With the exponential awareness of our collective doom as a result of CO2 emissions there has been a bit of a bonanza in the rush to reduce our carbon footprints. And like many things, there are good and bad things that occur in the process. The good thing is that a vast majority of people and companies are actually starting to take climate change seriously. Even if they are only acting out of fear of offending consumers. On the bad side of the tally, there are a lot more players jumping into the fray and some of them have questionable intentions.
But it is important to get some details straight before moving on. First of all, carbon offsets are not a permanent solution to climate change. This will only come from changing our existing systems and processes, both on a personal level and in every business and organization worldwide. We caution you, that this will take more than a week to fulfil.
Secondly, the fear is that carbon offsetting simply allows people and businesses to reduce their own emissions without having to make any real lifestyle or behavioral changes. This means that even if the carbon offset is successful for a short period of time, it still does nothing to address the underlying causes of climate change. But the good news is that with recent changes in how carbon emissions are regulated, and the addition of VARS, and Verification, things are changing for the better. Buying carbon credits is not a full solution, but it is a start. And there are also side benefits. Read on to get a good idea of what this all means collectively!
- What is a Carbon Offset?
- Scaling voluntary carbon markets to help meet climate goals
- What are the Advantages of Carbon Offsetting Programs?
- What are the Disadvantages of Carbon Offsetting Programs?
- Scaling Up Voluntary Carbon Markets Requires a New Blueprint for Action
- Carbon Offset Programs
- Carbon credits can help companies meet their climate change goals
- Establishing trading and post-trade infrastructure
- Creating shared principles for defining and verifying carbon credits
- How do I make a good carbon offset?
- Why Purchase Carbon Credits?
- Developing contracts with standardized terms
- Installing mechanisms to safeguard the integrity of the market
- Can you list the problems with carbon offsets?
- Is there more to offsets than forest restoration projects?
- Creating consensus about the proper use of carbon credits
- Why carbon offset programs won’t work
- Are you ready to be sustainable?
- Caveats and Disclaimers
What is a Carbon Offset?
Carbon offset or carbon dioxide emission reduction may be a reduction in emissions which can compensate other emissions of carbon. There are two types of carbon offset markets compliance as well as voluntary. In the compliance market companies, governments or other entities purchase carbon offsets to comply with mandatory and legally binding caps on the total CO2 emissions they are allowed to emit per year.
The Kyoto Protocol is scheduled to end in 2020 and replaced by the Paris Agreement. In 2016, about 69.4 million dollars of carbon offsets were purchased on the voluntary market representing about 171.7 million metric tons. In 2018 and 2019 voluntary carbon trading, 98 and 104 millions of tonnes were traded.
Scaling voluntary carbon markets to help meet climate goals
The proposed a minimum 1.5 degree Celsius increase in global greenhouse gas emissions would require a 25 percent cutoff from current levels in 2030 and a 20 percent reduction from 2020 until 2050. The Institute for International Finance formed a task force on developing voluntary carbon markets. Carbon credits purchased as a voluntary program allow corporations to offset or neutralize emissions that have not been eliminated by financing projects that reduce or prevent emissions from other sources. A large effective voluntary carbon market would allow for increased investment in the project and will therefore play a critical role in meeting net zero emissions goals.
What are the Advantages of Carbon Offsetting Programs?
The advantages of carbon offsetting programs are they allow companies to help reduce greenhouse gas emissions without having to take resources away from their core business. The money that is used for the offsetting programs does not need to be taken out of profits or reinvested into the company which allows for increased technology. Many corporations are now focusing on carbon footprinting as a way of measuring global warming impact.
One advantage to carbon offset programs is that they allow individuals to make a positive impact on the world, even if they cannot afford large-scale changes or do not have time to volunteer. Another benefit of carbon offset programs is that they typically offer consumers options.
According to the article “Carbon Offsetting Benefits” by Aaron Stryk, carbon offsets can have several benefits including reduced impact on the communities that are impacted the most by climate change and lower emissions from the program itself.
What are the Disadvantages of Carbon Offsetting Programs?
The disadvantages of carbon offset programs are that they rarely take down carbon dioxide emissions to zero, so it does not actually help to compensate for the damage that has been done to the environment. Carbon offset programs allow companies to continue polluting which can increase negative impact on the environment. Another disadvantage is that some offsets may be seen as false because a company will say they have reduced their emissions by a certain percentage, but the overall effects of their actions have not changed.
The negative effects of carbon emission offset programs may be outweighed by the benefits of their existence. The existence of carbon offset programs might be a major step towards a cleaner environment and a more sustainable future, but only if they are effective, transparent, and accountable.
Scaling Up Voluntary Carbon Markets Requires a New Blueprint for Action
The TSVCM identified seven areas encompassing the whole carbon-credit cycle where action could be taken towards boosting the voluntary carbon market. The report by the Global Carbon Economy Institute stated that carbon-credit initiatives had to be at least as effective, transparent and accountable as they are in the mandatory market if they were to be more than just a token gesture that would fail to deliver genuine climate gains.
Carbon Offset Programs
It is true that some carbon offset programs may not work because of the lack of standards for them to meet, but there are many things that can be done in other areas. They suggested that already existing programs could be expanded, such as the Clean Development Mechanism (CDM). The CDM is a program under the Kyoto Protocol that allows countries and companies to invest in emissions-reducing projects like renewable energy and efficiency upgrades. According to what has been stated in Carbon Offsets: What you need to know, these investments both cut emissions and create jobs in China, Brazil and other countries. On the other hand, it has also generated controversy due to problems with verifying emissions cuts (mainly in India). The jury is still out on effectiveness, but it all sounds good on paper.
Carbon credits can help companies meet their climate change goals
The Paris Agreement of 2015 was approved by 200 countries to limit the increase in average temperatures below pre-industrial levels to 2.0 degrees. By 2030 emissions could be cut by 50 percent from their current levels and reduced to zero by 2050. More companies and businesses have pledged to meet the targets. In less than a year, net zero pledges rose by more than 500 pledges and by 4,000 in 2019. The firm says they would retire the carbon credits for 95 million tons of total carbon equivalents by 2020 (MtCO 2 e).
The problems with the Paris Climate Agreement are that it fails to address the problem. The goal of Paris Agreement has many loopholes which make its impact negligible on the environment. Carbon offsets are one way to help companies meet their targets. The limits set by firms like BHP Billiton can be offset through carbon credits or other benefits that may or may not have a direct effect on carbon reduction.
Establishing trading and post-trade infrastructure
A resilient and flexible infrastructure can help the voluntary carbon market operate successfully as needed. It also can support listings and trade of the large-capacity references. This post-distribution infrastructure that is comprised of clearing houses and metaregistries is likewise needed. Clearinghouse services would support expansion of a futures trading platform and provide counterparty default protections. MetaRegistries would give purchasers and providers custodian services. Buyers and suppliers could benefit from new analytics and reporting services that consolidate publicly accessible reference data from multiple registries via APIs. A highly integrated data infrastructure would increase transparency of market and reference information. Efficient and timely data is necessary to protect the environmental and capital markets, but it requires sustainable management practises to be useful.
Creating shared principles for defining and verifying carbon credits
Each carbon credit has attributes associated with the underlying project such as the type of project or Region in which they are realised. This factor affects the price of credits as buyers appreciate the additional attributes differently. Inconsistency in credits means that matching a single buyer to a relevant supplier is time-consuming and inefficient process. Stabilizing these attributes into a common taxonomy would help the sellers to present credits and buyers to find credits that correspond to their requirements they say. The matching of buyers and suppliers would be more efficient if all credit could be described by common features such as quality and the additional attributes of the carbon credit, They say. The newest feature deals with qualitative characteristics.
How do I make a good carbon offset?
There are four core principles to consider as if creating carbon offsets for future use. For someone to determine who has added an additional project needs strict accounting practices. A credible offset must cover changes in performance of tree-planting or renewable energy installations. Other companies also are testing geological storage in the form of sequestered carbon dioxide emitted from coal exhaust plants and using this to melt rocks. Once an offset purchaser makes an offset purchase the reduction in emissions should never be used for another sale or stored on an offset sheet.
Further to that, a good carbon offset purchases by a company should ensure that funds from offset purchases are being used to achieve profitable projects. The profitable nature of the project is necessary because it has been established that all money spent on carbon offsetting must be translated into money saved if they want to hit their targets. This shows that there is more to carbon offsetting than just planting trees or burying carbon.
Why Purchase Carbon Credits?
The market for carbon credits to purchase voluntarily (not for compliance purposes) is important for other reasons. Voluntary carbon credits facilitate the financing of climate action projects that wouldn’t otherwise get off the ground. Carbon credits also enable investments in new ideas required to reduce cost of emerging climate technologies. Scaled-up voluntary carbon markets would facilitate the mobilization of capital to the global south where the possibility for economic nature-based carbon control projects is greatest.
But today the market is fragmented and complex. Limited data on pricing make it difficult for buyers to determine whether they pay a fair price for suppliers to handle the risk. Some solutions might include a global clearinghouse for voluntary carbon offset project specification, a registry of offsets and related protocols such as the Gold Standard, improved mechanisms to ensure emissions reductions are delivered and additional innovative financing approaches such as public-private partnerships. The establishment of a global cap on emissions that will impact domestic economies would also create new ways to achieve carbon neutrality necessary for reducing greenhouse gas emissions.
Developing contracts with standardized terms
Carbon credits would simplify trading and liquidity on the exchange rates by consolidating some types of trading. Reference contracts will combine a core contract based on Core Carbon principles with additional attribute defined according to a standard taxonomy and priced separately. Core contract would allow companies more flexibility when buying large quantities of credits at once. Other benefits of reference contracts would be the development of a direct daily exchange rate. Although reference contracts are developing even after some are approved many parties shall continue to execute trades in the OTC market. Prices for credit traded using reference contracts may establish a start for OTC talks.
Installing mechanisms to safeguard the integrity of the market
A digital process through which projects are registered and credits are verified and allocated could be a corrective measure. This would reduce issuance cost, shorten the payment term, increase the value of credits for project developers as well as bolster cash flow. Among other enhancements would be an initiative aimed at countering money launderer activities and establishes a central governmental authority responsible for overseeing trade in the UK. Andrew Hammond of the American Economic Association noted the lack of price transparency in the market. Hammond: Ideally digitizations are able to report their impacts in periodic intervals not just until its completion in real life.
Can you list the problems with carbon offsets?
Majority carbon offset programs don’t produce emissions reduction plans. Different programs have developed their own standards that are hard to enact. One of the most prevalent international offset programs is the REDD+ initiative of the United Nations. REDD+ aims to reduce the emissions associated with deforestation and to restore natural areas. Its competitors include Amazon and Sony where pressures from Amazon swamped the payments issued to protect it; many people left, none the wiser. Another problem is that offsets are cheap. If prices are too low this will not create enough pressure to convince individuals or governments to change their carbon-intensive behavior.
Is there more to offsets than forest restoration projects?
Some common offsets involve nature-based solutions such as wetland and forest restoration projects. But industrial fuel destruction programs have become harder to quantify because they come from industrial sources. At current levels the offset could be made by sucking direct carbon dioxide of the air via direct air capture. The offset could help a sector of the economy which are the most difficult to decarbonize, the experts said. This presents enormous challenge: deploy giant CO2 scrubbers on mass scale make them utilize significantly less power and make them much cheaper. Another tactic could involve engineering crops into the process so as to create less carbon dioxide.
Creating consensus about the proper use of carbon credits
Companies would benefit from clearly defined guidelines for what would constitute a sustainable offset program. Guidelines regarding the use of carbon credit may be introduced to ensure carbon offset does not prevent other efforts to reduce emissions. Companies might “retire” certain carbon credits to replace emitted CO2 from emissions sources which may ultimately lead to carbon depletion. In the future the United States might use credits to stop so-called residual emission that companies would not be able to eliminate in future.
Why carbon offset programs won’t work
In summary, carbon offset programs won’t work because emissions are not being reduced in the country of origin. By definition, carbon offset is for emissions which are already occurring and cannot be eliminated in the present time. The only effective way to reduce greenhouse gas emissions is by eliminating them at their source.
Carbon offsets do more harm than good because they give the impression that individuals can continue with unsustainable practises, and the programs are so complicated that no one really knows what is actually reducing greenhouse gasses. The people who are implementing the offset programs have no true idea what is being achieved, and the public isn’t aware of what they are actually doing. In conclusion, it might be that carbon offsets allow us to continue doing more harm.
Are you ready to be sustainable?
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Caveats and Disclaimers
We have covered many topics in this article and want to be clear that any reference to, or mention of why carbon offsets don’t work, projects, offsets, footprint, emissions, gases, credits, equivalent, reductions, global reduction, change, carbon, high quality reduce, voluntary market, own purchase neutrality, net zero, trading, developing countries, project developers, offset project, neutral, direct air capture, global economy, financial sector, paris agreement, industrial scale, local communities, compliance markets, action, voluntary markets, supply chain, revenue stream, tree planting, quality assurance standard, protect nature or net zero in the content of this article is purely for informational purposes and not to be misconstrued with investment advice. Thank you for reading.
Research & Curation
Dean Emerick is a curator on sustainability issues with ESG The Report, an online resource for professionals focusing on ESG principles. Their primary goal is to provide resources to help middle market companies, SMEs and SMBs transition to a more sustainable future.