Posted by: Armel | February 1, 2009

An EMISSIONS TRADING MARKET in AFRICA ?

                          

INSTEAD OF FREE POLLUTION, CAN EMERGING COUNTRIES or AFRICA BENEFIT FROM an EMISSIONS TRADING MARKET ?

Background: Emissions trading is an approach used to control pollution by providing economicincentives for achieving reductions in the emissions of pollutants. A  government or international body sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances or credits which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emissions must buy credits from those who pollute less. The transfer of allowances is referred to as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed. Thus, in theory, those that can easily reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest possible cost to society (Wikipedia).

All this led to the proliferation of a Carbon Credit market -a different asset class- that basically will trade on the principle of allowance or access to legal pollution. In Emerging countries in general, the pollution dilemma is a non-issue because, if that’s what it takes to achieve economic growth, most developing countries would not hesitate to do so. Mature economies on the other hand are facing difficulties trying to control carbon emissions while at the same time pursuing manufacturing leadership. There are hardly any universal agreed standards to greenhouse gas emissions, creating a discrepancy between countries (US, Europe, China) as to what level of pollution is acceptable.

This is where banks with financial engineering come in and launch carbon trading operations involving insurances companies and hedge funds in the early adoption stage. But I think it would be interesting in the near future to see carbon credits trading be a big business in Africa. Carbon Emission at current level around the equator line is still very low, so companies instead of polluting free of charge (as it is the case right now), would buy publicly traded emissions credit along with the rights to install factories. A market of that size in the region is going to attract new players in the sector, and give local financial institutions a playing hand in the globalization of “Pollution Trading“.

I’m not for the creation of a market aiming to pollute Africa, but let’s be realistic about it all: since there are going to be hidden “pollution dumps” around the region anyway, why not bring them out of the shadows and integrate the global trade for carbon emissions at once?

 *Re-upped and updated from archives (05/15/08 )

Armel Njeunou

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Responses

  1. A,
    Another option to “legal pollution” in emerging or developping countries would also be the creation of an independant orgarnization in charge of collecting the “rights to pollute”, checking the proper use of those rights and re-investing the fees collected toward environmental improvement programs such as wet land and beaches conservations, trees planting programs and rare animal protection. The objective here would be to promote indutrialization of emerging/developping nations ( thus pollution), while protecting and enhancing the natural assets they have. As you must know environmental pograms are often neglected in emerging and developping countries ( except for few who greatly depend on their nature for additional income such Carreabean Nations or a country like Kenya) in favor of programs whose impacts have short term visible effects.
    Just an idea…
    Y.

  2. This is Crazy!

    We should try to reverse the race towards industrialization that could bring more natural disasters to Africa. We don’t need to take the same path as China. We have to rethink the meaning of development. I saw something about that whole concept from this blog some months ago.

  3. I love your site!


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