Carbon credits were introduced during the 1997 UN in Kyoto Protocol as one of the ways to deal with global warming and other climate change-related issues. Over the years, there have been different opinions regarding the impact and sustainability of using this method to fight climate change. Some think carbon credits are a great solution, but some have a different view about the idea.
If you are keen to learn more about carbon credits and their impact, this article is for you. We will discuss everything you need to know about carbon credits, including their pros and cons both in the long and short term. By the end of this article, you will have a good understanding of the impact of carbon credits on our environment.
Carbon Credits Basics That You Need to Know
Carbon credits, also known as carbon offsets, refer to a certificate or permit allowing the owner to emit a certain level of carbon dioxide or other greenhouse gases. These permits are usually awarded to companies whose operations emit greenhouse gases, primarily carbon dioxide. The money collected from carbon credits is used to implement projects meant to reduce or eliminate the emission of greenhouse gases.
The idea behind carbon credits is the fact that some vital operations like manufacturing cannot be carbon-neutral with the current energy technologies. For instance, energy from fossil contributes over 61% of the total power generated in the USA. That means that individuals, businesses and organizations in the US that use energy from fossil indirectly emit greenhouse gases.
The only way to ensure zero emissions is to have 100% clean energy on our grids which is yet to be achieved. As we work towards creating renewable energy solutions, authorities have now resorted to getting some money from those using unclean energy to fund projects aimed at generating clean energy or absorbing some of the greenhouse gases emitted into the atmosphere.
When you pay for carbon credits, authorities give you a specific amount of greenhouse gases you can emit within a given period. Big tech companies, including Apple, Google, and Facebook, have all set targets of being carbon neutral by 2030. However, this will be achieved by partly eliminating greenhouse gas emissions in their operations and paying for carbon credits.
It should be noted that carbon credits can be bought voluntarily or mandatorily, depending on the situation and location. Some companies that directly emit huge amounts of greenhouse gases in their operations are required to pay for credits by law. In this case, defaulting these payments or emitting more gases than you paid for can lead to further penalties.
For the case of individuals, paying carbon credits are usually a voluntary act. For instance, one may choose to always buy carbon credits every time they travel long distances. Carbon offsets may also be through taking a certain counteraction every time you do something that emits greenhouse gases into the atmosphere.
For example, you may choose to pay extra money to use renewable energy at your home in order to counter emissions caused by your daily commuting to work. Most of the time, these actions are voluntary and are done by people who are cautious about climate change.
As we shared earlier, carbon credits are still a controversial idea; it is embraced by most people but also criticized by certain groups of people. In the next section of this article, we will examine some of the pros and cons of carbon credits.
Benefits of Carbon Credits
Allows funds to invest large amounts of money into climate change projects
As of 2021, over $28.3 billion were collected from carbon credits in about 40 countries. This money is used to invest in climate change projects, including the conservation of forests, incentives to buy electric cars, renewable energy projects and more. This money is paid by organizations and individuals that directly or indirectly emit greenhouse gases into the atmosphere.
Without funds from carbon credits, so many climate change-related projects going on in the world wouldn’t be possible. Remember, these companies or individuals would still emit greenhouse gases anyway. So, getting some money from them is an excellent way to fund projects to offset their emissions.
Speeds up the progress of green technologies
Several startups have been founded with the aim of creating technological solutions to fight climate change. Most of these startups are using cutting-edge technologies like AI, IoT, and cloud computing to figure out ways to solve climate change problems at scale. Without funds from carbon credits, some of these startups wouldn’t even exist.
This would inevitably slow down the progress in finding the best solutions to some of the sophisticated climate change issues. As long as funds from carbon credits are well utilized, we will likely get a lot of valuable solutions that can help us achieve the goal of being carbon neutral by 2050.
Useful tool helping the energy transition process
We must face the fact that the renewable energy generated is still not enough to power up cities and the millions of factories in the world. It will take some time to create enough renewable energy required to meet the current and future power demands. As we transition to 100% renewable energy, money is needed to fund these green energy projects.
One of the primary sources of money facilitating renewable and other green energy projects is carbon credits. Having carbon credits will help speed up the transition to clean energy. Our only hope is that this transition happens before we experience some of the worst side effects of climate change.
Puts pressure on industries to become more carbon-neutral
The requirement to pay a certain amount of money as carbon credits keeps the manufacturing facilities and other carbon emitters in check. Since carbon credits are an expense, carbon emitters will always try hard to reduce this expense by only emitting greenhouse gases that are worth emitting.
In the long run, companies, especially those in the manufacturing sector, will be incentivized to develop solutions that can help reduce their carbon footprint. Without carbon credits, most of these companies would be emitting greenhouse gases freely without incurring any cost for their actions.
Encourages efficiency in all industries.
One of the ways industries can reduce their carbon emissions is by using more efficient equipment and streamlining their operations to minimize energy consumption. Paying carbon credits can help motivate companies to prioritize efficiency in their operations in order to reduce the cost they incur in offsetting their greenhouse gas emissions.
Helps preserve natural resources.
Besides funding renewable energy projects and startups, some of the funds generated from carbon credits fund projects geared towards preserving the environment. This may include funding NGOs that are created to incentivize people to preserve forests and wetlands in their communities.
Allows companies to improve their public image.
Companies that emit huge amounts of greenhouse gases can improve their image by paying more carbon credits. As we shared earlier, several big tech companies aim to be carbon neutral by 2030, and this will partly be achieved by paying carbon credits. This is a win-win for both the companies and the environment.
On the side of the companies, they will have created an impression to the general public that they care about the environment. However, this also avails more funds that the government can use for projects geared toward fighting climate change.
Having carbon credits ensures that emitters pay the cost of their actions. This is a fair move because all of us, at some time, have to pay the price for our negative actions. It also encourages companies incurring more expenses by using clean energy solutions not to feel bad about their decision.
It would be demotivating if companies that emit huge amounts of greenhouse gases from using unclean energy are incurring significantly fewer expenses than those using clean energy. Carbon credits are helping to create a fairground.
Negative Effects Of Carbon Credits
Permits companies to emit more greenhouse gases
Companies that generate millions or billions of dollars from their operations will usually not feel the impact of paying a small fee in the form of carbon credits. Instead of finding solutions to reduce greenhouse gas emissions in their operations, some companies will rather be okay to pay more fees in carbon credits.
At the end of the day, the idea of carbon credits can be misused by some companies that are insensitive to the impact that their operations create on our environment. This can only be fixed if the carbon credits are significant enough to make every company feel the financial pinch. Otherwise, some companies may take this initiative for granted.
Hard to measure their impact, especially low quality credits
The goal of carbon credits is to fund projects aimed at fighting climate change issues. However, the impact created by these carbon credits can often be hard to measure (despite what Verra marketing tells you). The quality from project to project varies widely. The initial assessments are not always done consistently (especially because these projects cover huge pieces of land, across different countries and cultures all over the world). The ongoing monitoring is expensive & complex which means credit quality doesn’t always sty in tact. The fees needed for these green energy and environmental conservation projects vary from region to region. That is why it is essential to determine the carbon credits based on the area where the green energy or ecological conservation projects will be carried out.
High administrative cost
There are huge costs incurred in ensuring that different companies or individuals pay for the right amount of carbon emissions. Authorities must also follow up to ensure that greenhouse gas emitters don’t exceed the emissions they paid for. The other expense may include monitoring the green energy and environmental conservation projects to ensure they are well implemented.
Some of these expenses may not be included when determining the amount the different companies have to pay to offset their carbon emissions.
Carbon offsetting is not enough.
Even though carbon credits are a step in the right direction regarding fighting climate change, more work has to be done to reduce carbon emissions. Remember, carbon credits are a counter-action to offset greenhouse gas emissions. The only way to entirely do away with greenhouse gases is by eliminating them from our day-to-day activities.
Carbon credits should only be a temporary solution geared towards funding environmental conservation projects. Authorities must make it clear to all stakeholders that the goal is to reduce their carbon footprint as much as possible. Otherwise, some complacent companies may only aim at paying off their carbon credits without investing in technologies to minimize their emissions.
Some carbon offset programs are not mandatory.
In some countries and cities, paying for carbon credits is voluntary. That means the carbon emitters have to be compelled enough to feel the need to offset their carbon footprint. This is not a sustainable solution because not all organizations have the leadership that is empathetic enough to think about the side effects of their operations on the environment.
Carbon offsets can only be effective if they are mandatory. There should also be severe penalties for any organizations that fail to meet their carbon offset payments.
Final thoughts
Overall, carbon offset programs have been a net positive for the environment despite the many challenges involved in implementing them. These programs have created funds needed to run environmental conservation projects and funding startups that are working towards developing tools and technologies that can be used to fight climate change.
However, there is still room for improvement, especially in the way these programs are implemented. The primary focus should be ensuring companies don’t pay for fewer carbon credits than required. There should also be effective monitoring mechanisms to verify the exact carbon footprint of the different companies.
