Greta can't solve climate change, but this can ๐
WTF #3 Carbon Credit system might just be our best chance in the fight against climate change, while becoming a 100 billion dollar industry.
Our little tortoise will take you on a journey that will leave trails, but not carbon footprints.
This is What The Floww?๐ธ An exclusive newsletter by FinFloww that will keep hitting your inbox even in afterlife, if this concept fails to stop climate change๐
Eminem Wants You To Stay Away From Oil Executives
Weโve been increasingly feeling the impact of climate change due to increasing CO2 and other greenhouse gas (GHG) emissions. Not surprisingly, 90% of this comes from burning fossil fuel for our cars, trucks, ships, trains, and planes.
Earlier this year, eBay bought carbon offsets created by projects that involved injecting CO2 underground to extract more oil. This antithetical use of CO2 is known as enhanced oil recovery (EOR).
Oil companies keep bringing this up in the argument to push back against environmental strategies. They say that it is a technology being used to combat climate change when, in reality, it is to produce more fossil fuels. WHAT NONSENSE!
But wait! What are carbon offsets and why did an e-commerce company invest in them? How was a project like this even deemed eligible to generate carbon offsets?
We have a lot of great solutions out there to combat global warming, such as burying CO2 in the seabed. But the scale at which we need to reduce emissions is not economical presently. Either these solutions are expensive or donโt generate revenue for the companies capable of implementing these. Hence, there was a need for an economic driver to fight climate change.
That led to the establishment of global CARBON MARKETS.
Paris Brought The World Together
There are two types of carbon markets in existence:
Regulated Markets
๐๐ผ Regional government sets a โcapโ on the amount of emission permitted across an industry, and this cap keeps getting stricter each year.
๐๐ผ Now, these permits get allocated as CARBON CREDITS, where 1 credit permits 1 ton of CO2 or equivalent GHG emissions.
๐๐ผ Some companies produce fewer emissions than permitted, while some more. They are allowed to โtradeโ credits as and when needed. This supply and demand determine the price of a carbon credit.
The global markets for carbon credits increased by almost 164% in 2021. And given that the cap gets reduced every year, the price of credits could rise significantly in future.
Voluntary Markets
๐๐ผ Companies that remove carbon from the atmosphere as a part of their usual business, OR reduction/removal projects such as reforestation can generate offsets.
๐๐ผ Not only businesses but also individuals like us can purchase CARBON OFFSETS to offset our carbon footprint.
๐๐ผ The basic unit traded is the same: 1 Carbon Offset = 1 Carbon Credit.
After all but 4 countries adopted the Paris Agreement in 2015, the voluntary market took off in 2017, more than doubling in size in the last 5 yrs. Thanks to Article 6 that allowed countries to voluntarily transfer carbon credits earned to help more countries meet their climate targets.
As per United Nations, the Agreement sets long-term goals to guide all nations:
substantially reduce global greenhouse gas emissions to NET ZERO and limit the global temperature increase in this century to 2 degrees Celsius while pursuing efforts to limit the increase even further to 1.5 degrees;
review countriesโ commitments every five years;
provide financing to developing countries to mitigate climate change, strengthen resilience and enhance abilities to adapt to climate impacts.
If you wish to learn the backstory of how the Paris Agreement came into existence, check out our recent thread:
Are Carbon Credits Just A Book-keeping Trick?
Maybe.
Many projects like EOR that claim to offset carbon are questionable. But unless someone pays for such projects, the rest might not even happen, which could result in no climate action. Because, as we've discussed earlier, there wonโt be any financial incentives.
Then there are dirty marketing tactics like Greenwashing. Companies often market themselves as eco-conscious while continuing harmful practices. Over the years, many famous brands such as Starbucks, IKEA, Nestlรฉ, and H&M have been caught for greenwashing.
Moreover, a nation might reduce its carbon emissions by building a wind farm to replace a coal-fired power station. And this would free up a portion of its carbon credits, which it can sell to another country. But it might still count as a reduction in the first countryโs emissions, even though the overall output hasnโt changed.
Another similar issue is that of Carbon Leakage. Sometimes the fine for punishment is lower than the cost of a permit. So, itโs hardly a deterrent. And sometimes, the firms donโt even get caught. Major polluters might also relocate across borders to avoid signing up for regulatory schemes and find a more lenient jurisdiction. Now, this is merely redistributing pollution, which obscures the fundamental need for all countries to participate in diffusing global warming.
And finally, the problem of Double Counting. Who gets to brag? Who gets to claim the reduction? The regulatory market has rules to mitigate this, but the Voluntary market doesnโt.
There are many such loopholes and shortcomings which still need to be addressed.
India FTW!
India is one of the fastest-growing carbon trading markets in the world. Between 2010 and June 2022, India issued 35.94 million carbon credits, or nearly 17% of all voluntary carbon market credits issued globally!
Under the Paris Agreement, each country is expected to submit an updated Nationally Determined Contribution (NDC) every five years. It communicates the actions they will take to reduce their GHG emissions to reach the goals. In August 2022, India officially submitted its updated NDC targets.
India will increase its non-fossil energy capacity to 500 gigawatts by 2030.
India will fulfill 50% of its energy requirements from renewable energy sources by 2030.
Till 2030, India will reduce its projected carbon emissions by one billion tons.
By 2030, India will reduce the carbon intensity of its economy by 45%.
By 2070, India will achieve the target of net zero emissions.
India will ban the firms from exporting their carbon credits until the nation meets its climate goals.
Businesses in India continue to face significant challenges in their journey towards net-zero carbon goals. Carbon markets can play a critical role in Indiaโs journey to achieve its net zero and decarbonization goals.
The Government of India is taking steps to establish a domestic carbon credit market to help the country meet its NDCs. The Lok Sabha passed the Energy Conservation Amendment bill in August 2022, paving the way for the formation of this market which can achieve a potential of $30 to $50 billion by 2050. Moreover, we can be leaders in the Voluntary market!
For that, we need to promote more private-sector participation in voluntary projects, and more public-private partnerships. That can unlock significant social, economical, and environmental benefits in the long term. And this will prepare Indian companies for the looming carbon taxes in export markets as well.
Here are some carbon trading projects in India that we should look out for:
Jindal Vijaynagar Steel
Powerguda in Andhra Pradesh
Handia Forest in MP
Do You Ever Feel Alone? Because I Do
Carl Sagan said, and I quote: "Our planet is a lonely speck in the great enveloping cosmic dark. In our obscurity, in all this vastness, there is no hint that help will come from elsewhere to save us from ourselves. The Earth is the only world known so far to harbor life.โ
Climate changeย may or may not threaten the human civilization, but it will threaten one million other species globally.
Is this system doomed to fail? Probably. Probably not. Many of the problems do have simple, yet effective solutions:
We need to stop looking for the cheapest and easiest ways to mitigate the problem, and focus on effective solutions instead.
Governments need to limit the number of permits and enforce more stringent deterrents for rule-breakers.
Regulators should make it clear that they will not tolerate cheating, leaking, or obfuscation, and that they will hold executives accountable.
We need some form of harmonization โ a global carbon price.
There should be Border Tax on buying carbon credits from other regions so that it isn't cheaper to source from a region with fewer regulations.
We need countries like China, where multinational companies have been shifting their production, to cooperate with the world because these are the most carbon-intensive countries today.
We also need to look into negative emissions technology as net zero wonโt be enough.
Although imperfect, this system is forcing companies to consider their effect on the climate and has led in reduction in emissions where it has been implemented. While this alone cannot save the world, this is definitely a step in the right direction and can help decarbonize it.