The Effect of Carbon Trading on Poor and Developing Countries

Developed nations have an interest in emissions trading schemes, because they need a way to give incentives to companies to decrease CO2 and other greenhouse gas emissions. What about the effect on developing countries though? Can poorer nations benefit from trading carbon credits with their richer, generally more-polluting, counterparts?

Benefits of Carbon Trading With Developing Nations

1. Heavily agricultural nations, or those with a lot of rainforest habitat, are able to sell carbon credits to other countries based on the amount of carbon they’re actually “storing” (plants actually pull carbon out of the atmosphere) through these natural resources. This gives poorer countries a new income source in a global market.

2. Carbon trading, and the resulting income, allow these countries to preserve natural resources like rainforests, where it might otherwise not be economically viable (this benefit is a global one, and not specific to the developing nations).

Potential Pitfalls of Carbon Trading Involving Poor Countries

1. On the flip-side of being able to earn income from preserving resources like forests, carbon trading also runs the risk that poor nations will avoid progress, because they won’t want to give up any of that income to actually pursue development projects.

2. Some even worry that these natural resources will be used as a “power card” – that developing nations will be able to manipulate market forces in carbon credit prices by essentially saying “pay us $X, or we’ll destroy the resource.” For example, a country wanting more money might threaten to eliminate large areas of a rainforest to pursue their own progress, which would then lead to increased emissions on their end, and fewer carbon credits available overall in the market (not only because of the resources lost, but because that country will also now be using more of their own remaining carbon credits to pursue that development). Another potential is that they will simply hoard the credits, refusing to sell, until prices increase.

The real key to seeing how carbon trading plays out in developing nations will be for other governments to acknowledge the actual goals of those countries – For example, are they looking to become more industrialised, or are they motivated to preserve their resources by the carbon market? As long as everyone is working towards their own national goals and not feeling “forced” into one way of life, we can work together to minimize the risks and concerns.

Last updated 22 September 2008