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September|October 2002
The Hours t By Niki Kuckes
The Blood-Money Myth By Tom Baker
Monsoon in a Teacup By Ratna Kapur
Smog & Mirrors By Alec Appelbaum
Prosaic Justice By Anthony Sebok

Smog & Mirrors

Corporate lawyers suddenly have a crucial role to play in the effort to thwart climate change. Should we be worried?

By Alec Appelbaum

In the United States today, nearly all varieties of pollution are declining steadily. National levels of ozone and soot are down, as are emissions of sulfur dioxide and nitrous oxide, key components of smog and acid rain. That may sound like good news, but all is not well with the environment. Perhaps the most worrisome problem is that carbon dioxide, the planet's dominant greenhouse gas, continues to change the climate in drastic ways.

Why has there been so much success in controlling pollutants like sulfur dioxide and nitrous oxide, and so little success with carbon? There are a number of reasons, including the fact that carbon is stealthier, more widespread, and more elusive than other kinds of emissions. It's colorless, odorless, and—in its most common form, carbon dioxide—tasteless. Unlike smog, it isn't emitted from a handful of easily monitored nozzles. Anything that involves burning coal, oil, or natural gas generates carbon: the operation of factories, cars, and planes; the creation of electricity; the heating of homes; the production of plastic bags. (Even cows contribute to the problem, belching methane, a carbon-based greenhouse gas, when they digest.)

Another reason for the high rate of carbon emission is that carbon doesn't fall under the same regulatory policies as pollutants like sulfur dioxide and nitrous oxide. Much of the success in controlling those pollutants has come from "emissions trading," a market-oriented approach to reducing pollution that was inspired by the law-and-economics movement and implemented in a 1990 revision of the Clean Air Act. Under the emissions trading program, the government sets an overall limit to emissions, and polluters are given a choice: Either clean up your operation, or buy the right to continue polluting from a company that has cleaned itself up. The program has been extremely efficient, surpassing the overall reductions in pollution that the Environmental Protection Agency forecast, while costing less than businesses predicted.

This trading program has not been efficient at reducing carbon, however, because it hasn't applied to carbon. Since carbon doesn't visibly sully the environment, the Clean Air Act hasn't yet classified it as a pollutant, and the EPA hasn't had the authority to regulate it. There are plenty of other, more traditional programs for curtailing carbon: Several state laws, for instance, target carbon emissions—including a landmark tailpipe-emissions bill recently passed in California. But because carbon emissions collect in the atmosphere at large, not in local streams and rivers, it's a global problem that requires global solutions.

The only effort to implement an extensive trading-based program for carbon to date has come at the international level. International negotiators have proposed a program, as part of the Kyoto Protocol to negotiate limits on greenhouse gases, in which countries could claim credit for reductions in carbon emissions that their corporate citizens would finance elsewhere in the world. For example, if the United States financed projects in Indonesia to generate electricity from water power, it could record the emissions avoided in Indonesia as its contribution to lowering carbon levels. Kyoto was made semiofficial in June, but the agreement suffers from weak powers of enforcement and vague provisions. Unfortunately, the United States' decision in 2001 to withdraw from Kyoto has made its provisions even easier to ignore.

Despite the problems with Kyoto, a number of corporations are setting up Kyoto-like carbon trading programs on their own. Many businesses are convinced that the problem of climate change is serious enough that a strong trading-based law of some kind will govern their carbon output in the near future. Rather than get caught unprepared, international conglomerates like British Petroleum and DuPont have retained corporate lawyers who have prepared dozens of contracts now in force for trades of reductions in carbon emissions. Businesses hope that these contracts will put them in position to comply promptly and efficiently if and when the Kyoto-style provisions kick in.

According to the nonpartisan Pew Center on Global Climate Change, since 1996 there have been roughly 65 private trades involving 1,000 tons of carbon or more. The significance of this development is that corporate lawyers, by designing these trades according to their own criteria of success, have become de facto legislators on the matter of carbon emissions. On the face of it, this might not seem like a particularly bad state of affairs. Since today's corporations and their lawyers aren't currently compelled to conduct trades of reductions in carbon emissions, it might seem that anything they cook up is better than nothing.

Unfortunately, there is overwhelming reason to be skeptical. Though some companies and their lawyers seem to be making good-faith efforts to set up beneficial emissions trades, many aren't. Unless regulators provide incentives for trades that aggressively promote a carbon-free infrastructure, even well-meaning lawyers—who are, in the end, primarily interested in helping their clients—will very rarely establish projects that meaningfully lower the risk of climate catastrophe. While it would be foolish to stifle free markets, lawyers should also soberly assess how private contracts influence emergent international law. In the absence of regulation, these lawyers are setting a standard for what kinds of trades are viable and routine.

I've interviewed a range of people on the topic of carbon emissions—partners at international law firms, nonpartisan research analysts, government and academic scientists, and development-agency staff—and everyone seems to agree that large-scale investments in clean power and power-plant efficiency offer the most significant hope for improving the climate. Smaller-scale programs are honorable, but the rate at which emissions are reduced is crucial, since climate change gets progressively harder to rein in as carbon buildup intensifies.

Despite the consensus on this point, private trades that finance clean-power investments are relatively rare. Though a handful of private trades invest in technologies that generate energy without emitting carbon—innovations like power plants that run on wind or sunlight—most are far less extensive. For instance, a large number of private trades allot credits to companies that invest in programs that convert methane waste into fuel—a sensible but minor environmental practice known as carbon capture. Of the approximately 65 trades studied by the Pew Center, many, the study found, have eschewed investments in clean power in favor of carbon capture or other basic efficiency improvements. Nearly every lawyer I spoke with, when pressed for an example of the sort of program they were contracting for, cited a methane carbon-capture project. And yet according to Platts, an industry news service, methane accounts for less than 13 percent of global warming.

It's understandable that most private trades are merely tinkering at the edges of the problem. Ambitious projects require cooperation among many players, from engineers and machinists to consumers and shareholders. The lawyers who orchestrate trades are reluctant to saddle their clients with the responsibility of catering to all these groups. Bradford Gentry, a lawyer and lecturer at the Yale School of Forestry and Environmental Studies, explains that a growing number of companies look at future carbon constraints as "a business opportunity," and many have decided to sidestep the risks inherent in developing dramatic new technologies.

In addition, some corporations are acting in bad faith. Companies often possess assets of uncertain environmental value—industrial efficiency secrets, the ability to capture wasted fuel—that nonetheless can be milked for emission credits in these trades. "As a lawyer," explains Martijn Wilder, a partner in the firm of Baker & McKenzie, "your job is to capture those assets in documents today." The difficulty of accounting for something as invisible and widespread as carbon also allows many private trades to rely on extremely shady estimates. The Natural Resources Defense Council, a respected advocacy group that supports emissions trading, reported in November 2001 that during ten years of voluntary emissions reductions at 124 American electric utilities, domestic emissions throughout the sector in question actually rose 25 percent. The NRDC pinned the blame on dubious assumptions and tricky accounting figures, including the practice of claiming reductions when plants were closed for routine maintenance.

The most troubling feature of private trades—whether they're dishonest or not—is that they're establishing the parameters for what counts as a desirable and fair trade. Lawyers shouldn't underestimate how heavily their priorities influence emergent international law. According to the Pew study, the firms that are innovating trades today are widely considered to have "a unique insight on trading that provides them with additional credibility when participating in the climate change policy development process." Because policymakers look for guidance "in light of accumulating experience from market participants," the Pew report notes, these unregulated trades are establishing precedent.

Emissions trading programs need to occur within an articulated policy, such as the one proposed in the Kyoto Protocol, but with tougher penalties and clearer standards. As it stands now, private trades are funding projects that have the clearest results for private firms, not the strongest chances of fostering an economy that runs on something other than carbon. Policymakers will take their cues from these trades when they devise future trading programs. This is exactly the opposite of what it should be. Lawyers don't consider worldwide emissions patterns when making trades, and shouldn't have to; policymakers should. Unless politicians reward big reductions and punish dubious ones, the world's legal authorities may smile on minor projects while carbon continues to disrupt the environment. Fairly or not, that outcome will once again make the lawyers look like the villains.


Alec Appelbaum has written on business and environmental issues for The New York Times Magazine, Metropolis, The American Prospect, and other publications.

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