With COP26 ending in November 2021, if there was much of a display of intent to act, it was in the many net-zero declarations made by nation states and corporations.
In a scenario where alternatives such as renewable energy are viewed as not being cheaper than fossil-based power due to the price of investment and storage, the only way therein to incentivise the world to shift to this more expensive yet low-carbon future is to make fossil fuels costlier.
With much of the world on the path towards economic development, cement will continue to play a key role in the growth story, particularly in the Global South.
Cap-and-trade and levying carbon taxes on emitters are two such well-known and widely adopted mechanisms. A cap-and-trade market mechanism enforces a ceiling on allowed emissions beyond which the emitters would need to purchase the right to pollute further.
Moreover, as taxes are required to capture negative externalities, determining the appropriate price of carbon is a tricky and convoluted exercise, one rife with assumptions on future pathways and the associated social cost.
Take the case of the European border tax – a levy to ensure imported industrial products face the same carbon price as those covered by the domestic systems. As free emissions allowances are phased out, the purported intent of such a tax is to create a level playing field for domestic industry within the European Union .
As heavy emitters plan for a transition to alternative technologies and resources, they may use carbon credits generated by other entities to compensate for their own emissions.
This needs to go up to 2 billion tonnes of CO2 to get to the 2030 target and approximately 7.6 gigatons of carbon dioxide offsets or removal to achieve net-zero energy emissions by 2050.
Many countries across the world have their own national carbon trading systems and depend on carbon credits generated in other countries rather than absolute emissions to help reduce its impact on climate.
Nation states and industries are alleged to have gamed the system raking in windfall profits for the energy sector.
At the same time, reducing caps and tightening allocations may push out small and weak actors without the capital and the clout, leaving the scene dominated by large emitters; it is a precariously fine balance to achieve.
In an ideal world, cap-and-trade as a measure would have worked well if kicked-in only after other policy interventions were made to address the fundamental flaws in today’s production and consumption patterns.
As per a study, European businesses should prepare for CO2 prices of nearly $200 a tonne by 2030 if the EU is serious about its climate-change targets while McKinsey & Co.
However, for VCM to flourish as an additional source of credits, it needs clear definitions, contracting standards, trading infrastructure, and the right set of measures to provide liquidity and to preserve integrity of the market.
Does that mean carbon credits offer the panacea we need? Armed with the collective experience of the past few decades of experimentation, there never was to be a silver bullet to saving the planet.
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