Photo by Dominik Dancs on Unsplash

Are Carbon Credits a Financial Scam?

When money is the way to avoid an announced disaster


All about the source. 

For keeping our modern way of life uninterrupted, lots of hydrocarbons are required.

A fancy trip from the US to Thailand accounts for lots of Co2 Kg per person. Getting clothes and electronics delivered from factories in Asia to your doorstep in Europe requires to burn fuel. Hosting work files and selfies in the cloud requires electricity. 

Every day the world consumes gigantic amounts of energy; roughly 84% of it comes from fossil fuels, oil, natural gas, and coal. This percentage remains almost uniform, independently of the countries considered (OECD 80%, Non-OECD 87%). 



Even after the effect Al Gore’s movie ‘An Inconvenient Truth‘ caused, fossil fuel consumption grew by 20%, from 113,613 to 136,762 TWh (Data from Emissions soared 17.5% in the same period (Statistical Review of World Energy). 

«Energy is indeed the major contributor to climate change and to local air pollution», Global Energy Fundamentals by Simone Tagliapietra (2019).

Temperatures are rising. Mainstream scientists agree on the origin of that phenomenon. Carbon dioxide is to blame, even though the primary greenhouse gas is water vapor, the well-known H2O. 

Ideally, fossil fuels should be replaced by cleaner options, but that is impossible to this day. It even might be the case that replacing one with the other on a 1:1 basis could be achievable, not because the sun, sea, or wind are not abundant enough, but because the potential energy contained in fossil originated liquids is more significant than the one obtained from renewable sources.

But that’s physics. Finance has a different interpretation. 

As Maslow said, “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” If emissions are the consequence of keeping economies growing, it could be applied the other way around by creating financial incentives to fight global warming.

After all, morale alone was incapable of stopping them (and us).


Carbon Credits 101

Let’s start with the official definition

…»a carbon credit is a tradable permit or certificate that provides the holder of the credit the right to emit one ton of carbon dioxide or an equivalent of another greenhouse gas. The main goal for the creation of carbon credits is the reduction of emissions of carbon dioxide and other greenhouse gases from industrial activities to reduce the effects of global warming»…

Based on the text, a Carbon Credit is a tradeable instrument that gives the buyer the right to pollute. 



It is like admitting you’re not capable of changing yourself and procure it from others. A man can’t stop drinking; therefore, he buys some soberness from one of his acquaintances. 

This Carbon Credits are presented in the form of projects. Companies can put their money in diverse initiatives, mostly in developing countries, allowing the local population to improve their quality of life. 

Many of them have had remarkable results, such as providing stoves, preventing poor communities from inhaling toxic fumes when cooking. Other examples like reverting desertification or investing in young female education in Asia and Africa have been successful. 

Sadly, in parallel, Carbon Credits also opened the door for polluters to clean their image. Instead of changing their practices, they can concur to a market that assigns value to a particular volume of gas that threatens us in the long run. The most pervasive effect of it is the network of commission-getters. Lobbyists, financial institutes, and high-standard living NGO executives live out the credits exchange and project management.    

Even under a non-exhaustive assessment of greenhouse emissions’ effects would consider externalities such as respiratory problems. The model’s design is a mild solution for a significant crisis. 


How a Carbon Credit is calculated

There is no convention on measuring the cost of a carbon dioxide tonne, and it doesn’t surprise me, to be honest. 

It depends on the program the buyer engages in. It works more like a menu on which you fish for prices depending on your budget and how cool is the project you want to ‘support.’  

You love nature, so let’s plant some trees in Patagonia. Are you a social rights activist? Let’s support knitting schools for girls in Sri Lanka. If your dog your best friend and consider all living nature as part of your family, you have to stick to the great cats’ program in Kenia. 

Let’s take the Air Travel Industry as a reference. When buying a ticket, soon to be passengers have the option of paying for the CO2 their trip will generate. Options vary from S$3 up to S$25 (US$2.20 to US$18.41) 

Don’t get me wrong; I think any program meant to benefit nature, equality, and improving life quality is welcomed. What causes a massive dissonance is that countries’ economic activity and companies are the roots of some of those problems.

A vicious cycle encompasses advertising products and services people don’t need, overspending using easy-to-access credits, and permanent change of trends and values. 

When approaching this model, a question arises, who calculates the total amount of emissions a country or company generates? 

I’ve been part of a team whose responsibility was to determine the volume of the emissions from the company I used to work for originated. My task was to give a consultant all the data for them to come up with an estimation.

To this day, I believe the environmental consultant assigned to our project trusted in what she was doing. She put a lot of effort into having an overall image of how offices, workers commuting, electricity, air conditioning, logistics activities, and goods purchased from China generated emissions.

The results were vague. I understood that it is almost impossible to have an accurate idea of the carbon footprint based on the information available. Internal procedures are not designed for it. Even on those that have been updated, it is common o find flagrant emissions miscalculations.  


Follow the money

Our ever-growing economy works under the promise of more significant returns in the future, doing whatever is necessary today for achieving so. 

In Jørgen Randers, author of The Limits to Growth (1972) words: 

«It is cost-effective to postpone global climate action. It is profitable to let the world go to hell.

I believe that the tyranny of the short term will prevail over the decades to come. As a result, a number of long-term problems will not be solved, even if they could have been, and even as they cause gradually increasing difficulties for all voters»

Here comes the profitability - sustainability paradox. Everyone agrees something has to be done, introduce a price on carbon, on fuels, on polluting activities in general, but when election times come, no one votes for those alternatives. 

Societies and business will put short term goals before a blurry defined future. 

If a political option wins the election and issues new rules capping pollution quotas, it is enough for businesses to relocate to other territories with lax regulation. Money not only flows through financial institutions but between countries. 

Under the current Carbon Credit system, in most cases, as stated before, money flows from highly industrialized to developing countries. And on its way generating fees for those managing and allocating the funds. 


The Controversy

I side with those who think it’s better to do something than nothing. If you believe weather conditions are changing, you also understand that the consequences are terrible. Storms, droughts, wildfires, and extreme temperatures are most likely to occur in severe forms due to a hotter planet. 

Nevertheless, the tools developed have serious flaws, and we must talk about them. 

Has the Carbon Credits model impacted the amount of Co2 emitted in some way? 

The answer is: No. 

You don’t have to be an expert or a researcher to find that emissions soared in recent years; just Google it. 

Let’s forget the difference between the proper price of the carbon emissions effect and the one market assigns to it. Instead, let’s focus on the message it generates, replacing the co-responsibility we as a whole have by creating a similar market instrument, and not in the opposite way, adapting the current financial-productive system based on growth and resource depletion into a common good one. 

The way we relate to the planet highly depends on how we’ve been raised. I was born in 1977. I come from an oil-rich country with carbon-copied customs from the US; sustainability, environmental concerns, or clean energies were subjects I don’t remember listening to when growing up. 

Current policies and agreements are made by a generation even older than me, people that I believe are trying to make a real effort to clear the path for a better world, but this work is far from good; younger minds have to jump into the discussion. 

The program subsidized thousands of projects, including hydropower, wind, and, infamously, coal plants that claimed credits for being more efficient than they would have been. CDM became mired in technical and human rights scandals, and the European Union stopped accepting most credits. A 2016 report found that 85% of offsets had a «low likelihood» of creating real impacts. 

Source: ProPublica

Like coins, carbon credits are two-sided. Several researchers affirm that up to 85% of the funds traded in the concept of carbon credits have either non or minimal impact on the environment. 

On the other hand, hundreds of public affairs specialists showcasing numbers that support the system’s effectiveness. 

Weak tools lead us to mediocre results, the clock is ticking, and we’re far from addressing ‘the emissions issue’. Ambivalent solutions and perspectives are human approaches. In the meantime, the planet is still ruled by the laws of nature. 

Written by: Juan Carlos Golindano

October 17, 2020


No hay Comentarios

Disculpe, los comentarios están cerrados

Privacy Preference Center