This year sees the 20th anniversary of the Kyoto Protocol. That’s 20 years of wasted time in addressing climate change. Don’t believe me? The graph above shows the Keeling curve – the concentration of carbon dioxide in the atmosphere measured at Mauna Loa Observatory. On 22 May 2017, it stood at 410 parts per million.
The vertical red line is 1997, when the Kyoto Protocol set up carbon trading as the solution to climate change. Twenty years later, there is no doubt. Carbon trading is not working.
Burning fossil fuel is the problem
On its website, NASA points out what is driving the increase in CO2 in the atmosphere:
This recent relentless rise in CO2 shows a remarkably constant relationship with fossil-fuel burning, and can be well accounted for based on the simple premise that about 60 percent of fossil-fuel emissions stay in the air.
But the United Nations negotiations on climate change do not address burning fossil fuels. The words “fossil fuels” do not appear in the Paris Agrement, negotiated in 2015 as the Kyoto Protocol’s successor.
NASA explains the implications of this:
If fossil-fuel burning continues at a business-as-usual rate, such that humanity exhausts the reserves over the next few centuries, CO2 will continue to rise to levels of order of 1500 ppm. The atmosphere would then not return to pre-industrial levels even tens of thousands of years into the future.
Carbon markets are not the solution
Yesterday, Ecosystem Marketplace released its State of Voluntary Carbon Markets 2017 report. In a foreword to the report, Michael Jenkins, CEO of Forest Trends, acknowledges the fact that we passed 400 ppm of CO2 in the atmosphere in 2016. But the report makes no mention of fossil fuels, or the urgent need to leave fossil fuels in the ground if we are to avoid runaway climate change.
Jenkins writes that,
we need to unlock the full potential of carbon markets in order to quickly and significantly combat dangerous climate change. As countries shift from debating climate change to implementing their proposed solutions, voluntary offsetting can help tackle climate change now and explore new avenues of emissions reductions that may be included in compliance programs in the future.
This is cloud cuckoo land. At best, carbon trading means that emissions are reduced in one place, but continue in another. Carbon trading does not reduce emissions. It does not keep fossil fuels in the ground. It is a way for industry and governments to continue business as usual, while giving the impression that they are addressing climate change.
Every year since 2006, Ecosystem Marketplace has sent out surveys about voluntary carbon markets to project developers, investors, retailers and brokers. In 2016, Ecosystem Marketplace reports that the average price of voluntary carbon offsets in 2016 reached an all time low of US$3.0.
2016 saw a total of 63.4 million transactions of carbon offsets at a value of US$191 million. In 2015, US$287 million changed hands with 84 million transactions of carbon credits taking place. The average price in 2015 was US$3.3, another record low.
Most transactions on secondary markets
But these figures mask the fact that well over twice as many transactions of carbon offsets took place on secondary markets (44.8 million) as on primary markets (18.5 million):
Ecosystem Marketplace defines primary and secondary markets as follows:
Primary market: The primary market for carbon offsets is defined as the initial transaction of offsets from the project developer to the first buyer in line – this can be an offset retailer or broker (i.e., the “secondary market”) or a buyer of offsets for “end use” (i.e., end user or end buyer) in the voluntary or compliance carbon offset markets.
Secondary market: The secondary market for offsets is comprised of sales among market intermediaries or between market intermediaries and end buyers or end users.
A carbon offset can be transacted several times before it is retired. The person or corporation that retires the carbon offset can claim to have “offset” their emissions.
Nevertheless, in its press release about the report, Ecosystem Marketplace states that,
voluntary buyers in 2016 paid $191.3 million (M) to offset 63.4 million metric tonnes of CO2 (MtCO2e) – about as much greenhouse gases as Massachusetts emits in a year.
That is a completely misleading representation of the data in Ecosystem Marketplace’s report since offsets and transactions are not equivalent.
REDD and voluntary markets
In 2016, more carbon offsets were transacted from REDD projects (9.7 million) than any other project type. Wind came second (8.2 million), followed by landfill methane (4.6 million) and large hydro (3.8 million). REDD offsets changed hands for an average of US$4.2, wind offsets for US$1.5, landfill methane offsets for US$2.1, and large hydro offsets for US$0.2.
In its survey, Ecosystem Marketplace asked about the “potential risks and opportunities for voluntary offsetting post-2020”. Most of the responses noted that countries might decide to count all its emissions reductions towards its own emissions reductions target. This would prevent the sale of carbon offsets internationally.
Brazil, for example, stated in its Nationally Determined Contribution that,
Brazil will not recognize the use by other Parties of any units resulting from mitigation outcomes achieved in the Brazilian territory that have been acquired through any mechanism, instrument or arrangement established outside the Convention, its Kyoto Protocol or its Paris agreement.
Meanwhile, Ecosystem Marketplace is eagerly anticipating the aviation industry’s plans to fry the planet by offsetting rather than reducing its emissions:
All eyes are looking to the skies, as the International Civil Aviation Organization (ICAO) decides how airlines can reduce their emissions to meet an industry-wide target. Since renewable jet fuel is not yet widespread or economical, the industry association has turned to offsets as a way for airlines to meet emissions reductions goals, and ICAO is starting to craft its own offsetting scheme, known as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
REDD Early Movers Programme excluded
Ecosystem Marketplace’s 2015 report on the state of the voluntary carbon markets included the German government started its REDD Early Movers Programme, even though as Ecosystem Marketplace noted these were not “market-based” payments.
REDD-Monitor noted that this was fudging the numbers.
The 2017 report states that,
Ecosystem Marketplace previously included two REDD Early Movers agreements in this series of reports, a 10 MtCO2e government-to-government agreement between Germany, Norway, and Ecuador in 2014 and another 8 MtCO2e bilateral deal between Germany and Acre, Brazil, in 2013. However, following a restructuring of our methodology which first began in Ecosystem Marketplace’s State of Forest Carbon Finance 2015, such results-based payments among governments are now classified as “non-market” finance.
It’s a buyer’s market – without many buyers
Even Ecosystem Marketplace cannot maintain its enthusiasm for carbon trading throughout the report. The first “key finding” in the report is that “Despite affordable prices, market volume decreased this past year”. Another key finding is that “It’s a buyers’ market – almost as many offsets remain unsold as sold”.
But buyers are few and far between. “It’s not easy for many organizations to sell an offset”, the authors write. Respondents to Ecosystem Marketplace’s survey reported 56.2 million unsold offsets in their portfolios, “some of which were still languishing from years past”.