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Uncertain future for carbon offset market

Date: February 1^st 2010 Author: Jasmina Nikoloska, Maidenhead Category: Articles
Topic: CO2 emissions , Ecology

The Copenhagen climate change conference of December 2009 teased with promises of environmental redemption, but unfortunately its outcome was such that, without a legally binding agreement, it is not clear how the carbon trading market can exist after 2012, when Kyoto Protocol expires.

The carbon offsetting market is designed to cut the total amount of carbon emissions in the world: if CO₂ is emitted in one place, the same quantity of CO₂ should be removed elsewhere, or in other words, if developed countries produce large amounts of CO₂, then they should invest in clean technologies in the developing world in order to reduce equivalent amounts of CO₂.

PHOTO: Alenka Žumbar

The carbon market mechanism offers the opportunity to trade carbon credits with polluters. Every ton of CO₂ not emitted can become a carbon offset credit, something that is often bought by investment banks.

Carbon offsetting is most popular in air travel, where passengers can offset their emissions produced by flying by buying offsets, often in the form of donations to environmental organisations or energy-saving projects. Still, this system does not assure how much money from passenger offset will result in securing carbon cuts.

On 24 January 2010, “The Guardian” wrote that “banks and investors are pulling out of the carbon market and carbon financiers have already begun leaving banks in London because of the lack of activity and the drop-off in investment demand”.

Also according to “The Guardian”, the Australian bank Westpac had decided to not increase personnel at its carbon desk in London; Westpac further denied that there were plans to recruit more staff, citing lack of necessity.

It looks like a large part of carbon trading goes through banks and investors, whose profit depends on the state of the carbon market.

Demand for carbon credits is expected to drop, as is the price for carbon credits, which indicates that the future of the carbon market is uncertain.

This is a direct result of the Copenhagen conference’s failure to get a commitment from the developed and developing worlds for greenhouse emissions reductions.

The trade in carbon permits and credits, mainly based in Europe, was worth $126 billion in 2008 and is predicted to expand to $3.1 trillion by 2020 – if a global carbon market takes off, according to a report from Friends of the Earth in 2009.

Friends of the Earth thinks that the carbon trading market is dangerous and that banks are “packaging carbon credits into increasingly complex financial products similar to the ‘shadow finance’ around sub-prime mortgages which triggered the recent economic crash”. They are fighting for climate solutions funded through carbon taxes and regulations, which can secure more investments in green technologies.

The carbon offsetting market is a complex mechanism; it is part of the European Union's emissions trading system (EUETS), which means that, even without a legally binding agreement after 2012, EUETS will probably carry on making clean development mechanisms based on carbon credits and carbon trade.

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