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Can Carbon Credits Solve the Climate Change Problem?

Written: October 2022

The occurrences and severity of floods, droughts, hurricanes, heat waves, and fires are increasing. At this stage, it does not require scientific research to see the cause, climate change is caused by humans. You can find a chapter on climate change in my new book, Reflection Attitude: Past, Current, and Future.  

Let’s start with a review of the greenhouse effect. The purpose of a greenhouse is to provide a perfect environment for non-stop gardening. A greenhouse maintains a great environment, staying warm inside, even during the winter. The principles which make this possible are simple. During the daytime, sunlight shines into the greenhouse and warms the air inside and the plants. At night, it gets colder outside, but the temperature in the greenhouse stays warm. The simple reason is the glass walls and roof of the greenhouse trap the heat from the sun and prevent it from escaping.

Considering the big picture, we are fortunate to have a virtual greenhouse which envelops our planet Earth and keeps the temperature tolerable. Instead of glass walls and ceiling, our planet’s greenhouse consists of a layer of gasses called the atmosphere. Because the atmospheric gasses act like the walls and ceiling of a greenhouse, they are called greenhouse gases and what they do is called the greenhouse effect. The primary greenhouse gases in Earth’s atmosphere are water vapor (H2O), carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and ozone (O3).

The greenhouse effect means the gases in the atmosphere trap the sun’s heat just like the glass roof of a greenhouse. During the day, the sun shines through the atmosphere and warms the earth’s surface. At night, earth’s surface cools, releasing some of the heat back into the air, but some of the heat is trapped by the greenhouse gases. The greenhouse effect is a good thing. It keeps our planet a warm and cozy 59 degrees Fahrenheit, on average. Without the greenhouse effect, Earth’s temperature would be 32 degrees below freezing making it uninhabitable.

On the other hand, if there is too much gas in the atmosphere, more heat would be trapped, and the greenhouse effect would make the average temperature on the earth go up. NASA has placed satellites in orbit which measure the amount of gases in the atmosphere. I don’t believe there is much debate the amount of gases has increased quite a bit over the years. The scientific consensus is the increase in greenhouse gases is trapping more heat in the atmosphere and raising the temperature on earth. The result is the turmoil people are suffering from around the world.

Scientific advances are happening at a fast pace. More data is being collected from additional satellites and instruments. Computer modeling techniques are getting better. These will make it possible to get a better handle on where we stand, how key factors are trending, and how to evaluate strategies to prevent catastrophe. Scientists and policymakers are focusing on climate restoration. This means not just slowing things down, but proactively protecting and expanding forests and wetlands as well as developing techniques to remove carbon dioxide and methane from the atmosphere.

Perhaps the biggest leverage may be climate activism. Youth movements are campaigning to stop negative policies and introduce positive ones. Shareholders are beginning to make similar demands. Climate litigation is expanding and forcing governments and corporations to be more proactive. The result of the activism could move up goals for 2050 to 2030. Unfortunately, there are some negative factors in play. Russia’s reign of thousands of missiles causing continuous fires throughout Ukraine is having a negative effect. Reversion to coal fired electricity generation due to lack of natural gas will makes things worse.

Drastic emission reductions are necessary but not sufficient. We need to remove emissions to get to a net-zero world. Techniques to remove carbon dioxide and methane from the atmosphere are possible. For example, a European startup called Climeworks has a direct air capture technology which removes CO2 from the air, mixes it with water, and pumps it into the ground where it turns into stone which stays underground and can no longer contribute to global warming.

A controversial tool at hand is the use of carbon credits. Although the implementation is complex, the principle behind carbon credits is simple. Each credit represents the reduction or removal of one ton of carbon dioxide from the atmosphere. A record 156 million carbon credits were purchased by companies, governments, and individuals last year, according to a Wall Street Journal analysis of carbon-market data.

Consider the transportation industry which contributed 27% of greenhouse gas emissions in 2020. The gas emissions from transportation come primarily from burning fossil fuel for our cars, trucks, ships, trains, and planes. Now consider Noev, Inc., a maker of large dump trucks. The company has no immediate plans for an electric version of its trucks. Its shareholders are demanding action. Noev has a plan, but it is too little and too late. However, they have a Plan B with Allev, Inc.

Allev is a carmaker, and their cars are 100% electric. Its factories have solar panels on the roof. Even considering the emissions from battery production and other elements in its supply chain, Allev is not just net zero, it is carbon negative. The carbon negative status is audited and validated by a non-profit organization. Allev sells its carbon credits. The price of the Allev credits is based on supply and demand in the carbon credit market, which is active in California and in Europe. Noev purchases enough carbon credits from Allev to achieve their annual emissions goal.

Demand for emissions offsets is soaring. The problem is the demand may overwhelm the supply. The current surplus is 705 million credits, according to the Journal’s analysis. Those credits cover a only a fraction of the carbon-dioxide emissions produced by U.S. businesses. The WSJ reported in 2020, nearly 900 U.S. companies produced more than 9 billion tons of carbon dioxide, according to CDP, a not-for-profit which surveys businesses’ environmental goals.

The bottom line is carbon credits will not be the fix. In the short term, it is helping but companies need to step up to the long-term solution which is to reduce their emissions sooner rather than later. I believe most companies are.