The Role of Carbon Neutrality and Carbon Credits in delivering a Liveable Planet

Bikram Raj Kumar, Co-Founder, ResearchWire Knowledge Solutions Pvt. Ltd.

On climate change, the time for talk is long gone. It’s time to Race to Zero by going Carbon Neutral now, as the lives of humankind as a species literally depends on it. The warnings are dire. Nature has been flashing the code red warning for humanity with extreme weather events for some time. Unless humans want to make living with apocalyptic fires, floods, cyclones and hurricanes their new normal, we ignore these signs at our own peril. The root cause of climate change, – expanding human population, biodiversity loss and pollution trace back to our unsustainable patterns of production and consumption.

The latest Sustainability Development Goal (SDG) data on climate action shows an alarming trend towards missing the goal of capping global temperature rise to the 1.5 °C threshold, as called for in the landmark Paris Accord of 2015. The SDG report released in July 2022, says our window to avert disaster is closing rapidly. It warns that GHG Emissions “will increase by nearly 14% over the next decade under current national commitments to climate action, whereas they need to be reduced by 43% by 2030 to limit warming to 1.5°C.”

Carbon Neutrality is now a must. As the human population surges to the staggering 8 billion mark, if we intend to preserve a liveable planet for future generations, global temperature increase needs to be limited to 1.5°C above pre-industrial levels (from 1850 to 1900).

Regardless of whether you are a country, city, business, other institution or individual, if you have a carbon footprint, you owe it to the planet that hosts you, to do everything in your power to compensate for the damage caused and join the Race to Zero. Pledging to get to Net Zero Green House Gas (GHG) Emissions and achieving that goal, is no longer optional. It’s not a choice that you have the luxury to postpone, ignore or forget. It is a Must Do that has to go on top of your To Do list.

 

What is Carbon Neutral? Why is it imperative?

Carbon Neutrality is that elusive target the world knows it has to accomplish for a clean planet, but has been struggling to reach. It is about creating a balance between emitting carbon and absorbing carbon from the atmosphere in carbon sinks.

It is the same as Net Zero, which means cutting GHGs to as close to zero as possible with any remaining emissions

carbon

re-absorbed from the atmosphere, by oceans, forests or the soil. GHGs are those deadly emissions released due to unsustainable human activity, leading to a rise in global temperatures and eventually to irreversible climate changes.

To keep global warming to no more than 1.5°C, GHG emissions are targeted to be reduced by 45% by 2030 so as to reach Net Zero by 2050.

 

Zero Carbon = Climate Positive

The only thing better than erasing your carbon footprint and going carbon neutral is to become climate positive. Our holy grail of climate positive action would be to not produce any carbon emissions at all. Going beyond being zero carbon, one could create a carbon sink and go carbon negative by removing more carbon than we emit. We know this is possible because two countries, Burma and Suriname have already achieved this incredibly laudable feat. For the rest of the world to catch up, calls for a major overhaul, a complete transformation of how we produce, consume and move about.  This would imply huge declines in the use of coal, oil, and gas- hydrocarbons that the world is addicted to, and a transition to clean, sustainable renewable sources.

 

Carbon Credits: What are they? How do they work?

A ‘Carbon Credit’ is a permit that allows the entity that holds it to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of a mass equal to one ton of carbon dioxide (CO2).

In effect this is a capitalist solution to an environmental problem that has turned carbon into a priced commodity. When world leaders signed the ‘Kyoto Protocol’ in 1997, they agreed to follow a system of carbon trading, pledging to bring down their emissions by an average of 5% below the 1990 levels. This groundbreaking environmental treaty put a cap on emissions and decided that the countries that wanted to emit more needed to buy carbon credits from countries that emitted less. That’s  how the carbon market was created – a place where carbon credits began to be purchased and sold.

A National Registry in each country sets quotas on the emissions on polluting companies or other organisations which are approved and monitored by the United Nations Framework Convention on Climate Change.

In the United Kingdom, for instance, the Environmental Agency acts as the national administrator of the Registry and also distributes allowances to the market by auction. If the company emits less CO2 than the set limit they can sell the surplus Carbon Credits to another company who need them to cover their own emissions. If they emit more gases than their set limit they are fined. The receipts of these fines are then invested in projects that reduce pollution, such as planting forests which absorb CO2. Over time the set limits are reduced until the company achieves Net Zero, which means that they are removing as many emissions as they produce.

 

Types of Carbon Credits: Voluntary and Compliance

As the pressure to meet sustainability targets mount the world’s largest companies are turning to carbon credits to offset their environmental footprints, creating potential for a trillion dollar industry.

The carbon trading market is reported to be growing exponentially. The voluntary carbon market, driven by industries to achieve voluntary climate goals, has risen in prominence. According to the Ecosystem Marketplace, a US-based not-for-profit, the total value of transactions in the voluntary carbon market (VCM) hit $1 billion in 2021 for the first time in its history.

In the voluntary carbon market, which by their nature are global, carbon credits are most often created through agricultural or forestry practices, although a credit can be made by nearly any project that reduces, avoids, destroys or captures emissions. Individuals or companies looking to offset their own greenhouse gas emissions can buy those credits through a middleman or those directly capturing the carbon. In the case of a farmer that plants trees, for instance, the landowner gets money; the corporation pays to offset their emissions; and the middleman, if there is one, can earn a profit along the way.

 

‘Compliance market’ for carbon credits

In the compliance market, or involuntary market, governments set a cap on how many tons of emissions certain sectors- oil, transportation, energy or waste management can release.

As per regional regulations, if an oil company, for example, goes over the prescribed emissions limit, it must buy or use saved credits to stay under the emissions cap. If a company stays under that cap, it can save or sell those credits. This is known as a cap-and-trade market. The cap is the amount of GHGs a government will allow to be released into the atmosphere.

This system gives any company an incentive to reduce their emissions and also obtain additional income by selling their surplus credits. The Carbon Credits (known as Carbons) can be traded on the open market through banks, specialist traders or exchanges that list these products.

 

Carbon Credit market picks up in India

During the UN Climate Change Conference (COP26) held in Glasgow in 2021, India announced its five-fold strategy for fighting climate change. Commitments made included a reduction of one billion tonnes of carbon by 2030, reducing the carbon intensity of GDP by 45% by 2030 and achieving net-zero emissions by 2070.

As India is the world’s largest exporter of carbon credits, the government is reportedly pushing for a uniform carbon trading market through policy changes and legislation aimed at implementing a carbon trading scheme that will subsume the present tradable certificates. The goal is to encourage a robust domestic market for clean certificates. India is also well placed to pioneer agriculture-related carbon credit trading. An Indian startup nurture.farm has already sold 20,000 carbon units from agricultural waste. Other companies, such as CropIn, are using artificial intelligence to digitise and inform decision-making on the farm. The carbon credit trade could help generate funds for green energy projects. To meet India’s net-zero carbon emissions target by 2070, and initiatives like eliminating stubble burning, equipping farmers with digital tools and other regenerative agricultural practices are paramount.

Success stories like EKI Energy Services– the Indore-based private company, in the business of carbon trading achieving a $1 billion valuation earlier this year are also grabbing the headlines. After being an active player in the arena for over a decade the company that boasts of major clients like The World Bank, International Monetary Fund, Airports Authority of India, Oil and Natural Gas Corporation, NTPC, Indian Railways, Indian Oil Corporation and ReNew Power came into its own in the last couple of years.

Other similar companies offering solutions for carbon management, from registration of projects to its verification and global accreditations are getting inspired and a host of related services are starting to evolve.

 

Concerns about Carbon Trading

While proponents hail the virtues of carbon trading as the bridge to a Net Zero future, critics dismiss it as “the right to pollute”. They say carbon trading worsens climate change as it is “used as a substitute for real climate action”.

Criminals have also successfully exploited loopholes in the carbon trading system to pull of massive scams, such as the 2008-09 case in Paris, when 36 people went on trial for swindling 1.6 billion Euros in a carbon quota market scam dubbed the “fraud of the century”. Soon after a similar story about VAT fraud related to carbon trading worth 5 billion Euros broke in the European Union, followed by another multi-billion Euro VAT fraud in Poland in 2016.

‘Greenwashing’, is a real concern too, as organisations quite often tend to respond to consumer demand for environmentally-friendly goods, services and policies by simply resorting to a form of marketing spin that deceptively puts a ‘green sheen’ on them as being sustainably sourced and produced.

Concerns are also expressed that wealthier nations would buy their way out of unsustainable practices placing a disproportionate burden on developing nations through the carbon offsets route. The fact is, the world’s top three emitters- China, the United States and the European Union, contribute 16 times the GHGs of the Bottom 100. The world cannot successfully fight climate change without significant action from the top 10 emitters.

 

Fixing the Risks

Undeniably, the world’s most vulnerable countries and population groups are disproportionately impacted by climate change. For any initiative aimed at saving the planet from its greatest threats to work, a robust policy framework, government oversight, checks and balances are essential. According to a study published by Trove Research and University College London, carbon credit prices are expected to rise exponentially as demand for carbon credits is expected to increase five-fold or even ten-fold over the next decade with companies seeking to deliver on their net-zero emissions pledges. Plugging the risks of fraud and manipulation are crucial to realising the full potential of putting a price on carbon to deliver a cleaner planet.

 

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