The complexity of the matter

Globally carbon credit trading systems have moved a long way from simply being based on demonstrating that a system of product captures or prevents the emission of X tonnes of CO2. From my experience it began by saying “… or X funds of CO2 equivalent”.

The Global community today is seeking to reward more than the immediate reduction of the emission of CO2 or its capture. For example, methane is broadly considered to be seven times more dangerous to the environment and to human life.

Most developed countries also value compliance with United Nations 17 goals for sustainable development.

In Australia there continues to be an ongoing debate over whether the carbon credit trading scheme should be used as a mechanism for recognizing that we wish to retain biodiversity and for this to occur, if is it to be rewarded.

Whether we are talking about RED or REDD+ projects for the protection of the paramos in the mountains of Colombia and leading into the Amazon River system, we are seeing a powerful discussion that carbon credits need to be seen as a metaphor or measure of protecting the environment. When the argument is explained it can be put simply that carbon credits are now the currency of the global sustainable development system, and that this currency needs to be convertible into money which can be spent.

The relative value of saving biodiversity

In most countries, the business world is dependent on the local environment for materials; the vast majority of these materials come from nature or as it is better described, the environment. Today society impacts on the environment in many ways including, but not solely, by the emission of carbon. To get many of these things we need a diverse environment. It is our environment that is the source of so many things today we take for granted including the base for many of our drugs and chemicals. It is generally accepted that the maintenance of biodiversity allows us to continue to explore the wonder of nature and how it can be made to make the life of mankind easier.

For example, if a dam is to cost one million dollars to be constructed but destroys $4 million worth of the environment is then a $5 million project.

As John Durie reported in September 2022[1] destruction of the environment including its biodiversity is a measurable cost for which the community needs to be compensated.

Today we have scientific methods for the measuring the impact of a new project on the environment given that it can be measured, it can be accounted for; and as such an appropriate offset required by the community.

Once biodiversity is lost it is often almost impossible to recover. The cost of undertaking special biodiversity projects can be very expensive and yet critical in what they preserve.

Within the scientific community there is generally a divided opinion on what are the most important places in the environment to save and what this is worth. The issue is particularly sensitive in Colombia where the paramos environment may or may not exist in certain altitudes, and if it does it can change significantly within a few hundred meters because the height above sea level may have changed by more than a thousand meters. Given this change of height there is a significant change also in the ecosystem. What this is and how to price it remain facts which are being debated within the scientific community.

As Durie goes on carbon contracts in Australia in its Savannah may trade at $26 a tonne but where a wallaby habitat has been restored and can be maintained they may trade at $56 a tonne.

When this concept was first introduced to me, I was astonished to understand that large organizations such as Alphabet Siemens and Boeing cared so much for the quality of their carbon credits that they may be prepared to spend more than twice the price to report they had something so significant which they were supporting.

It was later explained to me that it was a rational argument that organizations involved in such projects wish to be able to market that they were in fact contributing to the protection of a special part of the environment and this was costing them more than they had to pay to simply have met their carbon credit obligation.

This activity in mining special sensitive carbon credits particularly protecting biodiversity is meritorious.

At this point in the development of the carbon credit system and market I cannot see that it is necessary for governments to legislate even for national carbon credits schemes for organizations to buy carbon credit units which clearly cost more in the design to protect biodiversity.

The carbon credit market is not a fully informed market and has what economists call efficient in a semi-strong form. Having said this, investors in higher-priced carbon credits which demonstrate a commitment to support biodiversity should be recognized for their contribution to the economy, but this does not require a legislative framework.

Rewards or legislation?

Globally today Veera and Gold Standard recognize and reward projects with special values for their contribution to the environment and to meeting the United Nations sustainable development goals. In practice there is no reason that government national schemes cannot do the same thing and trade products at a premium which demonstrate greater value. This does not require more legislation.

Conclusion

There are constant calls for further regulation and testing of claims within the carbon credits market. As with ulcers and life we should resist further regulation and costs of compliance simply to make people feel better. The key factor is that organizations are not going to pay above the base rate book carbon credits which do not contain the value for which they pay good money for. Large organizations who do it premium not wishing to be seen to admit having engaged in green-washing, as a matter of fact in most countries they run the risk of being prosecuted for misrepresentation.

The work of the registries and their approved report writers means that the efficacy of the special carbon credits systems is well and independently serviced. Today the special projects which support biodiversity can attract funding at a premium unless stated above to this that premium will disappear and more importantly investors will exit the market.

In the short-term premiums paid for projects which support biodiversity are best determined by the market. One can only imagine if this too becomes regulated that parties would leave the market so they would not be accrued used of green-washing.

By Paul Raftery – CEO, Projects RH, based in Sydney

If you have any questions please call  +61 451 523 547

See you next time!

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[1] Durie, I.; “The challenge of legislating to save biodiversity”, The Weekend Australian, 3 September, 22