Ask Natural Life:
Questioning Carbon Currency
by Wendy Priesnitz
 Q: I have been reading quite a lot about people going “carbon-neutral” via carbon offsets and carbon credits but am confused on a couple of fronts. And then there are “carbon taxes” that my country (Canada) is about to implement. Could you please explain the principle behind all of this and tell me if it really is a way to solve the climate change/global warming issue?
A: These are all different attempts at solving the same problem, either a voluntary action by consumers or a tool used by governments to to regulate the total amount of carbon dioxide various industries are allowed to emit, under international agreements to solve the climate change problem.
Carbon Offsets
A carbon offset is a consumer product in the form of a certificate representing the reduction of one metric ton of carbon dioxide emissions. Developers of projects that reduce carbon dioxide emissions can finance their projects by selling an offset certificate for every ton of emissions reduced. Typically, a broker collects and merges the credits from individual projects and resells them to consumers or small businesses that want to compensate for their own greenhouse gas emissions (through activities like air and car travel, computer or paper usage.)
Carbon offsetting is not a substitute for reducing one’s carbon footprint. It merely reduces or negates the impact of greenhouse gas polluting activities by avoiding an equal amount of pollution through the development of renewable energy sources, or by sequestering or absorbing a comparable amount of carbon dioxide that is in the atmosphere through tree planting projects.
Some people are wary of purchasing offsets that fund tree planting operations. Most tree-planting projects are sold on a front-loaded basis. That means you are buying an offset based on an estimate of the reductions that could be achieved over the next 40 or 100 years. So if you buy a tree-based offset today, you are sponsoring a reduction that won't be complete for about 40 years, since trees grow slowly and don't sequester much carbon until they’re mature– if they even survive that long. So to be at all effective, your offset purchase this year should reconcile with your energy usage this year. That means you should contribute to something permanent and in the present, as well as something that will immediately reduce the amount of carbon dioxide in the atmosphere – something like a solar or wind power project, for instance.
Carbon offsetting has become trendy and some people (like me) feel that it is more of a feel-good thing that provides permission not to make the more difficult major lifestyle changes that are really required if we are to solve the climate change problem.
The U.S. Federal Trade Commission – the federal agency responsible for protecting American consumers from misleading marketing claims – seems to have its concerns as well. In early 2007, it began examining the booming business of selling carbon offsets. Deborah Platt Majoras, former chairwoman of the FTC, has said that with the tremendous growth in the field, there is potential for abuse of the public trust and that the commission is concerned that some green marketing assertions are not substantiated. As the industry, which started in the 1990s, gains sophistication, it has begun to self-regulate through the creation of standards, audits, and third party verification.
Reducing our dependence on fossil fuels will take time, so carbon offsets could be seen as a useful interim measure. And given the law of supply and demand, the more we invest in renewable energy technologies, the lower their price will become and the more popular they will be.
If you still want to atone for your personal environmental sins – or are just curious about the size of your carbon footrpint – you can use one of many carbon calculators available online to see just what it will take to offset your lifestyle.
Carbon Credits
Carbon credits relate to the industrial world, rather than to individuals. They are the basis of what is called cap and trade – a sort of accounting scheme that provides a way for governments to reduce greenhouse gas emissions on an industrial scale by capping total annual emissions and letting the market assign a monetary value to any shortfall through trading.
Companies or other groups are issued emission permits and are required to hold an equivalent number of credits, which represent the right to emit a specific amount. The total amount of permits and credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emissions must buy credits from those who pollute less. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was required.
Carbon credits were part of the implementation of the 1997 Kyoto Protocol and extended to the Paris Accord, adopted in 2015 and set to begin in 2020. The scheme has its critics (including me), who fear cap and trade is a license to pollute, rather than as a much-needed incentive to reduce pollution, or – even worse – to offset companies’ polluting activities and the guilt involved by supporting reduction activities elsewhere in the world. They view such projects as just another example of companies in the wealthy nations finding quick fixes in other countries, rather than focusing on real change at home. (There are rules that heavily penalize firms whose emissions exceed the amount of credits they possess.) Other critics worry about increased costs that could reduce competitiveness. Some environment groups see carbon emissions trading as turning the climate change threat into an opportunity for profit and disagree with allowing the free market into environmental policy-making.
Nevertheless, cap and trade has been steadily increasing in popularity, with the trade of credits increasing by 240 percent between 2004 and 2005, according to the World Bank. In terms of dollars, the World Bank estimated the value of the carbon market to be $11 billion in 2005 and $64 billion in 2007 (US dollars). In 2017, the value was $52 billion, and increased by 56 percent in 2018, to $82 billion.
Carbon Tax
A carbon tax is another aspect of carbon currency. It is a form of pollution tax, an environmental/economic policy tool used by governments to reduce the amount of carbon in our environment. As the Intergovernmental Panel on Climate Change puts it, "Since greenhouse gas (GHG) emissions caused by the combustion of fossil fuels are closely related to the carbon content of the respective fuels, a tax on these emissions can be levied by taxing the carbon content of fossil fuels at any point in the product cycle of the fuel."
Typically, a price is levied by government on each tonne of emissions produced by individuals or businesses. So a carbon tax creates an incentive for both individuals and businesses to use less energy from fossil fuel sources like coal, natural gas, and gasoline. The revenue can be used by government in a variety of ways, such as funding public infrastructure projects like hospitals or schools or supporting renewable energy projects, or it can be rebated to people directly via tax credits.
Carbon taxes have their supporters and critics, of course. Some call it a tax grab, but others (many economists included) believe it to be an effective – and cost-effective – way to reduce carbon emissions. And recent experience in various jurisdictions, including some in Canada, indicate that it works. The price has to be high enough to encourage people to change their lifestyles, and the higher the tax the more it seems to work.
No matter whether we’re talking about industry or individuals, reducing emissions levels is the key here. The first step you can take to fight climate change at a personal level is to reduce your own carbon footprint through conservation. Drive less. Don't fly. Turn down the thermostat. Insulate your house. Go solar. Buy locally produced and eco-friendly goods. Consider encouraging governments and companies to reduce or eliminate packaging, join boycotts of polluting companies, stop buying single-use plastic, support organizations working to mitigate the climate crisis, push governments to take real action, and so on.
Remember two things. Using carbon currency accounting rules means that the true cost to the environment doesn't appear on a company's balance sheet (or in the consciences of its executives) so, in effect, it incentivizes polluting corporate behavior. Ultimately, this type of carbon currency is a capitalist solution to environmental degredation that is often used to justify business as usual rather than any major shift in thinking or policy.
Wendy Priesnitz is the co-founder and editor of Natural Life Magazine and a journalist with over 40 years of experience. She has also authored 13 books.
This is an expanded version of an article that was first published in Natural Life Magazine in 2005 and updated in 2015, 2018, 2021, and 2022.
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