By Dr. Asangba Tzudir
The Paris Agreement is premised on the concept of ‘Carbon Credit’ and thus it becomes imperative to understand what Carbon Credits is all about. Simply put, Carbon Credits, also known as Carbon allowances, are permits that allow emitting a certain amount of carbon dioxide or other greenhouse gases (GHGs). So, one Credit allows the emission of one ton of carbon dioxide or the equivalent of other greenhouse gases. The ultimate aim is but to reduce the emission of GHGs.
Now, if the emission limit exceeds, then those companies have to buy Carbon Credits. Depending on the purchasing power of a company and which also depends on how much emission have been reduced, it can purchase Carbon Credits, and accordingly, sell the excesses in a carbon exchange or market, and this system is commonly called a ‘cap-and-trade’ program, a model that was used to reduce sulfur pollution in the 1990s.
Negotiators at the Glasgow COP26 climate change summit agreed in November 2021 to create a global carbon credit counterbalance trading market. The United Nations allows a certain number of credits to countries, and they will be responsible for issuing, monitoring, and reporting its carbon credit status annually. Further, Governments allow companies to emit a set amount of Greenhouse gases before needing to purchase credits.
While the ‘cap-and-trade’ system creates an exchange value for emissions, there are arguments and counter arguments.
Proponents argue that it incentivizes companies to invest in cleaner technologies to avoid buying carbon credits, while opponents argue that these systems only work to create an excess of circulating carbon credits because caps are set a few years in advance, and companies cut emissions quicker than expected—and then use the credits as money-making instruments. However, that is part and parcel of the ‘emission’ game.
Now, Carbon credits can only be sold or purchased by businesses and governments. When a company buys a carbon credit, usually from the government, they gain permission to generate one ton of CO2 emissions. With carbon credits, carbon revenue flows vertically from companies to regulators, though companies who end up with excess credits can sell them to other companies. On the other hand, Carbon offsets or counterbalance, however, are carbon credits available on the voluntary carbon market which enables entities participating in an emissions reduction project to sell credits that are not regulatory in nature. As such, anyone can purchase these credits.
Carbon credits are sold to businesses by the governments, and the businesses can resell it on the regulated carbon credit market. On the other hand, Carbon offsets or counterbalance are sold on the voluntary carbon credit market by organizations, projects, or individuals to fund their green projects. Landowners may be able to sell carbon credits if they enroll their land into a project, whether it’s reforestation, aforestation, or other carbon removal initiatives. The focus on Nagaland comes from the nature of land ownership.
So, Companies will buy Carbon Credits to legally emit more Greenhouse Gases and which depends on the type of the company. They will also purchase carbon offsets, in order to maintain a “net-zero carbon emission” rate and which is because of the urgency to combat climate crisis. There is a growing pressure for companies to make these “net-zero” commitments.
While reductions in emissions are possible through changes in business pattern for some companies, a blanket elimination of emissions may not be realistic for many firms. However, emission reduction activities such as tree-planting or nature conservation activities are credible steps.
On its value, carbon credit can vary considerably among countries due to geography, regulations and policies. According to Bloomberg NEF, Carbon prices in California are expected to average $42 per metric ton in 2024 and $76 per ton in Europe.
In sum, while Carbon credits is a mechanism to reduce greenhouse gas emissions, its ideation and conceptualization swings between emission reduction and counter-balancing.
(Dr. Asangba Tzudir writes guest editorials for the Morung Express. Comments can be mailed to asangtz@gmail.com)
