Much Ado About Carbon
Welcome back to Clickable Insights. In this issue, our Clickable Impact team takes a thematic look at the complexities surrounding carbon offsets, the voluntary carbon market, and carbon pricing. In this issue:
The great voluntary carbon market debate
Can carbon offsets be trusted?
The need for standardized carbon pricing
Here we go...
The Voluntary Carbon Market: climate savior or climate villain?
With COP28 approaching and several international climate-related summits taking place recently, the voluntary carbon market (VCM) is in the spotlight.
This comes as debate over the VCM grows, with proponents arguing that it presents an important avenue for developing countries to access much-needed climate financing and for corporations and buyer nations to address their carbon emissions.
On the other side, an increasingly vocal chorus is asking whether all carbon credits can be trusted and who exactly is benefiting from these transactions.
Take, for example, a recent report titled ‘Discredited: The Voluntary Carbon Market in India’ published by the Centre for Science and Environment in New Delhi.
The authors write that “suspicion and mistrust of voluntary carbon market have only increased in recent years, with multiplying allegations of greenwashing and fraud...”
Others go even further, such as this SourceMaterial feature on concerns that a carbon offset project managed by Wildlife Alliance is driving human rights abuses in Cambodia. This follows a collaborative investigation earlier in the year, which estimated that 94% of forest offsets commonly used in carbon markets do little to mitigate climate change.
Prominent stakeholders in the VCM are aware of these problems, with the Voluntary Carbon Markets Integrity Initiative (VCMI) releasing a Claims Code of Practice to “build a broad sense of trust and confidence in how companies engage with VCMs.”
This code includes a four-step process for companies or investors looking to claim a carbon offset: comply with the foundation criteria, select a VCMI claim to make, meet the required carbon credit use and quality thresholds, and obtain third-party assurance following the VCMI Monitoring, Report & Assurance Framework.
Verra, the world's biggest certifier of voluntary carbon offsets, welcomed the code and pledged to determine the best way to abide by it.
But they face scrutiny as well: The New Yorker recently published an exposé alleging that South Pole, the world’s largest carbon-offsetting company, had sold millions of credits for carbon reductions in Zimbabwe that don’t actually exist. Verra, meanwhile, was involved in estimating how many tons of carbon could be mitigated through this project.
Verra, for its part, acknowledged the seriousness of these findings while pledging to improve the integrity of its standards and methodology.
The price of carbon
How to price carbon is an equally thorny issue, both regarding how to price a carbon offset – which can range anywhere from a few dollars to nearly $1,000 per ton – and how (or whether) to directly price emissions, a mechanism generally given the unappealing name of carbon taxes.
Zeid Ra’ad Al Hussein, president and CEO of the International Peace Institute, and Farrukh Iqbal Khan, an official in Pakistan’s Ministry of Foreign Affairs and a member of the Integrity Council for the Voluntary Caron Market (ICVCM) board, discussed these approaches in a recent Foreign Affairs essay while making the case for a global carbon-pricing framework.
(ICVCM, we should note, is not related to VCMI, though it’s telling that the complexities of the voluntary carbon market have spurred the creation of at least two international organizations with similar names and acronyms).
The authors share data from Sweden to show that national-level carbon taxes work while explaining how such regulations are too piecemeal globally, both in terms of coverage and price, to have the impact needed to avert climate disaster. In 2017, the World Bank estimated that carbon needs to be priced at US$50-100 per ton by 2030, while the median international carbon tax is US$26 per ton and the median price of an offset is US$20 per ton. (Plus, public-sector carbon pricing rules only cover 23% of global emissions.)
This lack of consistency can lead to carbon leakage: “a phenomenon in which a targeted sector or entity simply moves its operations to a location with lower carbon prices or looser regulations.”
In our view, this brings to mind the ongoing ‘race to the bottom’ in which manufacturing companies work their way through developing countries in search of cheap labor.
But there are also real socioeconomic conditions to consider. The Foreign Affairs authors note that for most developing countries (those, in many cases, being hit hardest by climate change), pricing carbon at US$100 per ton is politically and economically impossible.
They therefore propose an approach: a global carbon-pricing floor managed by the United Nations (with participation from the likes of the World Bank and IMF) that distinguishes between developed and emerging markets, and high and low emitters, to set the minimum price of carbon in 2024 at US$10 for developing countries and US$40 for developed countries.
Granted, that won’t be easy. In fact, the overarching theme we’ve detected in ongoing debates regarding carbon markets, carbon offsets, and carbon pricing is that none of this will be easy, and previous COP summits have put the differing approaches among countries and regions in stark relief.
But such conversations are endlessly illuminating, and we’ll dig deeper into what to expect from COP 28 next month.
Back next month with more developments in climate action, transformative innovation, and sustainable tourism.
Clickable Insights is brought to you by Clickable Impact
Clickable Impact is an Asia-based consultancy committed to climate action and sustainable development. We have three practice areas: public affairs and communications, sustainable tourism, and transformative innovation. Across our work, Clickable Impact favors projects that urgently mobilize private sector engagement, policy action, and investment.
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