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Image: sustainabletravel.org |
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Introduction to Carbon Offsetting
A growing number of governments, organizations are talking about going carbon-neutral nowadays. And these talks and the plans discuss one common thing, the concept of Carbon Offsetting. Industrialization brought huge carbon emissions with it. The majority of activities - human actions and almost every economic activity, and even every digital action leads to the emission of harmful greenhouse gases, contributing to climate change. Like literally everything from lighting a bulb and running data centers.
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Image: Statista - The image shows per Capital CO2 emissions in the largest economies - 2016 |
Disruptive Climate Change
The harmful greenhouse gases, when enters the environment, can remain for up to 1000 years, causing disastrous ice loss on the planet earth. Earth lost over 8 trillion tonnes of ice in the last 23 years. Rising temperatures are responsible for 40% of the sea-level rise since 1993, making the high risks of floods. Scientists from Leeds, Edinburgh, and London say, 28 trillion tonnes of ice have disappeared from the surface of the Earth since 1994. These melting glaciers could cause sea-level to rise dramatically, reaching a meter or three feet by the end of the century. Scientists assert that we have reached the point of no return. One research found that every one-meter rise in sea level can force 1 million people to evacuate their places from the coastal areas. Refer to our previous research-based article for more details.
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Image: Statista The image shows The annual average extent of Antarctica sea ice in square kilometers |
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Now, let's directly jump into the definitions of Carbon Offsets and Carbon Trading.
What is Carbon Offset?
Basically, the meaning of offset is to balance out between two opposite ends. A carbon offset is a reduction in emissions of greenhouse gases made in order to compensate for emissions made elsewhere. To simplify, you produce a certain amount of greenhouse gas today and pay a special purpose company or the government for planting trees or performing any other form of compensation for the harm you have done to the environment by emitting. One can even buy the surplus offsets - carbon credits. Hence, it is also termed as cap and trade. Offsets are measured in tonnes of carbon dioxide equivalents. The reduction in carbon emissions is represented by a carbon credit. The credit, usually verified by a third party, signifies that greenhouse gas emissions are lower than they would have been. One tonne of carbon offset represents the reduction of one tonne of carbon dioxide equivalents from entering the atmosphere and one credit equals one tonne of carbon offset. The credit purchaser can use the credit for carbon accounting.
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Image: kusamala.org - The image shows how the concept of carbon offset works |
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Image: Graphs.net - The image illustrates how Carbon Offset works |
Now, as we have understood what is carbon offset, let's understand carbon trading.
What is Carbon Trading?
Carbon emission trading or carbon trading is an approach to limit climate change by creating a market with limited allowances for emissions of greenhouse gases. These emission trading schemes (ETS) are operational in different parts of the world.
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Image: Wikipedia - The images shows the emission trading allowance prices from 2008. Note that we do not confirm the accuracy of data, it's just for the purpose of understanding |
Carbon Trading Markets
There are two types of markets for carbon offsets: (i) compliance and (ii) voluntary.(i) In this market, government and entities buy carbon offsets in order to comply with a mandatory and legally binding scheme that caps the total amount of emissions they are allowed to emit per year. And obviously, failure to comply leads to paying legal compensation.
(ii) Voluntary offsets are those in which emitters can choose to pay the special purpose company to balance out their carbon emissions, such as funding reforestation projects which absorb greenhouse gases.
The oldest active carbon market is the European Union's Emission Trading System, which was launched in 2005, while other schemes are operating in Canada, Japan, New Zealand, South Korea, India (specifically in Gujarat state - note), Switzerland, and the United States. At the start of 2021, China launched the world's largest carbon market for its thermal power industry, as the sector accounts for 40% of China's emissions, which is equivalent to double the emissions covered by the European Union's carbon market.
According to CNBC, the total value of the global carbon market grew 34% in 2019, reaching $227 billion. 2019 was the third consecutive year of record growth and values these emissions nearly five times their worth in 2017, as we can see in the below graph.
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Image: CNBC - World Carbon market 2012-19 |
There is no doubt that humans have many big threats ahead for which there are proper solutions yet to find out. Those threats are dangerous viruses, climate change, and its devastating effects, and why not add asteroid rain! :-p
The Requirement of Carbon Offsetting
But here, talking about our today's topic, the world needed proper international law to deal with global warming and climate change. Hence, in 2015, during the United Nations Climate Change Conference in Paris, 196 parties, including countries from across the seven seas signed the United Nations' one of the most ratified agreements, the Paris Climate Agreement, also referred to as Paris Climate Accord, which covers climate change mitigation, adaption, and finance. The signed parties promised to lower carbon emissions and footprints, and together, maintaining the world temperature well below 2 °C (3.6 °F) above pre-industrial levels, and preferably limit the increase to 1.5 °C (2.7 °F), recognizing that this would substantially reduce the impacts of climate change. There should be no doubt in reducing emissions as soon as possible and reach net-zero or carbon-neutral in the second half of the 21st century. The Accord aims to increase the ability of parties to adapt to climate change impacts and mobilize sufficient finance. Under the agreement, each party must manage, plan, and regularly report on its contributions. No mechanism forces a country to set specific emission targets, although each target should go beyond previous targets.But, you wonder the Paris Accord was introduced in 2015 and we are well aware of the issue of climate change since the 1960s, as reported by the guardian back in 2011, then why we did not take the action in the first place! Well, of course, there was an international treaty before, first introduced in 1992. Named Kyoto Protocol, an international treaty under the 1992 United Nations Framework Convention on Climate Change or UNFCCC that committed state parties to reduce greenhouse gas emissions. It was based on the scientific consensus that, part one, global warming is occurring and, part two, human-produced carbon emissions are driving it. The Protocol was ratified in Kyoto, Japan, in 1997 and entered into force in 2005, which included 192 parties then. The Protocol was to expire in 2020 and to be superseded by the Paris Climate Agreement.
Despite the Paris Climate Agreement, many developing countries still needed to emit a certain amount of greenhouse emissions for economic and social development. And if the developing countries were hindered from emitting, it would not be fair to them as many developed countries across the globe, in fact, got the 'developed country' status because of their carbon-emitting-money-printing industries. Although the concept of emission trading is not new, it should not be disturbing those who developing as well as wants to promote the Paris Accord.
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According to Carbon Offset Guide, the 2015 Paris Climate Agreement can be very helpful. Yes, no doubt about that. And it is the most ratified. So, everyone can walk together. But it is a simple statement! Here's an explanation. It says the concept of carbon offsetting has appeared in the world where very little work was being done to address climate change up until now. Very few organizations globally have taken meaningful actions to reduce emissions. The potential supply of greenhouse gas emission reduction is huge. But it only needs an initiative. For this, incentives can be very motivating for entities. Or in my opinion, tax exemptions.
Carbon Offset Guide additionally reports that the 2015 Paris Accord can change the whole perspective. Because, for the first time, nearly every country across the globe has identified explicit actions they agree to make to reduce emissions and adapt to climate change. The approach is a major change from the Kyoto Protocol. Offsetting is an explicit and prominent strategy, in which industrialized, developed, or economically strong countries could fund offset projects in developing countries, providing them needed obligations, by claiming the reductions achieved by these projects. The report further added that developing countries benefited from such an exchange because they faced no obligations themselves and therefore gave nothing up in allowing emission reductions to be transferred. A great example of global cooperation. The world was never together before like it is coping up with climate change. And if implemented successfully, analysts believe international trading could cut global emissions by 60% to 80% by 2035.
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Image: Offsetguide.org - The image shows co2 curve mitigation |
Companies Contributing and Pledging
• In 2020, Google said that it is a carbon-neutral company, as reported by BBC. A report by Google revealed all details of the company going net-zero emissions with the help of the carbon trading market• Secondly, 24 Indian companies including Mukesh Ambani-led Reliance Industries, Ratan Tata-led Tata Sons, pledged to be carbon-neutral, as reported by Times of India
• And almost every big company from across the globe that have pledged to reduce emissions, include Levi Strauss & Co, Siemens, Starbucks, Ricola, Amazon, Apple, British Petroleum, FedEx, Ford, General Motors, IBM, Ikea, Microsoft, PepsiCo, Starbuck, Unilever, Walmart, British Airway - note, note
Challenges and Suggestions
Despite the great concept of offsetting, the plans across the globe have been noticed to remain decent on paper, meaning, in reality, the participants could not achieve their carbon-neutral target because of corruption and miscalculation in implementation. Because of these reasons, people, especially environmentalists can lose their confidence in offsetting. Theoretically, we can calculate how much a forested land captures carbon, but in reality, it is complicated, while all the business people cannot understand the scientific nuances of forestry. To hinder, the Intergovernmental Panel should implement stringent laws, regulations, a framework, and surveillance together under the United Nations.advertisement