🛢💸 The real deal about Carbon Pricing: Difference between revisions

:: - The government allocates each company with an annual emissions permit, where the sum of all permits account for less carbon emissions than the previous year, in order to reach their decreasing goals, year after year. In that case, what is call an allowance (permit to emit) would be freely distributed to companies, depending on their previous year emissions. If they decide to emit more that they were allowed to, they can buy allowances on the carbon market. Those allowances will be traded with companies who managed to lower emissions even more than the government expected.<ref>But not only: the asset system makes it possible to create allowances that were not distributed by the government. We will come back to it later.</ref>

To make it even harder to foresee, the carbon market is not only composed by allowances provided and auctioned by governments, but also allowances “created” by so-called “assets”. An asset is basically a reduction of emissions made in order to compensate emissions made elsewhere. A polluting company would typically invest in a renewable energy project, reforestation or even de-pollution of environments, to get allowances in exchange, and emit more CO2 than they were “allowed” to. At least, The Kyoto Protocol (2007) has sanctioned offsets as a way to earn carbon credits that can be traded with other companies.<ref>Thanks to this measure, assets cannot be a direct source of profit. “Carbon Offset” on Wikipedia, introduction, 2020.

source:  https://en.wikipedia.org/wiki/Carbon_offset</ref> They also created an organisation for approval of offsets<ref>It is the role of the Clean Development Mechanism, one of the Flexible Mechanism established by Kyoto Protocol. It provides help to assets projects which generate Certified Emission Reduction units (CER).

source: https://en.wikipedia.org/wiki/Clean_Development_Mechanism</ref>, which are very tricky to evaluate on the long run (a solar energy project or the renewal of a facility to emit less may not always be successful) and may benefit to developed countries getting “cheap” offsets from low-cost projects abroad. Moreover, the risk of fraud is high, in the form of “non-additional” credits: it means that the asset project will have taken place anyway, without the help from an interested carbon emitter. In this case, money is only going from hands to hands without financing anything else than pollution. This would even suggest that a wide part of carbon offsets do not represent actual emissions cuts, allowing companies to skew their emissions reduction easily.  

Exaggerating the carbon benefits of an asset is a common practice too<ref>Take for instance the HFC-23 GHG destruction model that made China built 18 new refrigerant manufacturing plants equipped with HFC-23 incinerators for $100 millions, thus generating $5,7 billions in CDM offsets credits. This type of offset credit has since been eliminated by EU officials (in 2011).