Carbon credit smokescreen

Carbon markets just shift the mitigation responsibilty from developed to developing countries

Carbon markets were created under the Kyoto Protocol of 1997 in the hope that their expansion would increase investments in low-carbon and mitigation technologies.The three market mechanisms under this protocol—Emissions Trading Systems (ETS), Clean Development Mechanism (CDM) and Joint Implementation (JI)—were meant for developed countries to take the lead in reducing emissions and meet their global mitigation requirements. However, decades after their inception, carbon markets cannot be termed successful interventions in terms of carbon reductions. Q Emission reduction targets of developed countries were largely outsourced:The Kyoto target of developed countries translated to a reduction of 2.59 gigatonnes carbon dioxide equivalent (GtCO2e) between 2008 and 2012. By 2012, the expected carbon credits from all registered CDM projects totalled nearly 2.5 GtCO2e. Basically, all developed countries’ emission reduction obligations were capable of being outsourced. Q Massive surplus of assigned amount units: Russia and some eastern European economies-in-transition were assigned nearly 13 billion credits to secure their commitment to Kyoto, resulting in a massive surplus which was enough for all countries to avoid any mitigation action until well after 2020. Some restrictions were placed on the trade of these units after 2012, but the damage for the first commitment period (2008-12) had already been done.

Q Excessively cheap non-CO2 reductions:The CDM mechanism did not differentiate between reductions in emissions of CO2 and other greenhouse gases (such as HFC-23) which have a warming potential much higher than CO2.This resulted in a disproportionate generation of cheap credits from these non-CO2 gases.The investment required to generate nitrous oxides (N2O) was estimated at around US $0.79 per tonne CO2e—the lowest among all sectors. Even though CO2 has a lower warming potential, its use is much more widespread and ingrained in the economy.The CDM, therefore, allowed emission reductions without making fundamental changes in economies of developed countries. Q Possible net increase in global emissions:The actual mitigation effectiveness of CDM is very hard to assess. A 2014 study estimated that the global effect of CDM by 2020 could be anywhere between an increase in total emissions by 3.6 billion tonne CO2e or a reduction of 3.2 billion tonne CO2e.

These mistakes are being exacerbated with the Paris Agreement, which aims to create global carbon trading markets without a standard definition of emissions targets. Every country has set its own national targets covering different sectors, and using different metrics. Defining a “baseline” beyond which credits can be created has become a huge negotiating hurdle in developing rules on markets under the Agreement. Without such standardisation, a market cannot claim any integrity. Besides, while markets can convey finance from developed to developing countries, this is only useful if they are focused on areas where emissions reduction is currently expensive.Allowing emissions trading based on renewable energy projects, for example, is self-defeating in those parts of the world where renewables are already cheaper than coal. While developing countries can collect some finance from such projects, the real effect is to allow a buyer to claim mitigation which is not really mitigation.This will hurt developing countries in the long run.