Today I invite a conversation about the Carbon market, which has been touted as a progressive approach to reduce emissions while at the same time creating development and commercial incentives to those acting on mitigation. The elementary rationale behind carbon markets, simplified, is that it is a market where entities that act on cutting down emissions can get paid by those that are emitting beyond their limit.
There are different schools of thought on the efficacy, the rate of progress that the approach is contributing to, and indeed whether there is climate justice in the manner in which the carbon market is set up and beneficial to those making contributions for carbon sequestration or low carbon productivity. This article will no doubt betray my unapologetic opposition to the carbon markets as a climate solution, but in no way do I claim monopoly of knowledge or absolute expertise in this subject matter.
According to the World Bank (http://tinyurl.com/bdem7at3) Carbon pricing is an instrument that captures the external costs of greenhouse gas (GHG) emissions—"the costs of emissions that the public pays for, such as damage to crops, health care costs from heat waves and droughts, and loss of property from flooding and sea level rise—and ties them to their sources through a price, usually in the form of a price on the carbon dioxide (CO2) emitted. The World Bank further suggests that “a price on carbon helps shift the burden for the damage from GHG emissions back to those who are responsible for it and who can avoid it”. This suggestion will be an important point of reflection later in this article.
Carbon credits, also known as carbon offsets or allowances, are financial instruments that allow individuals, organizations, and governments to compensate for the carbon emissions they cannot reduce below a certain level by purchasing credits that represent emissions reductions made elsewhere. Carbon credits are instruments for facilitating trade in the carbon markets. From a regulatory perspective, carbon pricing provides an incentive for reduction on the scale of emissions by putting a punitive cost rather than an outright regulation for absolute levels beyond which emissions wouldn’t be allowable. Therefore, instead of dictating who should reduce emissions where and how, a carbon price provides an economic signal to emitters, and allows them to decide to either transform their activities and lower their emissions, or continue emitting and paying for their emissions. In this way, it is intended to create an overall incentive to avoid additional business cost and which would result to a desired environmental goal. We shall examine if the incentive is sufficient enough to create a net change for the environmental goal, whether the economic loss through this carbon price exceeds the economic gain in continuing with business as usual, or whether businesses can creatively (or not) shift the burden of payment to enable them remain in business regardless of the price.
One of the biggest questions that arises with regards to carbon market mechanism is on whether there is an adequate price placement on greenhouse gas emissions. This becomes very relevant in three respects. The first is on whether the price sufficiently reflects the external cost of climate change in the broadest possible range of economic decision making and in setting economic incentives for clean development. Such costs would include what the public pays for as a result of the impact of climate change, e.g. crop and livestock losses. The second issue is who holds the cards in making determination of the carbon pricing, and whether those that bear most of the economic cost have a say in such carbon pricing. Third issue is with the criteria of determining from where to purchase carbon credits, and whether such determination provides fairness to those with credits to sell in the market. An additional matter arising is whether there are sufficient safeguards to ensure that the burden arising from the carbon price is not transferred to communities that already suffer the biggest challenges from the impacts of climate change.
There are those who argue that the carbon market mechanism was not meant to, and does not have the effect of, allowing polluters who can afford to pollute and pay the balance of emissions beyond their provided quota. I hold the contrary view. In fact, I think the polluters are yet to find the carbon pricing expensive or restrictive enough, and where the burden is wearing them down they have found ways to transfer the obligation to other parties. I find that the carbon market mechanism has prophesied a false solution to emission control by continually affording polluters a way out for continued pollution. There is substantial evidence that carbon markets have indeed spurred action in the global south to become beneficiaries of the carbon pricing, which in effect has shifted the effort towards emission control to those who contribute least to the problem.
I absolutely agree with Fadhel Kaboub, a Tunisian economist based in Nairobi, a senior advisor with Power Shift Africa and the President of the Global Institute for Sustainable Prosperity, when he was quoted as stating, “Carbon credits are pollution permits that allow global North polluters to continue polluting while offering financial crumbs to the global South. They displace vulnerable communities from their ancestral territory and pastoral land. They enrich middlemen and speculators. (http://tinyurl.com/ybfbww4h). There are many examples of where such middlemen and speculators have sold false narratives of benefit from the carbon market for local farmers and community groups only for them to recoup most benefit from the transactions.
It does not help an ounce that the carbon market, like every other mechanism in the climate change space, is complex and inaccessible to the local mama and baba who might be capable of generating carbon credits for the market. In many cases, intermediaries come to play at different levels. As an example, in Kenya, there is the case of energy saving cooking jikos (stoves). By replacing traditional open fires with more efficient cooking stoves, it is estimated that there could be a reduction by half the amount of wood required for a household. Under the rules of carbon accounting, this reduces by half the emissions entering the atmosphere from cooking for every Kenyan villager who switched to the stove. Here lies the first intrigue. Who here has taken the climate beneficial action that should be compensated? Is it the local villager of the NGO that created the awareness and made it possible for the villager to get the stoves? Should it be the Philanthropic foundation in London that funded the NGO to undertake the project? Maybe it should be the company that actually undertakes the carbon offset? What about the United Kingdom, should it claim emission reduction since the resources channeled to the project and for the carbon offsets are by a foundation and company based in London? What would be the case if the foundation were in London and the company purchasing the credits is based in Germany? But emissions reductions on the ground in Kenya don’t just become carbon credits in London. The NGO would sell the credits to the Company, but also has to undergo a process of certification to ensure that the claims of emission reduction and offset are certified, real, additional, independently verified, unique, traceable. This obviously puts the villager out of the equation, in having to deal with the complexity of calculations involved, unless the NGO is truly an agent of the local mama or baba.
The issue of certification presents another frontier of the challenges that arise in the carbon markets. On one part, is it true that there is reliable verifiable measure of the carbon credits? Can this measure be applied interchangeably between different industries – say for example both for the oil industry and for forestry? Guardian’s expose last year (http://tinyurl.com/4ac8z5kf) on false accounting was damning enough in this respect. There is definitely an issue of false claims but also a clear challenge on the capacity of the existing verifiers to effectively and accurately state with certainty whether each claim is a true account. On the other part, the certification process is evidently part of the string of processes that make carbon trading arduous and unattractive to many of those who genuinely have something to contribute to it. It adds to an already long process outside the primary productive process of the prime actor, hence significantly encouraging and validating the need for middlemen and speculators in the process.
The polluter pays principle has been ably contorted by the architects of carbon markets. In as much as it assigns the obligation of paying for the ‘additional’ pollution to the polluter, it fails to live to the basic principle of clawing back on pollution to slow atmospheric warming. In fact, carbon markets have become attractive to high level polluters as they enable wealthy industrialized nations and corporations to maintain carbon-intensive and climate-warming practices while transferring their emission reduction duties to developing countries. An apt example is EU’s carbon tax extension to the shipping industry, which became effective on the 1st of January 2024. According to the report, once the announcement was made of the extension of the tax to the shipping industry, shipping lines began to announce the introduction of Emissions Surcharges – effectively passing on the cost of emissions to users of their shipping services. Maersk Line, for example, advised customers to expect Emissions Surcharges of around €152 per FEU (dry) on shipments from Europe to West Africa and €87 per FEU (dry) on exports from West Africa to Europe. (http://tinyurl.com/4zbxhth9). In effect, West Africa countries importing from Europe will bear the tax burden, effectively meaning they pay for the emission load.
Whereas there is much more to be said with regards to the downsides of the carbon trading mechanism, I will end by reminding all that it is all supposed to be about people. It is about creating a safer world for humanity. Human rights considerations must therefore be at the center of determination of process and decision making. It is therefore calamitous to read about actions like forced evictions that violate human rights in favor of pursuing carbon credit projects.