Benefit from the Carbon Offset Distraction – Global Issues

  • View Jomo Kwame Sundaram, Anees Chowdhury (Sydney and Kuala Lumpur,
  • Inter Press Service

On 28 January 2021, two high-level Climate Action Champions, COP25 and COP26 Presidents and the Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC) launched the Davos World Economic Forum’s ‘Race to Zero Breakthrough’ initiative.

More than 130 countries pledged in Glasgow to reach net-zero carbon emissions by 2050. Despite well-known setbacks, the COP26 Glasgow climate treaty has been seen as a breakthrough on the “path to a safer future”.

Prior to COP26, many cities, regions, businesses, investors and higher education institutions joined the already committed 120 countries. Achieving net-zero through offset trading has thus become the main climate action distraction.

After difficult, lengthy negotiations following the 2015 Paris Agreement (PA), Article 6 was the last of its 29 articles to be agreed upon. Article 6 unifies carbon offset trading standards to reduce ‘double counting’.

Offsetting allows countries and companies to continue cutting GHG emissions rather than cutting it. By purchasing offsets they can claim that their emissions have been ‘canceled’. Thus, offset markets have slowed climate action in the prosperous north, which accounts for two-thirds of cumulative emissions.

But why pay for the emissions reductions that would have happened anyway, even without paying through offset sales? Best of all, net-zero is a zero-sum game maintaining atmospheric GHG levels. But progress requires a reduction of CO2, that is, to be net-negative, not just net-zero.

Many carbon credits sold as offsets do not remove the excess carbon as claimed. For example, JPMorgan, Disney, and BlackRock have all paid millions to protect forests, even those not in danger. One CEO agreed its offset – buying into the Tanzania Forestry Program – is “cheating”.

economist Sees carbon offsets as a “cheap hoax”. Accelerating supply of offsets kept prices low. There is a lot of scope for playing games in the system. Energy-intensive companies collude and lobby against high carbon prices, insisting they hurt competitiveness.

Often buying in bulk, they pay little for carbon credits to encourage the switch to renewable energy. An average of just US$3 per tonne of CO2 in 2018 may not accelerate the desirable energy transition.

Less than 5% of all offsets actually reduce CO2 in the atmosphere. A 2016 European Commission study of CDM offset projects found that 85% provided no environmental benefit.

make money in returnGlasgow Financial Alliance for Net Zero (GFANZ) – a US$130 trillion investor club of over 450 financial firms in 45 countries – was launched at COP26 in Glasgow. It is headed by Mark Carney, former Governor of the Bank of England, who is now the United Nations Special Envoy for Climate Action and Finance.

GFANZ claims to leverage the power of big finance to innovatively achieve the PA goal of keeping temperature rise below 1.5 °C at pre-industrial levels.

Advocates claim this would unlock trillions of dollars to protect forests, increase renewable energy production and otherwise reduce global warming. But GFANZ also doesn’t want to cut finance for GHG-intensive industries.

GFANZ members pay ‘experts’, non-governmental organizations (NGOs) and governments to achieve net-zero ‘pathways’. Offset markets enable environmental NGOs to make money from climate mitigating projects or by certifying other schemes.

Meanwhile, large businesses burn off their green credentials with offset purchases. After all, there are no agreed metrics to ensure portfolio alignment with PA. Unsurprisingly, climate envoys from the Marshall Islands urge to be “vigilant against greenwashing.”

Describing market solutions, the World Bank has recently seen a surge in demand from leading financial investors including Goldman Sachs, Morgan Stanley and Lansdowne Partners. But a lot goes into profits from arbitration, speculation or trading for third parties – not decarbonization or net-zero.

Even Larry Fink — CEO of BlackRock, the world’s largest asset manager — suspects, “We’re lying to ourselves if we think we can easily do it with banks and financial services companies, public companies.” TCFD reporting. We are creating the biggest capital arbitrage of our lives.”

sky sell
Offset markets mean new opportunities to create new tradable assets. Combining all GHG emissions – from fossil fuels, deforestation, landfills, agriculture, etc – profitable new financial products have been engineered for emissions trading and carbon credits.

The implied premise is that in this case, market-based approaches to reducing GHG emissions always work best to address the problems. They do not differentiate between ‘luxury emissions’ and emissions caused by the livelihood of the poor.

Meanwhile, the world’s richest 1% produces twice the total carbon emissions of the poorest 50%! Even worse, emissions from private jets, mega-yachts and space travel of the super-rich greatly exacerbate global warming.

Like the CDM and voluntary offset markets, the burden of emissions reduction has been shifted from north to south. While rich countries continue to emit GHG, developing countries are now expected to come out ‘clean’!

but no money for the poor
At the GFANZ launch, Mark Carney claimed, “Make no mistake, the money is here, if the world wants to use it”. But developing countries are still waiting to see the promised US$100bn to help fund their mitigation and adaptation efforts.

Following strong US opposition to Article 6 negotiations, developing countries failed to secure an ‘international transfer of mitigation outcomes’, that is, mandatory contributions to the PA from the proceeds of international emissions trading between the parties to the Adaptation Fund.

The US and EU also successfully blocked a ‘loss and damage’ fund to finance recovery and reconstruction after climate disasters. Thus, Glasgow failed to provide any significant additional climate finance for poor countries – for climate change adaptation as well as losses and damages.

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