Previously, I covered how cap and trade schemes provide economic incentives for businesses to gradually reduce their carbon emissions in a cost-optimal manner. I didn’t however, discuss the different kinds of carbon credit schemes or how they really serve to physically reduce atmospheric carbon levels.
Carbon credits are simply a receipt for service; that service being the removal or saving of greenhouse gasses from the atmosphere. There is a plethora of carbon credit schemes, most under the auspices of the Kyoto Protocol. They generally fall into three categories: sequestration, demand-side abatement and renewable energy.
Sequestration is a fancy way of saying it sucks greenhouse gasses from the air. The primary way such sequestration happens is via photosynthesis, whereby plants absorb CO2 and release oxygen. A typical tree is about half carbon and forests are a vast store of carbon. There are other sequestration techniques such as soil carbon, but right now their value is less well understood. There is a growing body of evidence to show that by changing farming practices to so-called “no till” farming, more carbon can be trapped in the soil. This is the subject of considerable research right now. Another form of sequestration is geo-sequestration, whereby CO2 is captured at the point of release and pumped deep underground into old oil and gas basins. This technology has been demonstrated in experiments but is many years away from practicality. A variant of this idea is bio-geo-sequestration, whereby CO2 is captured as above, but pumped into massive tanks of living algae. This algae photosynthesises the CO2 and produces methane that can be burned to generate energy. Another variation on this is to pump the CO2 into greenhouses to accelerate food production. No doubt we’ll see more of this as time goes on.
Demand-side abatement is familiar to many people via so-called “light-bulb” credits. A number of companies used to make good money by going into homes en masse and swapping out incandescent light bulbs for compact flurescent bulbs. By measurably reducing demand for energy they were able to generate carbon credits. Unfortunately for these companies, the government legislated to require a phase-out of incandescent bulbs and so the swapping could no longer demonstrate that the savings were over and above business-as-usual. This concept, known as “additionality”, is key to most carbon credit schemes. You must be able to show that the activity being funded would not otherwise have happened. There are other forms of demand-side abatement credits based on a variety of energy efficiency programmes.
Renewable energy credits are earned by switching customers over from fossil-fuel power to renewable power. When you buy GreenPower you are buying renewable energy credits. Many people have the idea that when they buy GreenPower some troll in the basement of the power company flips a giant three-phase switch, but in truth the solar power, or whatever, is more likely to be connected to your home or business via economics than wires.
Avoided deforestation is a form of carbon credit that is the subject of some very intense negotiation right now. Native forests, especially tropical rainforests, and even more especially tropical rainforests in less-developed countries, are under assault from aggressive logging and farming interests, and short-sighted World Bank activities going back many decades. Almost one-fifth of the Amazon has been destroyed, much of it illegally. Many native forests are the subject of outright theft. Avoided deforestation credits place a value on these forests in-situ, providing financial incentives for not removing them. These forests are overall the greatest storehouses of both carbon and bio-diversity that exists. Saving them is a crucial part of the battle against climate change.
Investing in carbon credits funds the reducing of greenhouse gas levels. Different schemes work in different ways and are priced differently by the market. Carbon credits are not issued flippantly. All of these schemes are the result of an incredible amount of oversight and analysis. Offset schemes that don’t translate into carbon credits are to be avoided as they can’t offer any guarantees as to their effectiveness.
Dave Sag is the CEO of Carbon Planet, a global carbon emissions company. Carbon Planet consults on all things carbon, ranging from conducting formal carbon emissions audits and ghg life-cycle analysis, to comprehensive carbon matchmaking and helping projects generate their own carbon credits. Carbon Planet builds emissions calculators and retails carbon credits to the general public and business alike.