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Reasons To Trade In Carbon Credits

According to its advocates the idea of a global carbon market can significantly cut the carbon emissions of the world. However, critics argue that providing polluters with the option in paying to cover their carbon emissions is not the solution to the problem of climate change.

As of the month of July, fires destroyed huge areas in North America. In Oregon the Bootleg fire caused the destruction of nearly 400,000 acres worth of forest. When the trees were engulfed in flames as did a significant amount of carbon offsets, including those purchased by firms like BP or Microsoft.

The Bootleg fire revealed one of the shortcomings of the carbon offset market: how do we be sure that the carbon reduction projects that we invest in will exist in 10 years or even 100 years? With climate change causing intensified wildfires as well as prolonged droughts in the coming decades, it is important to determine whether these offsets are reliable instruments that will aid in drastically reducing carbon emissions.

The biggest market for carbon offsets currently under debate in November during the 26th United Nations’ Climate Change Conference of the Parties (COP26) which will be held in Glasgow. Governments believe that carbon credits as well as an international carbon market, where the credits are able to be purchased and sold, will aid them in achieving their ambitious emission reduction goals. However, environmentalists warn that such a scheme allows rich nations the right to continue polluting.

Prior to this year’s conference Future Planet analyses what an effective carbon market could be like, and the amount it would cost to be able to reduce global emissions.

A global market

The carbon market was conceived by economists as a means to boost climate goals and decrease the carbon dioxide (CO2) amounts in our atmosphere through offering an incentive for financial gain to reduce emissions.

The concept is that when one country pays for its emissions to be reduced or captured by a different country, such as through the planting of trees or installing renewable energy facilities it is able to count the reductions toward its own goals in the area of climate change. The idea is that for each tonne of CO2 emitted by one country and another tonne is stored elsewhere.

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Countries can exchange credits, each of which represents one tonnes of CO2, with each other on an international marketplace. In theory, this exchange will even out and avoid the overall increase in emissions in the event that all emissions resulting caused by human activities are covered under the scheme.

The creation of the first global carbon market however, has proved to be a daunting task. For more than 30 years, nations have attempted, and mostly failedto come up with solid regulations.

Its first international scheme goes to the United Nations’ Kyoto Protocol on climate change which was adopted in 1997. The scheme is known by the Clean Development Mechanism (CDM) the carbon market was put into effect in the year the year 2006. In the CDM the richer nations could reduce their carbon emissions through the financing of carbon-reducing projects in less developed countries, and calculating the reductions as part of their own goals.
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It was also the first time that Kyoto Protocol also established “cap and trade” programs, which establish an upper limit on the amount of carbon emissions allowed from carbon-intensive sources for example, shipping and the energy sector and at national, regional or international level. It was the European Union created the world’s first emissions trading system, built around the principle of trade and cap in the year 2005. According to a study for 2020 the system has reduced carbon dioxide emissions by nearly 1 million tonnes from 2008 between 2008 and 2016.

The CDM however, on its own, fell apart due to widespread concerns about the efficacy of the environment as well as corruption and human rights violations. 85 percent of offset projects implemented in the European Union under the CDM did not cut emissions, a study conducted by the European Commission found.

The year 2015 saw 190 nations joined the Paris Agreement and set emissions reduction goals. As per article 6 in the treaty they agreed to set up a carbon market in the world that is voluntary with the intention of avoiding the same mistakes that led to the demise of CDM.

Six years later, nations are still working out rules and are far away from a consensus. Ministers hope to progress on the issue during the Climate summit COP26 held in Glasgow in November, however there are still deep disagreements on how to structure the market for carbon.

A few believe that the dispute could be the deciding factor in this Paris Agreement. “This was what the countries pledged to each to each other,” says Cynthia Elliott who is an associate in the global climate program within the World Resources Institute. “If they fail to meet this obligation then it’s a sign that the Paris Agreement doesn’t have the same importance.”

If it is done correctly If it is done correctly, this mechanism for trading could increase the reduction of global emissions , and make it much more affordable for nations to achieve the Paris Agreement climate goals, according to the advocacy group Environmental Defense Fund. Offset projects can channel needed funds to countries that are less fortunate and provide huge benefits to climate change adaptation, giving them the financial incentive to restore their forests, as well as other hot spots for biodiversity, according to Lennon.

If countries are unable to plug loopholes or ensure it will yield actual reductions in emissions, advocates believe it will do damage more than it does good.

The dangers

The biggest issue with the the current carbon market mechanism is their “very wide method of crediting” According to Lambert Schneider, a carbon market expert at the Oko-Institut in Freiburg, Germany. Many offset projects are approved without needing to prove that they will cut emissions, he adds.

In actuality, the requirements that offset projects must be able to meet in order to be able to capture a certain amount of carbon are very strict as stated by Grayson Badgley, a fellow in the field of forest ecological sciences in Columbia University in the US.

“The math must be precise, but there are occasions when the math doesn’t work out as expected, ” says Badgley.

The offsetting program in California is an example. It has resulted in between 20 to 39 million credits for carbon, but did not result in real carbon savings, as per research conducted by CarbonPlan an organization that is a non-profit located in San Francisco that analyses the scientific validity of carbon offset schemes.

This could raise questions when organizations whose purpose is to safeguard wildlife and forests accept credits that permit companies to continue to pollute. A number of US conservation groups, like The Nature Conservancy (TNC) and the Northeast Wilderness Trust, have been part of the carbon offset marketplace, Badgley notes. “What could happen if there wasn’t the exchange of money in exchange for carbon offsets?” he asks. “Was it really in danger?”

Current legislation “allows owners who are already managing their land effectively to get credits for what they had already been doing” according to Barbara Haya, director of the Berkeley Carbon Trading Project at the University of California.

Yet, TNC points out there are circumstances where conservation of forests can make use of carbon credits in a fair manner for example, when they are used to enhance forest management , which leads to increased carbon sequestration. In the St John River Forest in Maine TNC purchased 75,000 acres (290 square miles) from the manufacturer of pulp and paper International Paper. In the 20 years that followed harvesting timber at the forest was the main source of revenue for TNC. The reduction in timber harvesting in exchange for carbon credits enabled TNC to shift away from tree felling, claims the spokesperson for TNC.

“Since 1998, the harvesting of timber is The Nature Conservancy’s main source of revenue for taxes and stewardship and management of the Upper St John River Forest. When it joined the carbon project on forests, TNC made a long-term commitment to alter its current harvesting practices to ensure an increased quantity of carbon in this property.” The TNC spokesperson declares.

The Northeast Wilderness Trust also underlines the distinction between an offset program in which there is a real possibility of logging, and one in which there’s no risk of logging. Trust’s Wild Carbon programme “is dedicated to carbon offsets derived from permanently wild areas that were unprotected and susceptible to the possibility of logging prior to the purchase” according to the trust’s director of operations, Jon Leibowitz.

“It isn’t accurate to say that conservation organizations shouldn’t be involved with carbon market,” Leibowitz claims. “Science has shown that allowing forests to age and keep in storing and sequestering carbon is one of the most cost-effective and efficient carbon capture and storage methods we have.

“For the same reason conservation organizations ought to be able to access carbon revenue for as long as they are able to demonstrate that their carbon initiatives represent permanent conservation as well as new conservation,” Leibowitz says. “Done correctly carbon revenue, specifically in the case of forever-wild conservation, can be an effective tool to keep carbon from our forests in a secure manner and allows forests to expand and capture and store more carbon in the years to come.”

In order to take carbon sequestration one step further Some of the most stringent programs do not issue offset credits Gilles Dufrasne the policy officer of the non-profit international organization Carbon Market Watch. However, when the offset schemes do issue them, they try to identify projects that would not cut emissions without offset credit funding. Also, it is about ensuring that offset schemes don’t promote reductions that are likely to occur in the first place.

Even if an initiative is able to capture carbon that would not otherwise be captured, offset schemes may fail for different reasons. As the Bootleg fire demonstrated it, offsets may not provide the carbon sequestration that they’re commonly believed to provide. A number of offsets across the US are covered by the Improved Forest Management protocol, that does not consider the differing risk of fire in different areas of the nation and the ways they will increase due to climate change, as per Badgley.

“We know that the danger of fires is likely to rise. California’s system doesn’t take into account these dangers,” he says.

There are many ways to ensure that offset programs last However, ensuring their sustainability is almost impossible. “What is the rate of deforestation increase in Brazil in the next five, or 10 years? We don’t know. In the past, it has changed dramatically,” says Schneider. “The basis used is an assumption of the future, and comes with high uncertainty.”

New rules

As nations prepare to negotiate new the rules of carbon markets at COP26 this November activists claim it is essential that all forms of fraud and corruption be removed. Two points remain a source of contention about double counting and whether credits that are not used up in the previous CDM system can be carried over to the brand new market for carbon.

The first is the double counting issue. Brazil would like to claim credit for offsets it sells to a different country and the reductions made would get counted twice. In the event that it is the case that the UK is investing in a program to safeguard rainforests in the Amazon forest, as an instance, Brazil wants to count the reduction in emissions toward the country’s own goal and the goal of the UK.

Brazil as well as China as well as India is also seeking to exchange older credits from Kyoto time period onto the market of the future, in order to safeguard the investment value of earlier investments. “As the reductions in emissions were already in place in the past the use of these credits does not alter the environment and will not affect nations’ goals on climate change,” argues Schneider.

For Dufrasne it’s best to not sign any deal instead of accepting exemptions for double counting and carrying forward old credits. “You can negotiate with ambition, but you shouldn’t bargain over the possibility of cheating” Dufrasne says.

The record on environmental and human rights of the past market, such as the CDM remain being viewed as a major concern. Numerous carbon offset programs have to date “have not been hygienic for the environment and violated rights of the human,” says Erika Lennon Senior attorney at the Center for International Environmental Law noting that in a lot of instances, project developers did not seek out and obtain approval from local communities.

One such example can be found in one of the Alto Maipo hydropower scheme in Santiago, Chile, which was vetted by the CDM despite significant environmental concerns and the opposition of local communities that claimed the plan, which involved redirecting water out of the River Maipo for 100km (62 miles) to generate electricity, was threatening their right to food, water and even life.

“It shouldn’t be too difficult to ensure human rights are respected when it comes to climate change,” says Lennon.

Unless loopholes are plugged out and the rules are made more strict it’s not worth to have a carbon market worldwide that is flooded with low-cost, ineffective offsets, according to Haya.

“You can’t achieve effective mitigation of climate change based on fiction. It is essential to ensure the credits are genuine and not built on lies,” says Haya, suggesting that establishing an incentive fund to support mitigation, that companies and nations contribute to and which is more effective in decreasing emissions in general.

Even with strict regulations, nations cannot count on carbon offsetting on their own to achieve their ambitious goals in the field of climate change.

“We’re in a different scenario than we were the time that it was the time that the Paris Agreement was adopted,” Elliott says. Elliott. “Many nations have come out with net zero goals, which put the entire [logicto market prices in question, and they tell us that we have to take action that is more transformative.”

A global compensation system has no place in the global compensation scheme. It is “not the most important aspect of global climate action” Dufrasne says and he suggests that nations be able to prioritize adopting regional and national strategies to reduce emissions. This will help lead to the reductions needed to put the world on the path to zero net emissions in 2050. “Governments should not rely on credit purchases that come from foreign countries but rather focus on cutting domestic spending.”