The Money has Teeth: Carbon Credits Explained

By Adelia Hallett

It seems like everyone is talking carbon footprints, emissions-trading and carbon off-setting. Everything from booking an airline ticket to buying a bottle of wine can involve the slightly confusing prospect of going carbon-neutral. And that’s before most countries in the world have even made it a legal requirement for their worst emitters to clean up their acts.

But what does it mean, and does it matter?

It is generally accepted by the vast majority of the world’s scientists and politicians that our climate is changing at a faster rate than ever before because of human industrial activity. Ever since we started burning coal to fuel our seemingly limitless demand for energy, we’ve been releasing a mix of climate-changing gases – especially carbon – into the atmosphere. It’s happening even in New Zealand; scientists from the Royal Society say that average temperatures are increasing and that the number of frosts is decreasing. If climate change is allowed to continue unchecked, the results will be physically and economically catastrophic; the polar caps will melt, land will disappear under the seas, floods and storms will increase, crops will fail and species will disappear. So the world’s leaders have agreed, under the Kyoto Protocol, on a plan to reduce greenhouse-gas emissions. And human nature being what it is, it has been decided that a financial penalty is the best incentive to get people to cut their emissions.

We New Zealanders are already paying the financial price for our emissions; the Government has budgeted $480 million to pay for the more than 300 megatonnes of gases we will emit between 2008 and 2012. But having the taxpayers pick-up the tab doesn’t encourage people to reduce their emissions, so the costs are being shifted on to those who are doing the actual emitting. In New Zealand, that’s largely our farming and transport sectors, with the energy sector and industrial producers, like steel mills, causing the rest. Both major political parties are committed to the concept of an emissions trading scheme similar to the one which has been operating in Europe for 10 years (depending on political decisions, a New Zealand ETS will be in force by the end of 2009).

Under an ETS, the cost of emissions is shifted from taxpayers to those making the emissions. So the owners of an industrial complex sending large amounts of greenhouse gases up its smokestack, for example, will be financially penalised. But the story doesn’t end with emissions. Greenhouse gases can also be taken out of the atmosphere, actually reducing the degree of climate change. For example, plants take carbon out of the air. It’s called storage or sequestration, and it’s a basic part of the lifecycle. But since the Industrial Revolution, we’ve been releasing stored carbon, by burning coal and oil, at a faster rate than the rapidly-diminishing forests and plants of the world can sequester it. Increasing sequestration is an important part of the plan to reduce climate change, so people who are reducing the level of greenhouse gases in the atmosphere will be rewarded.

The idea is that someone who plants a forest, for example, receives credits for the amount of carbon that forest sequesters. These credits (measured in carbon-equivalents) can be sold, in a system similar to the share-market, to someone who is emitting gases, who in turn surrenders them to the government. For emitters, being forced to buy and surrender carbon credits on an open market is the stick part of the equation. The carrot is that you can reduce – or even get rid of altogether – the credits you need to buy by cutting emissions. Which brings us to the concept of carbon-neutrality. By switching power suppliers, for example, from a company which burns coal or oil to one which uses renewable energy – or even going off-grid with its own solar or wind system – a company reduces its carbon footprint, and thus the number of credits it needs to buy.

But what has this got to do with you and me? Plenty.

For a start, petrol and diesel – one of New Zealand’s biggest sources of emissions – will be covered by the ETS. That means that every time you fill up the tank, you’ll be paying extra to offset the emissions you’re about to release. The only way to avoid the cost is to use less fuel. It will be the same with electricity, and manufactured goods, services, and even food in the supermarket. All of us will have to pay the price for the impact our consuming-lifestyle is having on the climate.
But emissions-measuring also gives us a powerful tool for influencing corporate behaviour, even before a mandatory ETS comes into force. Many companies – especially those attuned to their export markets in Europe and the United States – are voluntarily going carbon-neutral now, using schemes like carboNZero (

And it’s going down well; iconic New Zealand wine producer Grove Mill – already well-regarded for its concern for the environment - was the first New Zealand company to achieve carboNZero status, and saw an immediate 25 per cent increase in sales as planet-conscious people voted with their palates. So whenever you flick on the light-switch, book a plane ticket, or buy a bottle of wine, think about what you’re doing to the environment, and go carbon-neutral.

Editor’s Note: We live in a world where profit governs everything. Mercantilism – or Capitalism – with its exploitation of natural resources and its desire to minimise costs (the cost of labour and materials as well as the cost of cleaning up the pollution caused by growth and development) has brought the world to its present state. Not surprisingly, the solution most promoted by the big industrial powers is founded upon yet another opportunity to generate profit – Carbon Credits. As Adelia Hallet explains here, this system allows polluters to buy from non-polluters the right to continue polluting. In this way the cost of polluting is supposed to benefit those who operate sustainably (and who will be able to sell their credits) and punish those who continue to pollute (who will be required to buy them). The theory is that this incentive will, in the long-term, encourage everyone to reduce their carbon footprint. Environmentalist Kevin Smith, writing for Carbon Trade Watch has likened the Carbon Credit scheme to the sale of indulgences in the medieval Church (which led eventually to the Reformation). He outlines a detailed critique of the Carbon Credit scheme, showing how it not only fails to address the underlying problems of global warming but may in fact be contributing to them.
See: The Carbon Neutral Myth: Offset Indulgences for Your Climate Sins, by Kevin Smith, Carbon Trade Watch.