Carbon credits: A useful lever, or magical thinking?

By Marie Toulemonde

Posted on Friday, 11 November 2022 08:45

Opinions differ on carbon credits, which will be at the heart of discussions at COP27. On paper a powerful tool. In reality, say some, it is more akin to 'Magical thinking'...

On 7 October, Gabon obtained UN certification for 187 million carbon credits, one of the largest in the world. In Kenya, a specific stock exchange for this market will be set up soon. Projects are proliferating across the continent. The use of this strategic carbon pricing instrument, more commonly known as “offsetting”, will be at the heart of the COP27 discussions.

On paper, carbon credits are a powerful lever in the fight against climate change, providing an incentive to finance “green” projects or to reward virtuous behaviour, such as the preservation of carbon sinks like the Congo Basin. In theory, this market could reduce the cost of implementing the nationally determined contributions (NDCs) defined by the 2015 Paris Agreement by more than half.

Magical thinking

The reality is more nuanced. Created in 1997, the regulatory mechanism – in which Africa represents only 3% of the credits issued – has been at a standstill since December 2020. And its new version is still being negotiated.

Its “private” counterpart, the voluntary market, is known as the ‘Wild West’ because it is poorly regulated. The average price of a tonne of carbon there has reached a ceiling of $4.4, but could reach at least $75 by 2030 to guarantee that global warming is limited to 1.5°C.

Offsetting is presented by its detractors as a “right to pollute” that does not call into question the economic model that produces greenhouse gas emissions. It is a form of magical thinking that says these emissions simply disappear when trees are planted. However, these neo-forests are often monocultures that sequester little carbon, present a risk to biodiversity and, in the event of a fire, will release millions of tonnes of CO2 again.

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