The UN Framework Convention on Climate Change (UNFCCC) facing political inaction over rising carbon dioxide (CO2) levels from fossil fuel burning – sees solar, wind and other renewable energies as the way forward.  Successive stalemates at climate summits in Copenhagen (2009) and Cancun (2010) have led to a re-think.  The Kyoto Protocol expires in 2012.  Its global focus on CO2 emissions and trading schemes based in London and other financial centers became suspect.

Wall Street’s meltdown in 2007-2008 revealed many sleazy practices, conflicts of interest and fraud, still under investigation.  This and fossil fuel lobbies doomed prospects for a national “cap and trade” bill in the US Congress.  Widespread fraud in trading CO2 “offsets” led the UN police agency INTERPOL to warn that the next white collar global crime wave would likely be in trading these carbon derivatives.  Republicans and “climate deniers” in the US identified cap and trade as a tax and asked why it should not be collected by governments rather than by Goldman Sachs!  Some taunted “if you like credit default swaps, you’ll love carbon derivatives!”

How did global climate policy run aground in Copenhagen (2009)?  Many blame unrealistic ambitions for such a sweeping global agreement structured around legitimate conflicts between the main CO2 emitters in the “rich” countries and the less-developed nations which had so far emitted far less CO2 .  Thus the climate debate in Kyoto in 1997 covered arguments about fairness, assigning blame for human effects on climate, demands for justice and compensation.

Emission-trading schemes were devised to bridge these divides between North and South, using “neutral” market mechanisms.  These markets for carbon in the Kyoto Protocols included a Clean Development Mechanism (CDM) to compensate developing countries for shifting to low-carbon technologies and development.  Traders in Wall Street and London’s big banks hailed these “financial innovations” and set up trading desks and exchanges.

Large polluting industries in Europe’s Emissions Trading Scheme (ETS) quickly gamed the Kyoto Protocol.  They lobbied EU governments for so many free CO2 emission permits that they crashed the ETS markets for CO2.  Then, instead of shifting from fossil fuels to wind, solar, geothermal and energy efficiency, polluting industries purchased “offsets” under the CDM to fund projects in developing countries.  Verification of these projects proved almost impossible, since so many would have happened any way, for sound business reasons like energy efficiency and more productive, cleaner technologies.  Most of the offsets under CDM went to China – allowing it to develop solar, wind and clean technologies.  Now China has developed and captured these export markets; it has stopped selling “offsets” to Europe’s polluting industries – which must now go green and buy their new equipment from China.

Why did the climate issue focus so closely on CO2 and global trading of its derivative “offsets”?  I reported in Building a Win-Win World (1996), how economists had through their professional associations succeeded in “capturing the climate issue for our profession.”  Economists pushed policy proposals for “market-based solutions” to climate change in the US Senate during the Reagan and Clinton administrations.  Influenced by the ideologies of conservative economists and elite environmentalists, they joined the push to privatize, deregulate and promote expansion of market-based globalization.  Thus, US policy dominated the UN’s first climate summit in Kyoto in 1997, and led to the CO2 emissions-trading approach of the Kyoto Protocol.  The focus on CO2 (with lesser attention to other more polluting greenhouse gasses: methane, NOx, VOCs) followed largely because financial traders on Wall Street and in London needed a single commodity: carbon, to construct tradable financial instruments.

Many developing countries were dubious about “cap and trade.”  They were understandably suspicions about turning their climate policies over to faraway trading desks in the major banks and the many new firms set up to trade carbon.  They warned that these new carbon markets were not “free” but created and administered by governments which set and policed the caps on emissions.  These costly new regulations could easily be captured and gamed by powerful polluters.  This quickly happened as permits were given out by compliant politicians.

The global financial crises of 2007-2008 still continue creating recessions, government bailouts, austerity, losses of savings, homes and jobs.  Few still trust the un-reformed financial markets or expect greedy, often dishonest traders to solve climate problems.  Rising doubts about climate policies have also been fed by conservative backlashes, push-backs by predominant fossil fuel industries and their lobbyists.

Pandering to market-fundamentalist economists by focusing on carbon and its financial trading now seems a strategic mistake.  These economists touting market-based climate regulations failed to disclose that setting up carbon caps and trading mechanisms actually entailed costly complicated new bureaucracies.  Monitoring, verifying the offsets, RECs (renewable energy certificates) while lowering the levels (caps) on CO2 emissions was opposed by the polluters.  The CO2 permits were to be auctioned, but this quickly turned into massive giveaways to polluters which then sold them at a profit.  All this pandering to the dominant fossil fueled industrial sectors also produced profits to the CO2 traders while removing little actual CO2 from the atmosphere, with global levels still rising.

Thus cap and trade turned out to be less efficient then direct taxing and regulation.  Trading was opposed by many developing countries, environmentalists, academics, climate scientists as well as some brave economists who argued for taxes.  Green tax shifting is still the best solution, as I advocated (Christian Science Monitor 1989, 1990) where taxes on incomes and payrolls are cut and shifted to all forms of pollution (not just CO2), extraction of virgin resources and waste – while remaining revenue neutral.  Slowly, this approach is gaining support – even in the US Senate from Senators Maria Cantwell and Susan Collins.

Meanwhile our Ethical Markets Green Transition Scoreboard® researching all private investments in green technologies since 2007 reported $2 trillion by Q1 2011.  While politicians argued, Ethical Markets urged global pension funds and institutional investors to shift at least 10% of their portfolios to green companies.  Two additional reports, Mercer’s Climate Change Scenarios – Implications for Strategic Asset Allocation and WWF-Ecofys’ The Energy Report, buttressed our research.  Mercer calls for 40% shifts in these institutional portfolios while WWF-Infosys reported on how the world could shift to 100% Renewable Energy by 2050.


At the same time, the re-think on climate policy produced two ground-breaking reports from IPCC and UNFCCC itself with the World Meteorological Organization (WMO).  They advised broader approaches to global emissions beyond CO2 to focus on soot (black carbon), methane, VOCs and ozone – pointing out that this could decelerate global warming more rapidly than relying on CO2 reductions alone.  These policy shifts also focus on green energy.  Both can improve health outcomes from such localized pollution sources and make regional government actions feasible – before reaching new global agreements.

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Hazel Henderson, author, president of Ethical Markets Media (USA and Brazil), co-developed with the Calvert Group the Calvert-Henderson Quality of Life Indicators (updated regularly at, co-authored “Qualitative Growth” (2009), Institute for Chartered Accountants of England and Wales (, and advises many projects and conferences including the European Commission’s Beyond GDP, November 2007, and its first survey in 10 countries by Globescan and Ethical Markets Media.