The government of BC has established that its public sector will be
carbon neutral this year. To do this they will need to use carbon
offsets. They have set up a crown corporation to work with the private
sector to generate enough offsets to meet their zero footprint needs,
which is about 1,000,000 per year.
By the way, there is a difference between a carbon credit and a
carbon offset. If an emitter is under a cap and trade system and it gets
its emissions below its cap (imposed on it by the government) then it
can sell the amount of “extra” emission reductions to a company that
could not get down to its cap. This is called a credit. If a company,
however , is not subject to the cap system, let’s say because it is a
wind power generator, then the company that fails to make its cap can
buy a emission reductions offset created by this wind power company. So,
the two are pretty much the same thing; the difference is a matter of
whether the entity producing the carbon reduction is in or out of the
cap system. It is possible to have a carbon market without a cap system.
Then, it would be a voluntary market and everything in it would be an
Carbon allocations are how carbon credits are created. When a cap
and trade system starts, the authorities issue or allocations to each
now regulated emitter to allow them to continue to emit to a determined
level. They can issue them for free or auction them. Then each
subsequent year they reduce the number of allocation that each regulated
emitter will keep, thereby ratcheting down emissions. They are tradable
like carbon credits.
There are several important reasons for carbon markets.
Credits and offsets mean that companies and others can buy the
cheapest carbon reductions. Why should they spend more money than
necessary when others might have cheaper ways to reduce carbon
emissions? Companies (like all of us) hire others to do work that we do
not do as well. Carbon offsets and credits can be viewed as just another
service or good.
Carbon markets also allow a market to set the price for carbon rather
than an arbitrary bureaucratic process.
Now, the sceptics have tried to discredit offsets with all kinds of
weak arguments. I would like to answer them here and add several
arguments for why carbon markets are fundamentally a good idea:
Sceptics’ Argument: Credits are an excuse for big companies to
avoid reducing their pollution.
If companies can reduce more carbon
emissions by paying someone else to do it than they can by reducing
their own emissions, then why would we not want to get more reductions
for the same amount of money? And, at the same time allow emitters a
period of transition until cheap credits and offsets are used up which
will increase demand, raise prices and make reductions of their own
emissions more compelling.
Sceptics’ Argument (this is a variation of the first one): The
rich will use credits and offsets to buy their way out of changing their
lifestyle to reduce their emissions.
The rich generally pay higher taxes than most and therefore pay
disproportionately for all kinds of things for society.
Sceptics’ Argument: Credits/offsets markets will be scammed by
The industrialized world has been trading stocks and bond for
decades. Many North American investors invest in stocks on European and
Asian markets without concern for the integrity of the markets. We
invest in the stocks of say, banks, here in Canada everyday in great
numbers and it would be to say the least very difficult for most
investors to really understand how a bank works. So, how do we do all
of this? We have faith in these markets and in the system of developing
and verifying stocks (and bonds) because there is a great infrastructure
that verifies the integrity of stocks and in turn the markets they
trade on. This structure involves market regulations, information
transparency, and generally accepted accounting principles. There are
already international agencies that verify carbon credits. And there are
functioning markets. In BC, the government has set up its own group to
verify carbon credits and to help develop them. This can be done
Sceptics’ Argument: The European experience with a carbon market
has not worked because too many carbon allocations were given away n
the first place.
If we expect every initiative in dealing with climate change to be
perfect right out of the gate, then we would never get going. We hardly
expect every other government initiative or business initiative to work
perfectly immediately. We would never have had oil sands oil if the
process of extracting it had to be economic right away. It took years
for it to be economic. It took some time for Europe to get it right but
we can now benefit from that experience.