International carbon emissions trading (translated from German)
Countries and companies are aiming to become resilient to climate change by 2050. To achieve this, they are using CO2 emission credits. However, critics warn that the multi-billion dollar market created in this way is extremely vulnerable to greenwashing (greenwashing).
In supermarkets and elsewhere, we often notice green stickers with a “CO2 neutral” stamp. There are so many of them now that the world should already be all but saved. One might think that everything from coffee and toothbrushes to poultry is contributing to saving the climate.
Of course, this is not the case for any product. Coffee from South America is shipped to Germany, meat is produced in intensive facilities that generate high carbon emissions, and the production of plastic toothbrushes also leaves a certain impact on the climate.
The climate neutrality stamp is a clever use of marketing opportunities: companies donate funds to climate protection projects in developing countries, and the funds are allocated in amounts that correspond to the CO2 emissions caused by the production of their products. For this, companies receive CO2 emission credits. By donating to environmental projects, a “climate-neutral” product is created.
However, several questions arise: at what price have companies purchased their certificates? Have company representatives visited the specific sites to verify the suitability of the projects for climate protection? Or have they only seen the colourful pictures sent by project promoters? Who checks whether CO2 is really being saved?
These questions are also being asked by the 200 parties to the global climate agreement, as the UN intends to allow offsets within the framework of the Paris Agreement in the future. Soon, not only companies but also countries could improve their climate targets with emission credits, or earn money by selling these credits. UN Climate Envoy and former Governor of the Bank of England Mark Carney (Mark Carney), together with financial sector firms, has established a Taskforce (Taskforce) to give new impetus to global CO2 trading.
His goal is to expand the current 300 million dollar market to 100 billion. Within just ten years, the trade in greenhouse gas emission credits could reach 50 billion dollars a year, concludes international management consultancy firm McKinsey in its latest report.
You can “wash yourself green” for a few euros
Already 127 countries have announced that they will no longer emit climate-changing gases by the middle of the century. Among these countries are the major emitters: the US, China, and also the European Union. These countries, just like corporations, businesses, and airlines, also want to pin a “climate neutral” badge to their lapels. With it, they promise to reduce emissions to zero over the next 30-40 years.
However, it is already foreseeable that many countries and their CO2-intensive industries will not reach “green zero”. Therefore, they have to purchase additional CO2 emission certificates. This works the same way as the stamps in a supermarket, i.e., somewhere a diesel-powered generator is replaced with solar panels, a forest is protected rather than cleared, or biogas plants are installed in a village, thereby saving CO2. This is calculated and can be sold as an emission credit. For example, the US, which has a very high level of emissions, can buy emission credits from, say, Brazil, which, in turn, would not fell certain patches of rainforest in the Amazon basin.
Interstate compensation could be implemented under the Paris Agreement; however, countries failed to agree on the rules at the last UN Climate Change Conference in 2019 in Madrid.
Therefore, the UN Climate Envoy wants to at least expand the so-called voluntary CO2 emissions market. This unregulated private-sector market has emerged outside the UN, for example, for the “CO2 neutral” stamp on products sold in supermarkets. The main idea: the more companies voluntarily purchase CO2 emission credits, the better countries will be able to reach their net-zero targets.
What is the carbon market?
Since 2005, there have been two types of international CO2 emission markets:
– the voluntary market (voluntary market) and
– the CO2 emission market under UN supervision.
In the voluntary market, project developers, non-governmental organisations, or companies can plan climate protection projects in any country and have them checked by a private expert. The expert confirms the amount of CO2 emissions saved and, therefore, the volume of emission credits that can be used per year.
One certificate corresponds to one tonne of CO2. Experts work for private certifiers, including private sector firms and foundations established by non-governmental organisations, such as the Gold-Standard-Foundation. The requirements of certifiers for projects vary greatly.
CO2 emission trading conducted by the UN works similarly, but UN control is considered qualitatively superior and stricter, despite the fact that, as in the free market, there have been cases of fraud in the past. Nevertheless, CO2 emissions trading under the UN umbrella is in need of reform. Formally, projects are still taking place in accordance with the Kyoto Protocol, which is the predecessor to the global climate agreement.
Unfortunately, CO2 emissions trading has huge flaws – both in the voluntary market and the existing trading under UN supervision, which is now set to be replaced by the global climate agreement. Earlier CO2 emission credits issued by the UN are currently worth only a few cents. So, to become climate neutral, a few euros is enough. This does not stimulate the restriction of greenhouse gas emissions. Moreover, there is a whole series of questionable projects through which companies have created a second source of income for themselves.
Often, projects implemented in the past have not been “additional”, because CO2 emissions would have been saved even without these projects. The Freiburg Institute for Applied Ecology has calculated that for 85% of projects, it is unlikely that additional emissions were saved.
Whether Carney's proposal will generate more trust is doubtful, especially when looking at the list of participants: the aforementioned Mark Carney's Taskforce is an initiative of financial sector companies, led by Standard Chartered bank CEO Bill Winter (Bill Winter). This bank has not had a particularly good reputation since it was fined more than one billion dollars for money laundering in 2019. The list also includes the CEOs of EasyJet and Nestlé, whose interest in environmental improvement is barely visible. The initiative is advised by the firm McKinsey.
Stock-listed climate saving
Lambert Schneider (Lambert Schneider), who has been monitoring CO2 trading for more than 15 years, is sceptical: “I doubt whether the market will accept the trading of voluntary compensation certificates on the stock exchange.” By trading certificates on the stock exchange, buyers would not know whose project certificates they are purchasing; they would only know the fact that the offered certificates meet the minimum requirements. “Therefore, there is reasonable concern that this initiative will set the lowest possible requirements for the quality of climate certificates.”
Other experts currently debating at the UN level agree: “The market defines its own goals, standards, and rules”, says environmental lawyer Christina Voigt (Christina Voigt), a member of the Norwegian negotiating team and a lecturer at the University of Oslo. “The currently existing voluntary CO2 emissions trading lacks oversight by objective experts or an independent institution.” Many companies show more interest in receiving a green certificate than in the essence of the project. Therefore, strict rules should be introduced immediately, either at the national or UN level.
Environmental activists also criticise the UN Climate Envoy's initiative in an open letter. They argue that Carney's Taskforce, despite numerous cases of corruption and “greenwashing”, wants the weakest possible rules. “Expanding the voluntary market is not necessary”, the authors write. Offsetting (Offsetting), as CO2 emission credits are often called, hinders sustainable emission reduction and the transformation of society.
Furthermore, they argue, forest projects will also be permitted, which was excluded under the predecessor to the global climate agreement, the Kyoto Protocol, and rightly so, according to environmental activists. In such projects, one cannot rely on the fact that afforested areas will remain intact in the future, or that they will not be cleared or burned immediately after the emission credits are sold. These projects often also see human rights violations, “including violence, torture, and murder”, write environmental defenders.
The problem of double counting
“Compensation only makes sense if other CO2-saving options have been exhausted”, believes lawyer Christina Voigt. “Mostly, however, the expensive climate protection of industrialised countries is replaced by cheap emission credits from southern countries, and no one can truly assess their integrity.”
However, not only companies but also countries are trying to profit at the expense of the climate. It is precisely developing countries and countries with economies in transition that are currently trying to push for “double counting” to be recognised in the ongoing UN negotiations: this way, climate projects implemented in these countries could be counted towards their own country, even though they would have already sold the credits. For example, Brazil wants CO2 emission rights to cover both forest conservation (non-clearing) and afforestation. At the same time, the country wants to record these “saved emissions” in its own climate balance sheet as well.
Therefore, it is very important that strict rules for CO2 emission credits be adopted at the next UN Climate Change Conference: “If all participants and private companies adhere to uniform international rules, we will have taken a big step forward”, believes Christina Voigt.
Some countries, unable to wait for a UN decision, are already hoping to conclude bilateral agreements; for example, Switzerland has already decided to conclude two agreements with Peru and Ghana on CO2 emission credit trading.
Photographs from zemeunvalsts.lv have been used. If you are viewing the original article, the translations for the images are:
Figure 1. Airlines want to offset part of their emissions with CO2 emission credits from climate projects in developing countries.
Figure 2. Biogas plants for processing cow manure in India: in poor countries, ecological alternatives to wood can stop deforestation.