There are problems in the very operation of CDM. For one thing, rather like outsourcing, there is always the danger that another developing country with less rigorous environmental standards may undercut the price that one offers for carbon credits. The other, as the Centre for Science and Environment has been pointing out for years – it published Green Politics in 1999 – is that when India and other developing countries come under the Kyoto Protocol after 2012, the costs of offsetting our carbon emissions will be much higher than they are now. Who will bear these costs? And this has a direct bearing on living standards. No wonder that President Bush once justified his refusal to sign the Protocol by asserting that American lifestyles could not be compromised.
The UN Intergovernmental Panel on Climate Change, which just put out its fourth assessment report, cites a maximum possible increase of 3 degrees Centigrade by the end of the century. With this rise in temperatures, the implicit cost of reducing a tonne of carbon dioxide equivalent will be in the $20-$80 range. This gives us an idea of the costs of living within the capacity of the earth to contain emissions in future. By selling our rights at present and earning some dollars and euros in the process, we are in fact postponing paying this bill and bartering the future of our children and our children’s children.
The IIED believes that there are better opportunities with the voluntary market for carbon offsets, which exist outside the Kyoto Protocol. The motives of these sellers and buyers are different. Compliance is not the main consideration on the part of buyers; rather, it is desire to do something to combat global warming to assuage guilt or to improve their image. The lowest price may not be the major factor and there is a much bigger range of projects, which characteristically cannot compete in the CDM market.
The market is admittedly much smaller than CDM: it consisted of just six million tonnes of carbon offsets in 2005, as against 346 tonnes in CDM that year. And there are only 63 retailers worldwide, mainly in the US and Europe. However, the IIED estimates that in the next few years, the voluntary carbon market will account for 500 million tonnes annually.
At the same time, the standards in the voluntary market are far from uniform. Reductions of carbon dioxide equivalent involve complicated calculations of future emissions that will be offset by undertaking the project at hand. Such procedures have not been established rigorously. The CDM Gold Standard and the Emissions Trading Association have tried to introduce a set of regulations which would govern the voluntary market. However, if more exacting standards are imposed, this would exclude smaller projects in less developed countries.
The IIED and New Economics Foundation are launching a new type of offset programme called Mitigation-Adaptation or Mit-Ad, which seeks to offer both emission reduction (mitigation) or adaptation measures (actions). For example, afforestation in a coastal area would serve both to mitigate the impact of climate change by absorbing carbon dioxide and serve to help adapt to ocean level rise, an outcome of global warming. These ‘double-whammies’ may actually command a premium, but will have to carefully calibrated to serve the voluntary carbon market.