Is the global market of carbon credit trading fundamentally flawed?

Carbon credits are generated by a United Nations-run scheme called the Clean Development Mechanism (CDM).

The mechanism gives firms in developing countries financial incentives to cut greenhouse gas emissions.
   
Companies and individuals rushing to go green have been spending millions on “carbon credit” projects that yield few if any environmental benefits.

A Financial Times investigation has uncovered widespread failings in the new markets for greenhouse gases, suggesting some organisations are paying for emissions reductions that do not take place.

Others are meanwhile making big profits from carbon trading for very small expenditure and in some cases for clean-ups that they would have made anyway.

Arguably, this defeats the whole point of the CDM scheme, set up under the Kyoto climate change protocol, as these projects are getting money for nothing.

A recent investigation by the BBC World Service found examples in India where this seemed to be the case.

And in one case a company is earning truly staggering sums of money from the carbon credits it is receiving - perhaps as much as $500m (£250m) over a period of 10 years - for a project it says it would have carried out without the incentive of the CDM.

The findings reinforce doubts that the CDM is leading to real emission cuts, which is not good news for the effort to combat climate change.

In order to receive carbon credits from the CDM, projects are supposed to demonstrate that they will lead to cuts in greenhouse gas emissions that are "additional" to what would have happened without the availability of credits.

This concept of "additionality" is crucial to the credibility of the mechanism because of the way the system works.

The buyers of CDM credits are companies in developed nations, mostly in Europe, who use them to offset their own emissions.

They are allowed to count the carbon credits towards targets they would otherwise have to meet by cutting emissions at their own factories and offices, which is usually much more expensive.

The system is intended to give western firms a low cost way of achieving emission targets while at the same time getting businesses in developing nations involved in tackling climate change.

But it only works if the carbon credits generated by projects in developing nations really do represent genuine emission cuts.

It would appear that tension between the demands of the planet and the imperatives of commerce, lies at the heart of the global response to climate change and, in particular, of carbon offsetting.

The question is, does the CDM scheme provide the incentive for companies to reduce their emissions or would these projects have been carried out anyway? It is far from clear that the trade in credits is contributing much to tackling global warming.

It would appear that tension between the demands of the planet and the imperatives of commerce, lies at the heart of the global response to climate change and, in particular, of carbon offsetting.

published 3 years ago

brian

66 points