Ralph Carmichael, Chief Financial Officer and General Counsel of Carbon Market Exchange Ltd a world leader in uniting climate action and the financial industry to make international climate targets more accessible, recently shared his thoughts about the realities of carbon credits with NewsBreak.
Green, Clean, Sustainable, and Climate Change are among the buzziest words of twenty-first century, evoking emotion and encouraging action towards the reduction of our collective Carbon Footprint, or the amount of carbon compounds emitted due to the consumption of fossil fuels. Yet, despite all of the conversations being had and critical initiatives underway, education and understanding of the fundamental issues is imperative.
Myth: Carbon emissions are not a primary contributor to global warming.
Reality: Carbon emissions comprise over 80% of all greenhouse gases that trap heat in the atmosphere. These greenhouse gas emissions cause global temperature warming which results in extreme weather events like tropical storms, wildfires, severe droughts, and heat waves. Carbon dioxide is released into the atmosphere during routine processes like driving a vehicle, agricultural industry, generating electricity, etc. Planetary temperature increases negatively impact the environment and natural habitats of all living species.
The U.S. Energy Information Agency estimates that consumption will grow 50% by 2050, with industrialization in non-OPEC countries serving as the primary driver. However, the United States still emits over 6.5 trillion metric tons of greenhouse gases per year with 92% coming from combustion of fossil fuels for mostly transportation and electricity.
Myth: Carbon Offsets are pay-to-play scheme.
Reality: Carbon offsets are directly tied environmental conservation projects designed to reduce net planetary greenhouse gas output and convey net climate benefits from one entity to another. Climatologists validate and quantify projects that sequester CO2. The verified tons of greenhouse gas removed from the atmosphere create a carbon offset which can be sold to individuals and companies to "offset" carbon footprints.
In contrast, carbon taxes are price tags placed on emitters of CO2 by governments and allowances are permits to pollute arbitrarily created and issued by governments. These "sin taxes" are passed on to consumers and result in higher costs for necessities such as food and heat. Thus, the burden will be borne by those least able to afford the tax.
Myth: The "Voluntary" market is not so voluntary.
Reality: The carbon markets are subdivided into the compliance/mandatory or the voluntary market. Voluntary offset markets enable participants to purchase carbon offsets on a "voluntary" basis with no intended governmental compliance purposes.
Given, today's political and regulatory environment the name "Voluntary" maybe a misnomer and regulatory bodies are acting to make public companies and financial institutions disclose climate related risks in financial statements. For example, the SEC's enforcement task force focused on climate change stated, “Climate risks and sustainability are critical issues for the investing public and our capital markets.” US Bank Regulators are also working to impose new regulations on large lenders related to climate change.
Myth: Deforestation is not important and should not qualify for carbon credits.
Reality: Forest loss and damage causes 10% of global warming is the second largest contributor to climate change, following only burning fossil fuels. The UN estimates that since 1990 over 1 billion acres of forests have been lost; simply stated, deforestation must be stopped to effectively address climate change. Forests provide vital protection against climate change, soil erosion, droughts, crop failures, melting of ice caps, flooding and desertification. Trees absorb and store CO2. Removing trees on a mass scale releases greenhouse gases and takes away one of the most important buffers we have against climate change.
And the impact of deforestation extends beyond the edges of the woods. Deforestation significantly contributes to ocean acidification which occurs when the ocean absorbs CO2. Deforestation forces the oceans to take on more of the burden of excess greenhouse gases. As deforestation drives ocean acidification, coral reefs die. While coral reefs cover only 0.0025% of the ocean floor, they produce over half of the oxygen in the atmosphere. In the past 5 years, 50% of the coral in Australia's Great Barrier Reef has died.
Myth: The Government will fix it
Reality: Environmental regulation traces its roots to the common law doctrine of public nuisance in which persons in possession of private property are entitled to quiet enjoyment and in the United States the Rivers and Harbors Act of 1899. Yet 125 years of government environmental involvement has achieved climate disruption at a rate and extent beyond our wildest imagination.
We cannot sit idle and expect government regulation to solve these problems. Today, market-based solutions such as carbon offsets are available to incentivize organizations and consumers to reduce greenhouse gas emissions. Private companies such as Carbon Market Exchange Ltd identify and validate known carbon sinks which sequester CO2 and offset the carbon emitted by human activities. During the validation process, scientists establish the amount of carbon that is removed from the atmosphere and tradable Carbon Offsets are created and denominated in 1,000 metric ton certificates. Employing Carbon Offsets to meet emission targets is costly and financially motivates companies to operate in more environmentally friendly manners.