The reduction of carbon dioxide is a critical component in the fight against climate change. One of the ways countries and organisations are trying to reduce their carbon footprint is through carbon credit trading. Carbon credit trading (CCT) is a market-based system to reduce greenhouse gases that contribute to climate change.
There are two kinds of carbon offset markets: Voluntary market, i.e. Voluntary Emissions Reduction – a carbon offset that is non-regulated, exchanged in the over-the-counter or voluntary market for credits. And Compliance, i.e. Certified Emissions Reduction (CER), which are carbon credits issued by the Executive Board of the Clean Development Mechanism (CDM) of the United Nations Framework Convention on Climate Change.
A carbon credit is a tradable permit that provides the bearer of the credit the right to emit one ton of carbon dioxide or its equivalent – offsetting emissions for carbon emitters. For instance, carbon credits could be traded between one company A, which produces tyres and another company B, which has a solar or wind farm that produces clean energy and has been issued either a Voluntary Emissions Reduction or a Certified Reductions Emissions. The production of tyres by company A naturally leads to the release of 1000Mtons of CO2 into the atmosphere while having an emission limit of 600Mtons. Therefore, company A looking to meet its mandated emissions limit, could acquire carbon credits from company B to offset the excess 400Mtons of CO2 emitted.
The price of carbon is determined by demand and supply. The supply of units is capped at a level deemed acceptable, and their cost will rise and fall depending on whether firms find an alternative to emitting pollutants. The first international carbon market was set up under the United Nation’s 1997 Kyoto Protocol on climate change. It was aimed at industrialised nations to help reduce their greenhouse gas emissions significantly. Countries that endorsed the Kyoto Protocol were assigned maximum carbon emission levels for specific periods and participated in carbon credit trading. If a nation emits more than its allocated limit, it will be penalised by receiving a lower emission limit in the subsequent period.
The Kyoto Protocol didn’t last for long as there were reports of abuse and corruption of the system. A report released in 2015 revealed that about 80 per cent of sustainable projects under the scheme were questionable, as carbon emissions rose by approximately 600 million metric tonnes since the system was adopted. Following this protocol, several other trading schemes have been established in different countries, with the oldest active one being the European Union’s Emission Trading System (ETS), launched in 2005.
Nigeria also trades its carbon market in line with the ETS protocol, limiting how much an entity is permitted to emit and buy/sell the excess. Starsight Energy is one of the companies certified to sell carbon credits in Nigeria. Its certification was provided by the Verra Verified Carbon Standard (VCS) program, a voluntary Green House Gas (GHG) certification program.
Although the intent was to create a system that helps companies limit their emissions, many people believe that carbon credits trading allows organisations an opportunity to emit more pollutants. As providing a mechanism via which organisations can “offset” their emissions mean that they would not need to put too much effort to cut their emissions or transition to more sustainable energy sources.