Are Carbon Credits a Financial Scam?

When money is the way to avoid an announced disaster.

Photo by Dominik Dancs on Unsplash

All about the source

A large amount of hydrocarbons are required to sustain our modern way of life.
A luxurious trip from the United States to Thailand generates a significant amount of CO2 Kg per person. Getting clothes and electronics from Asian factories to your door in Europe necessitates the use of fuel. Hosting work files and selfies in the cloud necessitates the use of electricity.

Every day, the world consumes enormous amounts of energy, with roughly 84 percent of that energy coming from fossil fuels such as oil, natural gas, and coal. This percentage remains nearly constant regardless of the countries considered (OECD 80 percent , Non-OECD 87 percent ).

Even after the effect Al Gore’s movie ‘An Unconvenient Truth’ caused, fossil fuel consumption grew by 20%, from 113,613 to 136,762 TWh (Data from Emissions soared 17.5% in the same period (Statistical Review of World Energy).

“Energy is indeed the major contributor to climate change and to local air pollution”, Global Energy Fundamentals by Simone Tagliapietra (2019).

The temperature is rising. The origin of that phenomenon has been determined by mainstream scientists, although water vapor, the well-known H2O, is the primary greenhouse gas, carbon dioxide is to blame.

Ideally, fossil fuels should be replaced with cleaner alternatives, but this is currently impossible. It is not even possible to replace one with the other on a 1:1 basis, not because the sun, sea, or wind are insufficient, but because the potential energy contained in fossil-derived liquids is greater than that obtained from renewable sources.

But that's just physics. Finance takes a different approach.

As Maslow said, “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” If emissions are the consequence of keeping economies growing, it could be applied the other way around, by creating financial incentives that help of fighting global warming.

After all, morale alone was incapable of stopping them (and us).

Carbon Credits 101

Let’s start with the official definition:

…”a carbon credit is a tradable permit or certificate that provides the holder of the credit the right to emit one ton of carbon dioxide or an equivalent of another greenhouse gas. The main goal for the creation of carbon credits is the reduction of emissions of carbon dioxide and other greenhouse gases from industrial activities to reduce the effects of global warming”…

Based on the text, a Carbon Credit is a tradeable instrument that gives the buyer the right to pollute.

It's the equivalent of admitting you can't change yourself and relying on others to do so. A man can't quit drinking, so he buys sobriety from one of his friends.
These Carbon Credits come in the form of projects. Companies can invest in a variety of initiatives, most of which are in developing nations, to help the local population improve their quality of life.

Many of them have achieved astonishing achievements, such as supplying stoves to disadvantaged people to avoid hazardous gases from being inhaled while cooking. Other effective examples include reversing desertification and investing in young female education in Asia and Africa.

Regrettably, Carbon Credits also provided an opportunity for polluters to clean up their image. Rather than changing their ways, they eagerly trade in a market that assigns a value to a specific volume of gas that poses a long-term threat to humanity. The network of commission-getters is the most prevalent result of it. The credits interchange and project management are carried out by lobbyists, financial institutions, and high-standard living NGO executives.

Even a non-exhaustive evaluation of the effects of greenhouse gas emissions would consider externalities such as respiratory difficulties. The model's design is a minimal response to a serious problem.

How a Carbon Credit is calculated

It does not surprise me that there is no standard method for calculating the cost of one tonne of carbon dioxide.

It relies on the buyer's participation in the program. It functions more like a menu where you select rates based on your budget and the coolness of the project you wish to'support.'

You appreciate the outdoors, therefore let's plant some trees in Patagonia. Are you an advocate for social rights? Let's aid knitting schools for young women in Sri Lanka. If your dog is your best friend and you believe all living things to be members of your family, you must adhere to Kenya's wonderful cats' program.
Consider the Air Travel Industry as an example. Passengers have the option to pay for the CO2 their travel will generate when purchasing a ticket. Options range from S$3 to S$25 (2.20 to 18.41 USD).

Don't get me wrong; I believe that any initiative intended to assist the environment, equality, and the improvement of life quality should be promoted. Nevertheless, the fact that countries' economic activity and businesses are the origins of some of these issues creates a major dissonance, directly negotiating indulgence.

Advertising things and services that people don't need, overspending with easy-to-access credit, and constant changing of trends and ideals are all part of a vicious cycle.

When addressing this model, the question of who calculates a country's or company's overall emissions emerges. I was a member of a team tasked with determining the number of emissions generated by the company where I used to work. My duty was to provide all of the data to a consultant so that they could provide an estimate.

I still believe the environmental consultant assigned to our project had confidence in her work. She exerted much effort to have a comprehensive understanding of how offices, commuting workers, electricity, air conditioning, logistics activities, and China-purchased goods caused emissions.

The outcomes were ambiguous. I realized that it is nearly impossible to obtain an accurate estimate of the carbon footprint based on the available information. Internal procedures are not built to handle this. Even on those that have been updated, it is not uncommon to find egregious miscalculations of emissions.

Follow the money

Our ever-growing economy works under the promise of more significant returns in the future, doing whatever is necessary today for achieving so.

In Jørgen Randers, author of The Limits to Growth (1972) words:

“It is cost-effective to postpone global climate action. It is profitable to let the world go to hell.
I believe that the tyranny of the short term will prevail over the decades to come. As a result, a number of long-term problems will not be solved, even if they could have been, and even as they cause gradually increasing difficulties for all voters”

The profitability vs sustainability paradox is upon us. Everyone believes that something must be done, such as introducing a price on carbon, on fuels, and on polluting activities in general, yet when the time comes to vote, nobody chooses these solutions.

Societies and businesses will prioritize short-term objectives over an uncertain future.

If a political party wins the election and enacts new regulations capping pollution quotas, it would be sufficient for firms to relocate to regions with less stringent regulations. Money moves not only through financial organizations but also between nations.

As previously noted, under the existing Carbon Credit system, most money transfers from highly industrialized to developing countries, in the process of earning fees for those responsible for managing and allocating the funds.

The Controversy

I side with those who believe that action is preferable to inaction. If you feel that weather conditions are changing, you are also aware of the dire repercussions. Most scientists say that due to a warmer world, storms, droughts, wildfires, and extreme temperatures are more likely to occur in extreme forms.

However, the developed technologies have significant faults, and we must discuss them. Has the Carbon Credits model had any effect on the amount of CO2 emitted? The response is no.

You don't need to be an expert or a researcher to discover that emissions have increased dramatically in recent years; simply Google it.

Let's disregard the disparity between the correct price of the carbon emissions effect and the market price. Rather than transforming the current financial-productive system centered on growth and resource depletion into a common good system, let's focus on the message it sends by establishing a similar market instrument to replace the co-responsibility we all share.

How we interact to the earth is heavily influenced by our culture. My birth year is 1977. Growing up in an oil-rich country with American-style culture, I don't recall hearing about sustainability, environmental issues, or alternative energy sources.

Current policies and accords are created by a generation even older than mine, which I feel is making a genuine attempt to pave the way for a better society, but this work is inadequate; younger minds must join the conversation.

The program subsidized thousands of projects, including hydropower, wind, and, infamously, coal plants that claimed credits for being more efficient than they would have been. CDM became mired in technical and human rights scandals, and the European Union stopped accepting most credits. A 2016 report found that 85% of offsets had a “low likelihood” of creating real impacts

Source: ProPublica

Carbon credits, like coins, have two sides. According to a number of academics, up to 85 percent of the funds transacted in the idea of carbon credits have no or no environmental impact. On the other side, tens of thousands of public affairs specialists demonstrating statistics that support the system's efficacy.

We are a long way from resolving 'the emissions problem' due to our ineffective tools, the ticking clock, and our inability to handle, human solutions and viewpoints are characterized by ambiguity.

In the interim, the world is still governed by natural laws.


Written by: Juan Carlos Golindano

Originally published on:

October 17, 2020

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