admincredits, carbon offsets and so forth in your daily business but may have not had the opportunity to explore the topic further.
Maybe it is because explaining the concept of carbon credits is in itself not so easy from our perspective. However, we will try to do justice in this article.
A carbon project helps to mitigate climate change and thus to safeguard the planet: and you get paid for it. Tackling climate change is widely acknowledged as one of the biggest challenges of this century and its negative effects will disproportionately affect developing countries, which make it even more urgent to act.
Emissions of various gases that arise from industrial activities and the burning of fossil fuels and biomass need to be reduced in order to limit the negative impacts of climate change. The most important of these so-called “greenhouse gases” is CO2 – often just called “carbon” – which originates in the combustion of fossil fuels or other organic matter.
To help the global reduction of greenhouse gas emissions, projects in developing countries can be eligible to receive funding from industrialised countries or companies if their project reduces greenhouse gas emissions.
Under this process, which is mostly referred to as “carbon finance”, industrialised countries help to meet the costs for such projects. This process is regulated through special markets where these emission reductions are traded.
Most industrialised countries have committed themselves to reduce their greenhouse gas emissions through international negotiations and treaties. Individual national targets have been set to meet this collective commitment.
The European Union and other states put legally binding obligations on their biggest industries to reduce their emissions. Firms with high emissions need to pay a price for each tonne of carbon dioxide which they are emitting – called the “carbon price”.
The simple transaction there is thus such that a project in a developing country reducing carbon dioxide emissions by an X amount of tonnes can sell the carbon credits to a firm in a developing country requiring to offset its emissions by the same amount.
This works in regulated markets in which there is a ready cap on the amount of carbon dioxide that a company can produce. In the United States, for instance, the carbon markets are voluntary, meaning firms buy carbon credits not because it’s mandatory but because they want to contribute to the saving of the environment and, of course, feel good about themselves.
Attaching a price to carbon emissions and creating markets to trade them is thought to provide financial incentives to encourage emitters to undertake emission reduction efforts.
If a company wants to emit more than it is allowed to, it can buy credits from those who have reduced their emissions below the target level, or from a project in a developing country which has certified emission reduction credit to sell.
This trading forms the basis of the carbon market. Emission reductions certificates or colloquially “carbon credits” are the currency of these markets. So carbon finance is a payment to a project in order to purchase its emissions reductions – just like a commercial transaction.
There are different ways of securing carbon finance. The most important alternatives to understand are the Clean Development Mechanism, or the “Compliance Market”, which is regulated by the United Nations, and the so-called “Voluntary Market”, often referred to as the “Offset Market”, which environmentally conscious companies or consumers use to improve their green and philanthropic credentials. These markets have a few different rules, although they are becoming more and more alike.
Clean Development Mechanism
As mentioned in the introduction, instead of undertaking more expensive emission reduction measures on their own soil, industrialised countries can achieve the same outcome through offsetting in developing countries.
The CDM is managed and overseen by the United Nations, which sets the rules. Your project needs to be in a developing country that has signed the Kyoto Protocol (almost all countries have), and you will need to find a UN-accredited third party organisation to check that all your assumptions and calculations about what you are going to do are correct.
These firms are known as Designated Operational Entities. The UN CDM Executive Board also has a final say. If it approves your project, you will be registered and eventually receive Certified Emission Reductions.
Voluntary market projects
Apart from industrialised countries or large companies, many smaller firms and ordinary citizens are interested in voluntarily reducing their carbon emissions outside of any legal obligations.
Having reduced their emissions as much as possible, they may then wish to offset their remaining emissions by purchasing an equivalent number of carbon credits, thereby becoming “carbon neutral”.
Companies may want to offset their emissions for several reasons, such as the desire to be good corporate citizens or to market themselves as “green businesses” to their customers. Most of the time, they will do so using the voluntary market where Voluntary Emission Reductions are traded.
This is especially important for companies in the United States who cannot participate in the CDM, or for environmentally conscious airline passengers who want to offset their emissions.
Many such firms and individuals also look to buy carbon credits from projects that also have positive community and biodiversity benefits in addition to their carbon reductions.
This represents a special opportunity for pro-poor energy projects.
Voluntary market projects often use standards that provide more flexibility on methodologies, which can speed up the validation and verification processes.
However, due to their more limited use, and the less stringent accounting under such standards and methodologies, the prices of carbon credits are usually lower in the voluntary market than for projects that have gone through the CDM process.
Furthermore the overall market size of the voluntary market is much smaller than the CDM, although buyers are often interested in projects that benefit local communities and poverty alleviation.
There are a number of projects that can access carbon credits here in Zimbabwe, but there are a number of limitations.
These include the relatively high upfront cost on registering the carbon credits themselves not to mention the limited information on how to go about the various processes.
Grouping projects together is one way in which economies of scale can be reached that make this sustainable.
CFSA is currently working on projects in conservation agriculture (through soil carbon sequestration), the amount of carbon dioxide which would normally be released into the atmosphere through conventional farming is reduced.
This coupled by proper fertiliser use and environmentally friendly practices increases eligibility for carbon credits.
Coal mine methane collection (one tonne of methane in the atmosphere) is 25 times more potent than one tonne of carbon dioxide.
Reducing the amount of methane that is released from operating and disused coal mines may thus be eligible for carbon credits, animal waste methane collection and forestry.
Carbon credits developed under voluntary methodologies sell for anything between US$4 and US$10 per carbon credit. There is scope for development of carbon projects within Zimbabwe which could bring additional revenue. The opportunities are abundant, if you only know how.
Source: Carbon Finance Southern Africa Work Book – Sustainable Energy: A Guide.
- Carbon Finance Southern Africa is carbon finance firm focused on the development and financing of carbon projects in Southern Africa. Become a fan on facebook.
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