There are so many sustainability initiatives that aim to reduce greenhouse gas emissions (GHGs) and mitigate the effects of climate change that developing a complex international system of trading with some of the GHGs as financial instruments seems out of place. However, trading carbon credits represents a way to incentivize and fund sustainable practices while helping to reduce overall emissions. One carbon credit is equivalent to one ton of carbon that is not emitted into the atmosphere and can be bought and sold by countries and companies. Of course, some criticize the initiative by arguing that “companies continue polluting by purchasing credits rather than actually reducing their own emissions.” Check out more insights below.
Key Takeaways:
- Companies or countries can earn carbon credits by implementing projects that reduce emissions or remove carbon from the atmosphere. These credits can then subsequently be traded on carbon markets
- Carbon credits attempt to equalize the number of total emissions that can be released by a company or business on a more local scale. This means that the sum of all companies and businesses in a country must reduce these emissions to achieve global results
- Promoting energy efficiency and the generation of renewable energy, protecting high carbon-density ecosystems like forests and peatlands, and encouraging forest regeneration and forest planting, are just some of the ways to slow and reverse the accumulation of greenhouse gases in the air.
- However, experts state that this kind of system can be poorly understood, so calculating carbon emissions and their consequences could be subject to uncertainty or/and fraud.
DevelopmentAid: What are the pros and cons of carbon credits in your opinion?
“The concept of carbon credit was proposed in 1997 under the Kyoto Protocol. It is based on the cap-and-trade model that was used to reduce sulfur pollution in the 1990s. The price of carbon credit will depend on the location and market where it is traded. Carbon credits are a monetary incentive for companies to reduce their carbon emissions. This was seen as a way to motivate companies and countries to invest in innovative ways to reduce carbon emissions. Companies that are unable to reduce carbon emissions, despite sustainable development practices, can purchase carbon credits to show that they encourage sustainable activities. On the other hand, companies that have managed to reduce their use of carbon will be able to sell carbon credits and in turn, boost their reputation as successful sustainable development practitioners. However, this exchange market is being taken advantage of by certain entities who purchase carbon credits as a way to avoid emission reduction activities. This circumvents any potential benefits to the environment when one company reduces carbon emissions as an equivalent amount will be emitted by another. Unless everyone focuses on reducing carbon emissions, the benefits of reduction by some will be taken advantage of by others.”
“The idea behind carbon credits is to provide a mechanism that allows producers of carbon dioxide emissions – whether businesses, industries, or other facilities – to balance out the generated GHGs by investing in sustainable methods/projects that will remove the same quantity of the generated GHGs from the atmosphere. Moreover, the mechanism facilitates more investments in sustainable projects (i.e., renewable energy sources, reforestation, landfill gas capture and storage, etc.,) that reduce atmospheric GHGs. One big advantage of such schemes is that they enable conventional business owners to continue their business-as-usual routines while compensating for the emitted GHGs via the purchase of carbon credits; hence, shifting more into sustainable business models. However, the fact that – to date – there is no internationally recognized standard for carbon offset schemes, makes it difficult to confirm the amount of carbon that businesses claim to offset and/or their resultant/collateral impact on the environment and local communities. Moreover, situations arise where the available carbon credit for purchase in the market would be far way below the produced carbon dioxide emitted by businesses – for instance, in 2021 1 BT CO2 carbon credit was advertised in the market compared to 35 BT CO2 emitted. Another important aspect to consider is the scheme’s suitability for different countries and communities. For instance, it will not sound logical that developed countries with highly-industrialized economies would apply the same carbon offset credits regulations similar to developing countries – customized schemes should be developed that respect and consider the status quo and socioeconomic characteristics of different countries. In conclusion, although carbon credits schemes are far from perfect and businesses are still producing CO2, they provide a step towards sustainability and carbon neutralization.”
“Pros. Rational mitigation investment decisions require net emission savings to be calculated realistically in a common unit of account. This starts with net tCO2e, but approaching Earth system tipping points means that each has higher mitigation utility the sooner it is saved. Hence, they are more meaningfully reported as ‘dated mitigation value’ (tCO2edmv) along with their co-benefits and unit costs. In this way, the best investments can be identified and prioritized by planners and/or selectively rewarded by markets. Arrangements set up for tCO2e can thus easily be made more effective in maximizing mitigation cost-effectiveness and co-benefits. Cons. Complex Earth systems are poorly understood so calculating carbon emissions and their consequences gives a false impression of certainty. Current carbon trading arrangements take little account of precaution, tipping points, deadlines or co-benefits so are often wasteful and/or perverse. Even if corrected, uncertainty and debate would continue over the distribution of costs and benefits among people, future generations, and nature. Conserving high carbon-density ecosystems can be a very cost-effective mitigation investment, but only the best techniques are effective and this requires informed choice. Trading emission reductions from nature-based solutions also relies on commoditizing nature, which many people find ethically unacceptable.”
“Carbon credits are a type of financial instrument that represent the right to emit a certain amount of carbon dioxide or other greenhouse gases. They are a key mechanism for reducing greenhouse gas emissions and combating climate change. Pros. Encourages investment in renewable energy – provides financial incentives for companies to invest in renewable energy projects. Reduces greenhouse gas emissions – designed to help to reduce greenhouse gas emissions by providing a financial incentive for companies to reduce their carbon footprint. Helps to meet emissions targets – helps countries meet their emissions targets under the Paris Agreement. Provides funding for climate projects – the sale of carbon credits can generate revenue that can be used to fund climate projects, such as reforestation or clean energy initiatives e.g., the Kasigau REDD+ project in Kenya. Cons. May not reduce emissions sufficiently: Some critics argue that carbon credits may not be effective at sufficiently reducing emissions to meet global climate goals. Can be subject to fraud: There have been instances of fraud in the carbon credit market, including the sale of fake credits or credits that do not represent real emissions reductions. Can be expensive: Carbon credits can be expensive, which may limit their use to only large companies or governments that can afford them.”
See also: Pros and cons of carbon dioxide removal | Experts’ Opinions
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