Carbon Offsets – Boon or Bane?
“Offsets are merely permissions to pollute for corporate entities!” she exclaimed.
Photo Credits: https://www.cartoonstock.com/cartoonview.asp?catref=lpen7
My present work in the project delivery team at Sindicatum Sustainable Resources “Sindicatum” enables me to have a deeper insight on two key approaches to addressing the climate crisis; Mitigation and Market Mechanisms. The former abates the impacts of climate change by reducing emissions fast enough to achieve the temperature goal – Sindicatum is developer, operator & owner of clean energy projects worldwide. These projects reduce the need for carbon-intensive fossil fuel based energy, thereby reducing the quantity of Greenhouse Gases (“GHG”) released into the atmosphere.
A market mechanism on the other hand, is a key instrument used to implement a carbon price that enables the transformation to a pathway of low-carbon and climate resilient economies. Market mechanisms or Emission Trading Schemes (“ETS”) to be exact play a critical role in stabilising anthropogenic emissions in the most cost-effective manner.
I was ready to engage my recent acquaintance from Puerto Rico in a debate to highlight the benefits of ETS but I needed a key ingredient before we commenced – Caffeine! The Paul Cafe right across Hall 4 in Le Bourget would come to my rescue and provide a good venue for us to continue this conversation.
“Hot chocolate for the lady and a cappuccino with an extra shot for me please. Merci Beaucoup!”
Part 1 – What is Emissions Trading and how does it work?
This “Cap-and trade” system is a market-based approach to resolve the climate conundrum. As the phrase suggests, this mechanism is comprised of two parts: The CAP and the TRADE.
The core tenet of the cap involves setting a ceiling or a limit on the total quantity of GHG emissions to be released into the atmosphere by entities within a geographical boundary over a period of time. Each allowance is equivalent to one tonne of carbon dioxide equivalent. Every participant in the scheme receives allowances that permit them to release the equivalent amount of GHG into the air that we breathe.
The trading aspect establishes a market for these permits by allowing entities to buy and sell depending on whether they have a shortfall or surplus in allowances. This provides incentives for companies to consistently find ways to reduce emissions from their operations or resort to accruing additional expenses in the form of purchasing allowances or carbon credits to account for their additional carbon footprint. The limit or the cap is reduced over time to ensure that aggregate emissions fall below allowable levels whilst also ensuring that these entities become more efficient in negating their impact on the environment.
Carbon credits are units (or commodities) that represent the emission reductions that arise from GHG abatement projects around the world. Whilst climate change is a global problem with profound immediate and long-term impacts, the impacts and the costs required to mitigate them are not equally distributed. It does not make a difference to planet Earth where the emission reductions are made and GHG abatement projects in developing countries optimize this process. To elaborate this with an example, it would be much cheaper and efficient to develop a Landfill-gas-to- energy project in Thailand as compared to one in the UK but regardless of where the project is developed, Earth’s denizens reap the benefits of reduced GHG emissions in the atmosphere.
The Defining Concept – Additionality
To qualify as a genuine carbon offset, the emission reductions achieved by the project would have to be beyond what would have occurred if the project was not implemented – Business-as-Usual. If a project is viable on its own accord either via electricity revenue, Government funding & mandates and policies, then this does not qualify as an offset project as it would have occurred regardless of the finance secured through carbon markets. These carbon offsets are means of channelling finance to low-carbon and emissions abatement projects that would not have occurred as per the baseline scenario. These projects MUST represent net environmental benefits to guarantee that the project activities will lead to a reduction of GHG into the atmosphere. These net benefits are further validated and verified by 3rd party independent organizations with the support of robust methodologies and genuine carbon standards.
How can I be certain that an emission reduction is real?
Robust carbon standards with independent verified assessments of the emission reductions produced by a project provide assurances that the emission reductions are real, quantifiable and additional. There are “premium” accreditations such as the Gold Standard that incorporates stringent methodology requirements for sustainable development in the local communities. As a result, local communities not only experience environmental benefits but also technology and skills transfer, improved safety, job creation for the local population and indirect economic benefits to name a few.
“Yes, I get how the mechanism works, but nowhere does it explain the escape route that it provides for these dirty companies to just pay their way out! Plus guess what I just saw earlier?”
Yes, I am getting to the benefits of carbon offsetting right after this and I might as well debunk a few misguided perceptions about carbon credits. Let’s do this in three additional parts where (i) I’ll tell you a little bit more about Carbon markets and its benefits, (ii) other carbon pricing instruments and (iii) maybe a glimpse on what we can expect post-2020. Right now I want to get tips on getting those killer biceps from Mr. Arnold Alois Schwarzenegger. Help me return the Eco-Cup back will you?