The Kyoto Protocol?s clean development mechanism, an international tool created to fight global warming, gives developed countries incentives to invest in clean technologies and projects in developing countries.
In return, the companies from the developed countries get carbon credits for meeting their emission reduction targets, while the projects in the developing country get the capital and technology.
Though this sounds simple, and seems the perfect answer to global warming and climate change, there?s more to the story than meets the eye.
Absolving climate sins?
Critics of the carbon credit scheme say since industrialised nations exceeding their cap of greenhouse gas emissions can easily buy carbon credits to meet their emission targets, there are chances of little or no conscious change in policies to emit lesser carbon dioxide (CO2). After all, it?s so much easier to just buy some carbon credits off the market. And while one may argue that carbon credits are earned in the first place as a result of green efforts, it kind of defeats the purpose if some companies feel they have the right to emit greenhouse gases just because they have sponsored green efforts elsewhere in the world.
This is why a company like Infosys, India?s second-largest information technology firm, refuses to apply for carbon credits. As Rohan M Parikh, head of green initiatives at Infosys, told FE on the sidelines of the recent Delhi Sustainable Development Summit (DSDS) in Delhi: ?We are not applying for carbon credits because it gives an opportunity to others to pollute.?
And, this opportunity comes very cheap. In a carbon credit earning scheme sponsored by an industrialised country in a developing country, the cost of reducing greenhouse gases is much lower, but the atmospheric effect is globally equivalent.
And as Elinor Ostrom, American social scientist and political economist who was awarded the 2009 Nobel Memorial Prize in Economic Sciences, points out, carbon credits do not act as magic wands to solve all global warming problems. ?They work well in certain systems, but then, is it for everyone? I believe that our textbook thinking is pretty bad. Some of our policies are not better sustained than fashion. It might suit some, might not suit the others,? she told FE at DSDS.
A poor, small market
Sreekant Gupta, associate professor, Delhi School of Economics, takes the argument a step further when he says that the more pertinent question is that of pricing carbon credits right. ?The price of carbon credits, currently ranging around 10 euros, is scandalous. The social cost of cutting down on emissions is much higher.? He feels that if CERs are priced higher, governments will not need to offer subsidies to green projects, as they would be sustainable themselves. For that, he advocates a full-fledged carbon trading market that involves all nations and emission caps for all countries. However, with countries like the US not submitting to the Kyoto Protocol and the treaty itself fizzling out this year, he is sceptical of an evolving global market.
He says the carbon trading market has not yet reached that sheer scale, as massive transfers are not happening. ?India might have around a 100 million CERs, but once you encash them at the current unit price, the sum acquired is just a drop in the ocean of funds required to bring development.?
He is also of the view that countries like India should consolidate their CERs and sell them in bulk, which could gain for them better bargains. ?The government should buy CERs from private companies and small entities and use the sheer volumes to sell to the highest bidder,? he says.
?Real? carbon credits
All carbon credits are not created equal. In several cases, countries end up sponsoring a project that could have sustained itself even without help from it in the first place. This is called the concept of ?additionality? and it is important for any carbon credit to prove it. Only carbon credits from projects that are ?additional? to the business-as-usual scenario represent a net environmental benefit. But this can be difficult to judge, as individual schemes are scattered all over the world, where consistent monitoring is not possible.
