30th August, 2020
Market for Carbon Credits
Carbon credits were created as a mechanism aimed at assigning a monetory value to carbon emissions and allowing governments to regulate and limit them.
What is a carbon credit?
If an entity is to capture and sequester 1 ton of carbon, they are said to have earned 1 carbon credit.
How it works
Each entity is given a quota of the emissions it is allowed. A factory can be given a quota of 80000 tons of carbon. To meet the quota, the factory can:
- Regulate production to stay within carbon quota
- Increase efficiency to produce more without increasing emissions
- Offset the excess emissions by buying carbon credits off the market
- Sell excess credits if it stays well within its limits
- Didnt address the problem in its entirity - targets only emissions
- Biodiversity loss, etc play a big role and were ignored
- Rigid and myopic rules for sequestering carbon (esp for forest based offsetting)
- Locals were not allowed to use the forest for firewood and other traditional reasons.
- Offsetting a powerplant using a forest in Indonesia will not prevent local impact of the pollution.
- Discussions about reduction of consumption are sidelined by this mechanism.
- Pricing was very volatile and fluctuated a lot
- Procedure to administer the market mechanism was very cumbersome.