Extending the sphere of the market as a mechanism for environmental policy was enthusiastically embraced by governments during the 1990s following the Brundtland Commission's (WCED 1987) promotion of 'sustainable development'. The conflation of 'sustainability' (the ecological problem) with 'development' (the economic problem) was a key factor in laying the foundation for economic norms in environmental policy and management to the neglect of preserving ecological integrity. After two decades of national and international policies for sustainable development, global environmental degradation continues and a new wave of concern has emerged (Kovel 2002: 4; UNEP 2007). The recent Reviews by Stern (2006) and Garnaut (2011) sought to tackle climbing global emissions of carbon dioxide (Worldwatch Institute 2002: 5), but have ensured that any debate about the use of market instruments neglects the question of their suitability in this circumstance. Rather, debate is confined to the problem of how best to implement such instruments (Paton 2008: 107). This was evident in the establishment of the Australian Multi-Party Climate Change Committee, convened to investigate ways of 'pricing' carbon and resulting in the negotiation of the 'Clean Energy Future' emissions trading scheme.
The United Nations Conference on Environment and Development (UNCED 1992) institutionalised the role of market instruments in climate change policies through the United Nations Framework Convention on Climate Change (UNFCCC). Economic approaches, central to UNFCCC, gained practical momentum with the Kyoto Protocol in 1997. The only global agreement to mandate quantitative greenhouse gas (GHG) emission limits for developed economies of the North, it institutes economic instruments as the means for achieving targets. The Protocol embodies three 'flexible mechanisms' which pivot on the creation of emissions trading schemes and the pricing of GHG emissions. A new commodity in the form of 'emissions reductions' (or removals) is the basis for a process whereby GHGs (primarily carbon dioxide) are monitored, priced and traded in a 'carbon market' (UNFCCC 2010). Of the three Kyoto mechanisms, the Clean Development Mechanism (CDM) represents the most extensive carbon trading instrument in terms of the volume of economic activity it has generated and its spatial reach between global North and South.
The CDM is a baseline-and-credit carbon offsetting instrument which allows for the development of carbon pollution 'reducing' projects in Southern countries. Common project types include hydropower dam and biomass waste renewable energy projects, industrial gas destruction factories, carbon sequestration from tree plantations and energy efficiency installations. Projects produce carbon credits, known as Certified Emission Reductions (CERs). These are traded on financial markets and finally surrendered by governments and businesses in Northern countries in order to meet their carbon emission reduction requirements. CER credits commodify the capacity of the climate system to absorb and cycle one tonne of carbon dioxide-equivalent because they are used by companies and governments in the North to 'offset' their real GHG pollution. Significantly, the Kyoto Protocol states that in addressing climate change through the production of such credits, the CDM will also 'contribute' to sustainable development in the South (UNFCCC 1997: 11). The inclusion of this second goal demonstrates the perceived congruence between economic instruments and sustainable development, particularly as a means to resolve North-South tensions in global environmental politics. (1)
However, it is far from self-evident that economic theories provide an appropriate basis for managing the environmental commons or for meeting the normative challenges of sustainability, climate change being the ultimate test of both. The unavoidably collective and interdisciplinary character of ecological problems makes suspect their amenability to the atomistic theory and method of free market economics. …