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Why Carbon Credits and Offsets Will Not Work

by Jonathan Carter

The simple answer is that we do not have enough time. In order to mitigate the impacts of global warming many experts believe that our greenhouse gas emissions need to be reduced 80% below 1990 levels by 2050. This reduction has no chance of being reached through a voluntary cap and trade system utilizing the free market system. With the projected population increase of at least three billion more people in the next fifty years, it is totally unrealistic to believe that carbon reductions on a large scale can be attained unless mandatory reductions are implemented and a full scale global effort to contain population is initiated.

Unfortunately, carbon credits (one credit equals a one metric ton reduction) and carbon offsets are the primary tools being used by national and international communities as a way to reduce emissions on an industrial scale. Credits can be exchanged between businesses or purchased and sold in the markets. The carbon credit/offset market is now well established. In 2006 about 5.5 billion dollars were purchased. Some experts expect this market to reach a trillion dollars within a decade. There are now at least five carbon exchanges operating global. The largest is the Chicago Climate Exchange. Why have these markets taken off? The simple answer is that there is huge amount of money to be made. However, these markets are simply the indulgence of societies which want to carry on with business as usual. The consequences of business as usual are ecological disaster.

Problems with Carbon Credits and Offsets

The carbon trading system works by allowing carbon reducing industries to accumulate credits which they can sell as carbon offsets to businesses which either voluntarily want to reduce emissions or whose regulator caps require emission reductions. The problem is that the polluting industries are NOT REDUCING THEIR GREENHOUSE GAS EMISSIONS!

Using the free market model, the polluters too often make the decision that the cost of reducing their emissions through the utilization of best technologies, conservation, and higher efficiency standards are prohibitive. It is cheaper to pollute and buy credits than it is to change their production processes. There are also examples of companies which for financial reasons have made cost saving technological changes, usually energy related. These changes have not only saved them money, but have also created carbon credits, which can be sold for huge profits. As an example, a company in China spent 5 million to build an energy-producing incinerator, which generated 500 million dollars of excessive profit through carbon credits. While rewarding carbon-reducing technologies makes sense, a 495 million dollar profit is over the top!

Because credits and offsets offer the potential of profit, there can be a sort of perverse incentive for companies to maximize their carbon footprint so that they can latter get credit for cutting back. For instance, logging companies could determine that it is to their advantage to overcut and clearcut the forests. In the process they maximize short-term profits from the value of the wood and at the same time they can maximize their potential carbon credit profits as the forest grows back.

While there are several certification stands that attempt to create a baseline from which true carbon reductions can be measured, verification is lacking. There are widespread examples of organizations buying credits which have not resulted in reductions. In addition, as pointed out above, there are instances where companies have already benefited from efficiency changes, but can still reap windfall profits from carbon credits.

There are often potential secondary ecological and human impacts in the creation of carbon credits. The most striking example is a case involving a 220 square mile plantation of Eucalyptus and pine in Andean Ecuador. This carbon credit-generating plantation has resulted in the destruction of a native forest, the introduction of damaging invasive species, a reduction in biological diversity, the release of massive amounts of soil carbon, and the displacement of indigenous peoples. Many of the large hydro projects around the world also have similar devastating impacts.

The Solution

What is needed is a global mandate with caps and targets – a market-driven voluntary system will not work. However, since the U.S and China (responsible for over 40% of the emissions) have not bought into mandatory caps and reduction targets, the potential for meaningful reductions is unrealistic. Why would other countries strongly enforce caps and targets on their emissions if it puts them at a competitive disadvantage in the market place?

The fact is that if we are to save the planet from a devastating ecological meltdown, it is going to require an immediate, and I mean immediate, reduction in greenhouse gases through:

1.A massive switch from fossil fuels to wind, solar, geothermal, and small scale hydro, and hydrogen
2.An absolute commitment to maximum energy conservation and efficiency.
3.A global commitment to population reduction
4.A commitment to local food production
5 An immediate end to forest destruction and land use changes

These changes cannot take place tomorrow. They should have been implemented yesterday! The only way to achieve such goals in time to save the planet is to make them mandatory – and at the same time abandon the absurd notion that the invisible hand of the free market system will solve the crisis. The switch is not going to be cheap or painless, but what is the alternative – 120° F. days in Maine and the death of our forests? Mandatory reductions can be helped along through tax credits, outright subsides, and other incentives, but the bottom line is that at the end of the day the human carbon footprint has to be eliminated.

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