Assessing Carbon Markets
In this section, we will examine the influence of both internal and external elements on carbon markets.
WHY IS THIS IMPORTANT?
If the price of offsetting is lower than the price of taking direct action to mitigate climate change, there is limited incentive to act.
Figure 2.18. Recommended carbon pricing range (Source: State and Trends of Carbon Pricing 2023)
Central to the premise of carbon crediting is that the projects deliver emission reductions that would not have happened without the financial support provided by the credit buyer. Thus, projects must be:
- Emissions reductions are quantified in a robust manner.
- The risk of “leakage” is addressed, and it will not lead to an increase in emissions elsewhere
- The risk of “non-permanence” is appropriately addressed
- Double counting of emission reductions is avoided.
Finally, the responsibility for these challenges is not distributed equally as we can see in Figure 2.19 where there are countries with a higher carbon emission intensity than others.
Additionality: the requirement that the GHG emissions after the implementation of a CDM project are lower than those that would have occurred in the most plausible alternative scenario to the implementation of the CDM activity. In forestry projects, additionality is the requirement that GHG removals after the implementation of the project are greater than those that would have occurred in the baseline scenario (the most plausible alternative scenario to the implementation of the project). It forms the main condition for determining the eligibility of carbon offset projects because it defines whether the project is having an impact on lowering GHG concentrations in the atmosphere.
Leakage: Describes a scenario in which a company chooses to relocate its production operations from a nation with stringent environmental regulations to one with more lenient rules. This relocation can result in an overall increase in greenhouse gas emissions.
Non-permanence: Refers to the risk that emission removals by afforestation or reforestation carbon offset projects are reversed because forests are cut down or destroyed by natural disasters. Projects need to be designed to reduce non-permanence risks, which can result in impacts on those involved.
Double counting: This occurs when the same greenhouse gas (GHG) emission reduction or removal is counted or claimed more than once for the purpose of climate accounting.