Fixing Carbon Offset Markets

A steel re-rolling mill in Narayanganj, Bangladesh. Well-designed carbon markets could spur companies in developing countries to reduce emissions. AHMED SALAHUDDIN / NURPHOTO VIA AP

Thanks to Yale e360 for this opinion on a hot topic that we have sometimes mused less seriously about:

How to Repair the World’s Broken Carbon Offset Markets

Markets that connect businesses hoping to offset their carbon emissions with climate change mitigation projects have been plagued by problems. But an economist and his co-authors argue that carbon markets can be reformed and play a significant role in slowing global warming

In the wake of the Glasgow climate summit, governments must now return to the daunting challenge of making good on their emissions-reductions pledges, which at this point remain insufficient to hold warming below 2 or even 1.5 degrees C above pre-industrial levels. Recognizing there are many political constraints that will make it difficult for countries to adopt policies that cut greenhouse gas emissions across the board, the agreement allows each nation to design its own individual national commitment. The United States is grappling with this very issue as it seeks passage of the Build Back Better initiative, with its ambitious goals to slow climate change.

Ideally, governments should reduce emissions with carbon taxes and efficient regulations. But most governments are reluctant to regulate or tax all emitters, such as power plants, electric companies, or forest managers. That means some low-cost mitigation opportunities — such as replacing coal-fired power plants with natural gas facilities, funding transmission lines to renewable energy sites, or letting trees grow for longer periods before cutting in managed forests — will invariably be missed by government rules and regulations.

One potential solution is to pay for these missed opportunities through voluntary and offset carbon markets. The Glasgow agreement encouraged voluntary carbon markets to operate in developing countries so that private entities could immediately support emissions reductions there, but it remains to be seen whether these markets will in fact help reduce emissions or whether the markets will turn out to be just greenwashing.

Voluntary markets collect payments from private donors, companies, foundations, and potentially even countries, and then pay emitters to reduce their CO2 emissions.The Chicago Board of Trade established a carbon market from 2003 to 2010, and the Task Force on Scaling Voluntary Carbon Markets, a private sector initiative, hopes to establish a large future voluntary carbon credit market…

Read the whole essay here.

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