in the form of surcharges.”

As the surcharges were higher than the ETS costs, the four big EU shipping companies (MSC, Maersk, Hapag-Lloyd, and CMA CGM) stood to make windfall profits.

Pricing carbon is not an efficient way to reduce emissions

Carbon market proponents argue that carbon offsets can achieve emissions reductions at the lowest cost. It’s cheaper for a Big Polluter to pay for planting trees in Brazil than it is to reduce its emissions from its operations in the US, for example.

But carbon offsets do not reduce emissions. At best they shuffle emissions from one place on the planet to another.

But it’s worse than that. Dozens of investigative reports and academic studies have revealed that carbon offsets often do not represent genuine emission reductions. Carbon markets are awash with junk credits.

And most of the money in carbon markets circulates between carbon trading companies. Back in 2011, the Munden Project wrote that,

The bulk of benefits from forest carbon will not go to REDD projects, the communities that live within them or the countries where they are located, and those projects that are able to operate will come under intense pressure to cut costs due to monopsony buying power.

Intermediaries such as carbon brokers (often based in the Global North) buy carbon credits cheaply from carbon projects and sell them on at an inflated price. They then charge fees based on a percentage of the inflated price.

A carbon trading industry has emerged featuring carbon credit rating firms, data providers, registries, standard setting companies, carbon traders, investors, exchanges, auditors, insurance firms, governance organisations, and a swarm of companies that tokenise carbon credits on the blockchain.

SOMO concludes that,

The notion that carbon pricing or credits can help address climate change is unfounded. Carbon credits do not put a price on the climate impacts of extraction, burning or use of fossil fuels. They put a price on carbon molecules so that they can be traded. This has created a system in which industries are allowed to “pay to pollute” and maintain business as usual.

Instead of ideological neoliberal false solutions, strict government regulation is needed to ensure that industries restructure their operations in order to reduce emissions. At the same time, fossil fuels have to be left below the ground.

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This is the eighth in an occasional series of REDD myths on REDD-Monitor.