Carbon Credits, Markets, And Trading

Since The Industrial Revolution, A Lot Has Been Said About The Damning Effects Of Climate Change. But It Is Only Last Year, At The November 2015 COP21 Talks Held In Paris, France, That The World Saw The Playing Field Levelled, After Decades Of Inaction From Some Of The Worst Polluting Global Economies. For The First Time In History, Under The Paris Agreement, All 189 Countries Across The Globe Were Brought To Commit To Climate Change.
This came as a relief, seeing as numerous diplomatic efforts had fruitlessly attempted to circle the climate change arenas, but for over 20 years, had failed to enforce the terms of the Kyoto Protocol – terms that would promote carbon emission reduction through carbon trade between the developed and developing countries.
Rwanda became party to the Kyoto Protocol in 2004. It accepted the terms of the Carbon Credits trade that limits industrialised countries from exceeding their carbon emissions. In practice, this means that for every tonne of carbon dioxide (CO2) emissions that are avoided or removed by a clean energy company or project in a developing or developed country, a dollar is earned by that company or project.
By way of background, it is estimated that 41 of the world’s most polluting countries are responsible for 84 per cent of the world’s carbon emissions from energy alone. While these economic giants benefit from steady economic growth and prosperity, the developing world suffers disproportionally from the gaseous carbon emissions.
Unpredictable heavy rains and flooding, and unprecedented and prolonged dry seasons that affect the planting and harvesting seasons in the developing world are a result of global warming. The causes are attributed to carbon emissions also known as greenhouse gases.
According to scientists, an accumulation of greenhouse gases is responsible for the continuous state of depletion of the earth’s ozone layer, which has led to record highs in atmospheric temperatures. As a result, the foreseeable future effects of global warming include but are not limited to: more severe floods and droughts, food and water shortages, rising sea levels as the Arctic and Antarctic poles melt, and fewer but more intensely destructive storms.
While this paints a doomsday picture, climate and environment analysts have conclusively stated that a cut in global greenhouse gas emissions by half is necessary if a decrease in atmospheric temperatures of 2 degrees Celsius (or 3.6 degrees Fahrenheit) is to be attained. While this figure seems minute relative to the contentious debates it has created at climate change conventions, reducing this number is a much more complex task than it might seem. Yet hope remains for environmental advocates and scientists who do not relent against the slack policies that high carbon emission economies tend to get away with.
The debate on global warming rages on and has become a contentious economic debate between the developed and developing worlds. Still there are several unexploited benefits that carbon credits present for the developing world. While many industrialised countries are happy to publicly comply with commitments, and vow to cut down on their carbon emissions, developing countries’ efforts to reduce the effects of carbon emissions are challenged by industrialised countries’ reluctance to implement policies that actively ensure that emissions are reduced – and are further hindered by polluting economies’ low taxation or tax evasion associated with carbon pricing.
According to a 2015 report, Taxing Energy Use 2015-OECD and Selected Partner Economies, that compares energy taxes among the 41 economies that use 84 per cent of global energy, “Energy taxes are poorly aligned with the negative side effects of energy use, and are having limited impact on efforts to reduce energy use, improve energy efficiency and drive a shift towards less harmful forms of energy..
Yet taxes are one of the key policy instruments that would ensure environmental compliance among top carbon emission culprit countries, like the United States, China, Russia, and India. This new and insightful research conducted by the Organization for Economic Co-operation and Development (OECD), highlights the fact that “taxes on energy use provide a transparent policy signal and are one of the most effective tools governments have for reducing the negative side effects of energy use.”
However, the question that still stands is whether or not developing countries are relevant when it comes to determining whether carbon pricing can effectively avert the devastation that climate change leaves in its wake. Probably yes, if sustainable renewable energy policies are employed in short to medium-term investments. This would be complementary to providing economically lucrative incentives for industries and economies to transition away from fossil fuel use in developed economies.
But according to a report from Sanford C. Bernstein & Company, the reality is that whilst sources of renewable energy are growing quickly globally, “They still account for about only 10 per cent of total energy supply, with most of that coming from hydroelectric power. Solar and wind account for 1.6 per cent of total energy.”
There has always been a business angle to carbon trading that the private sector in the developing world – including Rwanda – can tap into. That is, companies that invest in renewable energy like solar, wind and nuclear power, and that employ cleaner and smarter energy technologies with low to zero-carbon footprints, are more likely to benefit from carbon credits.
Taking the example of Rwanda, simply put, there are provisions within the Rwanda Environment Management Authority (REMA) that allow for venture capitalists and clean energy innovators in the private sector to profit from carbon credits. Under the Clean Development Mechanism (CDM) that was established under the Kyoto Protocol, a significant amount of carbon credits can be generated from renewable energy projects alone.
The World Bank confirms that developing economies can annually generate $25 billion from trading on the carbon market alone. Yet African nations have less than 2 per cent beneficial involvement in the global carbon market, which is estimated to be worth $30 billion in investment capital.
Rwanda is four years away from confronting its national development blueprint goals in the famous Vision 2020 and second Economic Development and Poverty Reduction Strategy (EDPRS2). While climate change and the environment are high on the updated EDPRS2 agenda, the onus lies on whether the private sector in partnership with the Government of Rwanda will take advantage of the opportunities presented in trading in the global carbon market.
It is by enacting viable and comprehensive environmental policies that carbon emissions will be curbed for the greater good of all humanity. These policies would ensure that carbon reduction is actively pursued, that more jobs are created, alternative clean energy sources like solar and wind energy are pursued and that tax revenue in the form of foreign direct investments is generated through carbon pricing.
Though achieving these carbon reduction steps feels distant, if countries maintain steady compliance to the expectations of both the Kyoto Protocol and the Paris Agreement, then and only then will the carbon market trade usher in a milestone shift in determining some of the key global economic policies that could reduce the earth’s temperatures. Otherwise, carbon credits will remain an obsolete concept in solving the global warming paradox.
This article originally featured in The Accelerator 

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