The Carbon Credit Conundrum
A mindful sceptic view of one climate action
Plough through the policy technobabble to get to the interesting bit… As carbon credit markets surge, a mindful sceptic questions whether this booming industry benefits the planet or simply greenwashes corporate profits.
Did you know the carbon credit market is projected to reach $100 billion by 2030? Is this explosive growth in a market mechanism designed to reduce carbon emissions helping our planet, or just padding corporate profits? Have we invented a mechanism for genuine climate action or just some clever greenwashing?
In this issue of Become a Mindful Sceptic, we'll cut through the jargon and reveal the true impact of carbon credit schemes. This exploration will sharpen your critical thinking skills, helping you navigate the murky waters of environmental economics. You'll gain insights into how policy decisions impact climate action and learn to spot potential pitfalls in carbon trading systems. You'll see how to assess climate action policies critically, make informed decisions about your carbon footprint, and contribute meaningfully to environmental discussions.
Don't let confusing technobabble or social media chatter cloud your judgment—empower yourself with clarity on this crucial issue.
Australia's Carbon Credit Evolution
Australia used to have a Carbon Farming Initiative, the name given to a policy invention of the Gillard government for a voluntary carbon abatement scheme. The policy ran for three years from 2011. It was not a ‘great big tax’ as the opposition labelled it, but the Labour government’s version of an emissions trading scheme.
If greenhouse gas emissions were measured and accounted for, they could be reduced by charging emitters for their emissions through a carbon price.
Entities with an obligation or those with an eye to green credentials reduced emissions where possible. If not, they offset their emissions by buying a carbon credit from the equivalent of a carbon bank, in this case, the government-set Clean Energy Regulator.
For this carbon abatement to work, credits were deposited in the bank for emitters to purchase. This is still how it works.
Australian Carbon Credit Units (ACCUs) are each one ton of carbon dioxide equivalents (tCO2e). They are created through approved activities known to either reduce emissions (e.g., energy generation from the methane released by a landfill) or sequester carbon (e.g., forest regeneration). The number of ACCUs per activity is measured and accounted for through a carbon offset methodology developed by experts to apply to specific actions approved by the regulator.
With the change of government, the Carbon Farming Initiative that introduced this carbon credit scheme became the Emission Reduction Fund, which had essentially the same structure but with the government offering to buy credits from projects through a reverse auction process. The first auction ran in 2015.
Approved ACCUs are sold to the government through a carbon abatement contract for up to 10 years or an immediate, one-off transaction. The requirement is to deliver the agreed amount of ACCUs following the agreed contract terms.
ACCUs can also be sold directly to businesses and entities wanting to offset their emissions on a secondary market. This unregulated market involves buying and selling ACCUs through private commercial contract arrangements.
Voila a product and a means of exchange. Simples.
Apologies for all the technobabble.
The point was to illustrate how easily a straightforward concept—imposing a punitive price on a pollutant to reduce pollution—can get out of hand.
It need not become so complicated.
Carbon abatement is a simple idea.
Suppose you can capture carbon or reduce carbon emissions through an agreed method. Why not make that reduction a credit for sale to entities that cannot reduce their emissions?
I buy credits to offset emissions that I cannot avoid because no matter how I try, my aluminium smelter still emits greenhouse gases.
You sell, I buy, to balance emissions.
The problem is in the little phrase, ‘no matter how I try’.
Before I purchased a carbon credit to offset my emissions, I should have done everything possible to avoid and reduce emissions in my manufacturing process. Reducing my carbon footprint will cost me money, but if my accounts staff crunch the numbers and I realise the carbon credits are cheaper than the cost of changing production… well?
My shareholders will want to know why I’m not buying credits if they are cheaper than reducing the factory's carbon footprint.
The price of credits is critical to whether I reduce emissions or buy offsets.
In the initial formulation of carbon credit schemes, it was agreed that the supply of credits should be squeezed to raise their price. Then, the aluminium smelter and any company with an emission liability will try harder to reduce emissions because changing their manufacturing process is cheaper than buying carbon credits.
If they couldn’t, but aluminium was an essential commodity, then the government might subsidise their credit purchases. Meanwhile, the high price forced emission reduction for those who could do it.
An emissions trading scheme works to reduce and avoid emissions if the credit price is high enough to change the behaviour of emitters forced to pay for their emissions.
Enforceable penalties for pollution—bringing that nasty externality onto the balance sheet—is crucial.
One more thing.
Emission reduction or sequestration
Carbon abatement schemes involving carbon credits have appeared in various guises worldwide with the collective aim of reducing greenhouse gas emissions.
Depending on your worldview, emission reduction is essential to prevent severe climate change. Alternatively, abatement schemes mean fossil fuel use can continue without adding to the net greenhouse gas level in the atmosphere.
The distinction is essential.
Avoiding making locked-in climate change worse might happen if the net emissions do not rise too much. Preventing and reducing emissions could be enough. We are familiar with this emission reduction strategy and call it ‘net zero’.
Alternatively, avoiding severe climate change requires reducing the already emitted greenhouse gases. Some of that carbon dioxide must be removed from the atmosphere through sequestration into vegetation and soil or speculative geoengineering projects.
Realistically, both have to happen—emission reduction and carbon removal.
Carbon removal by industrial processes, commonly called carbon capture and storage, is technologically attractive and fits nicely into an engineering and investment paradigm. What is not to like about a new factory for economies run on factories?
Bob, the builder and his developer mate Rodney.
Sequestration is the capture of carbon into vegetation and soil through photosynthesis.
Sequestration activities—growing trees, encouraging perennial grasses, cover cropping, and grazing management—are essential because they return carbon to landscapes where food is produced. A category of carbon offset activities called AFOLU (agriculture, forestry, and other land use) is devoted to sequestration through plants.
Global food security and environmental health are in peril from the intensification of agriculture, which clears native vegetation, depletes soil carbon, and runs agri-food production with fossil fuel inputs. So, sequestration into landscapes has a double benefit.
The Carbon Credit Paradox
The straightforward concept of using market mechanisms to incentivise industries and businesses to reduce their greenhouse gas emissions has been obscured by a cloud of technobabble, leaving most people needing clarification or ignoring it. A simple idea has become way too complex.
The introduction of offset credits was meant to put a price on carbon emissions, harnessing the nuance and profit potential inherent in market mechanisms. The thinking was that by allowing people to participate in this market, positive change would naturally follow. The problem was the credit price. We have a perverse incentive structure if purchasing offsets remains significantly cheaper than implementing fundamental behavioural changes in business operations.
Companies now have the tempting proposition of continuing business-as-usual practices with only a marginal expense increase. They can claim carbon neutrality by purchasing a few carbon credits while their production processes remain unchanged. With clever marketing, these credit purchases can be spun to enhance a company's green credentials.
Unsurprisingly, this path of least resistance has become the preferred option for most businesses. It allows them to project an image of environmental responsibility without the need for substantial operational changes or investments in cleaner technologies. This outcome is paradoxical, as the mechanism designed to reduce emissions may enable their continuation under a veneer of sustainability.
If you leak a few hints of this reality to social media, the whole concept of credits for carbon reduction will be trashed in an instant.
A Mindful Sceptic's Role in Climate Action
Effective climate action is far from straightforward.
Despite the apparent ingenuity of market-based options, there are pitfalls, from gaming the system with greenwash to structural flaws.
Understanding the intricacies of these systems is crucial for several reasons. First, it empowers a mindful sceptic to critically evaluate the claims made by companies and governments about their environmental efforts. We can see beyond the green façade and question whether carbon neutrality claims represent meaningful action or merely clever accounting.
Secondly, this knowledge allows us to engage more effectively in public discourse about climate policy. A mindful sceptic will ask probing questions about the real impact of carbon credit schemes and push for more transparent and practical solutions. And they will also point to sequestration into the soil as essential even if there wasn’t a climate benefit. We need that carbon to grow crops.
And if a carbon credit scheme enables such an outcome, it might be worth the cost and the risk to credibility.
Moreover, this understanding helps us make more informed personal decisions. Whether it's choosing which companies to support or deciding how to reduce our carbon footprint, we can now approach these choices with a more nuanced perspective.
However, knowledge alone is not enough. A mindful sceptic feels a responsibility to act on this information. Here's what they can do:
When a company boasts about being carbon neutral, dig deeper. Compare its actual emission reduction efforts to its reliance on offsets.
Reach out to your representatives and ask about the effectiveness of current carbon reduction policies. Push for strategies that prioritise actual emission reductions over offset purchases.
Share this knowledge with your network. Encourage others to look beyond the surface of environmental claims and consider the broader implications of carbon credit systems.
In your personal and professional life, advocate for fundamental, tangible changes in energy use and production methods rather than relying solely on offset mechanisms.
Continue to educate yourself on evolving climate policies and technologies. The landscape constantly changes, and staying informed is key to remaining an effective advocate for meaningful climate action.
At the core of the carbon credit conundrum is not offsetting our impact but fundamentally changing how we interact with our planet. The real problem is wasteful energy use, which keeps increasing.
A mindful sceptic knows this truth.
Key Points
The rapid growth of the carbon credit market raises red flags about its effectiveness in combating climate change. A mindful sceptic will look beyond the impressive financial figures and question whether this market-based approach reduces emissions or creates a new profit avenue for corporations.
The current pricing structure of carbon credits often undermines their intended purpose. When it's cheaper for companies to buy credits than to implement real emission reductions, we risk creating a system that allows business-as-usual practices to continue under the guise of environmental responsibility. This revelation challenges us to push for reforms that prioritise actual emission reductions over offset purchases.
Addressing climate change requires a two-pronged approach: reducing new emissions and removing existing carbon from the atmosphere. This insight helps us understand that, while important, solutions like ‘net zero’ strategies are insufficient. As informed citizens, we should advocate for comprehensive policies, including emission reduction and carbon sequestration efforts.
A mindful sceptic has a crucial role in ensuring the integrity of climate action. By critically evaluating environmental claims, engaging with policymakers, and making informed personal choices, we can contribute to more effective and genuine climate solutions. This empowers us to move beyond passive acceptance of green initiatives and become active participants in shaping a sustainable future.
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In the next issue
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I've spent decades studying ecology, but this insight into human behaviour changed everything I thought I knew about environmental choices. Explore why those brilliant survival instincts that kept us alive for 300,000 years are now causing such trouble and discover how mindful scepticism might help us evolve beyond them.