EU carbon market lowers emissions but backfires

A 2013 study by non-profit organization the Global Institute of Sustainability and Finance found that commodities with the smallest levels of deforestation, such as timber and palm oil, had the highest carbon emissions for countries in the development stage. In this case, both environmental and financial gains for the nation where the products are produced would be dwarfed by greenhouse gas emissions, as the energy needed to develop and process such commodities requires carbon dioxide to be produced. Also, the sector will be good for an ailing economy.

Carbon capture and storage, or CCS, a technology to stop carbon dioxide emissions from industrial activity in reducing emissions, was initially promoted as an emissions reduction measure to compensate for emissions emitted when the industry produces new products. However, technology development has proven slow to adopt, and largely ineffective. In this case, the benefits to the country where the products are produced are just not there.

The most recent carbon offset products found in the carbon market are cap-and-trade certificates that sell for between $13 and $15, not far above where benchmark crude oil sells for $51 a barrel.

The carbon market has never been involved in the production of carbon credits. These certificates are called free market contracts, or FMC, tradeable internationally. This means that not all countries are subject to the same carbon market criteria for determining whether its greenhouse gas emissions were reduced. Emissions trade is an integral part of the market for burning fossil fuels. The revenue generated from this trades are directed to areas of the world with critical infrastructure that is experiencing a climatic crisis.

The only direct involvement in the carbon market of the United States through the production of this product is that of Black Hills, the manufacturer of specialty fertilizers in North and South Dakota. Last year Black Hills paid $92m to add allowances for the amount of carbon dioxide it emits to its bank accounts. This means that if carbon dioxide prices are low, such as $11 a ton, the company must hold the credits in the bank, although it is not obligated to buy the credits, and if prices are high like $56 a ton, such as per capita coal consumption, then Black Hills must purchase the credits when they are needed to cover its total emissions.

The prime buyer of these credits is trading, clearinghouse CCS Logic. A clearinghouse is a technological institution that connects markets in an efficient manner. CCS Logic processes the surplus carbon credits from buyer to seller.

“People don’t often think of carbon credits as cheap because of scarcity and high carbon prices as high prices because of oversupply. The truth lies in the middle,” said Elliot Goldsmith, president of CO2 Logic. “Scarcity leads to prices high enough that we are prepared to take the risks and be attractive to investors, and high prices lead to those risks being borne by us.”

Goldsmith added that the “couple thousand tonnes of carbon credit being traded daily” at least 22 companies, 30,000 farmers, 3,000 educational institutions, seven countries, and two continents are using the credits. The prices of the credits vary significantly, with some trading at $26, and others at $12.

Since late 2012, oil and gas industry companies have exported to the world more than half of the traded greenhouse gas credits through these activities. The World Bank estimates this allowed companies to emit an additional 430bn tonnes of carbon dioxide. According to conservation groups, the forest products sector alone accounts for more than 12bn tonnes of carbon dioxide in this world. It is recommended that an offset that offsets even 30% of this forest products’ emissions is no longer optional but mandatory and refundable.

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