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NewsvineAs Congress gears up to debate regulations of greenhouse gas emissions next week, a study by two Stanford Law School faculty members published last month has cast doubt on the effectiveness of a program that offers carbon credits to industries to reduce emissions.
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Research conducted by Law Prof. David Victor and Law Lecturer Michael Wara revealed that a substantial fraction of the international carbon offset market does not actually represent real reductions in emissions. Many companies involved are claiming credits for emission reduction activities that they would have otherwise pursued without the added incentive of carbon credits. This practice results in few, if any, net reductions in emissions, according to the researchers.
Published last month through the Program on Energy and Sustainable Development at the Freeman Spogli Institute for International Studies, Wara and Victor’s new working paper, entitled “A Realistic Policy on International Carbon Offsets,” investigates the world’s largest offset market — the Kyoto Protocol Clean Development Mechanism (CDM) — and found an urgent need for reform. Victor and Wara hope their research on international carbon offsets will convince Congress to pursue legislation that will allow for a more effective system for helping companies plan the costs of complying with their carbon limits.
“We studied a scheme known as the Clean Development Mechanism, which is part of the Kyoto treaty on global warming,” said Victor, who serves as director of the Program on Energy and Sustainable Development. “We found that a large fraction of the market credits from that scheme were not, in fact, real reductions in emissions.”
“This study has worrying implications for the planet,” Victor added. “It means that the current strategies for taming the volcano of emissions from the developing world are not working.”
Victor and Wara’s paper examined 3,000 projects applying for or already granted up to $10 billion of credits from the UN’s CDM funds over the next four years. The authors concluded that the majority should not be considered for assistance because, according to Victor, “they would have been built anyway.” Their research also states that between one to two-thirds of the total CDM offsets do not represent actual emission cuts.
“The toughest energy problem for the coming half century will be slowing global warming,” Victor said. “Developing countries are key to that because their emissions are rising so rapidly, and the world must find a market-friendly way to encouraging those countries to cut emissions.”
Although the CDM has been widely viewed as vital to the reduction of global greenhouse gas emissions, the researchers’ findings suggested that the actual experience under the CDM has had perverse effects in developing countries.
Rather than draw them into substantial limits on emissions, the CDM unintentionally rewarded them for avoiding exactly those commitments.
The researchers found that the CDM was routinely abused by chemical, wind, gas and hydro companies who claimed emission reduction credits for projects that should not qualify. To earn credits under the CDM, emission reductions must be in addition to those that would have taken place without the project. The requirement of “additionality,” however, was difficult to prove and therefore resulted in widespread abuse of the CDM.
As a result of these abuses, the researchers found an absence of genuine pollution cuts, which in turn undermined U.S. and other governments’ assurances that carbon markets are dramatically reducing greenhouse gases.
Law Prof. John Barton said that Victor and Wara’s research on carbon credits is important for the future of the carbon trading market.
“The importance [of their research] is that the emissions-trading process is our working substitute for a carbon tax, which would economically be the most straightforward way of creating appropriate incentives to reduce CO2 emissions,” Barton said. “As a political matter, we will probably use an emission trading process rather than a carbon tax in any post-Kyoto agreement. Hence, we need to make it work well.”
Victor said that the U.S. should not to rely on offsets to provide a reliable ceiling on compliance costs or impose offset caps when designing the national regulatory system.
“Many companies are hoping to get large numbers of these international ‘offset’ credits, the generic term for the CDM, and use them to comply with the looming requirement to cut emissions here at home in the U.S.,” Victor said. “Congress is debating this legislation starting next Monday. If you tighten up the offset market then fewer credits will be available. And given that, we suggest that Congress pursue a different and much more transparent and effective system for helping companies plan the cost of complying with their carbon limits.”
Law Prof. Alan Sykes agreed.
“Assuming the analysis is correct, [this research] leads to serious doubts about the Kyoto Clean Development Mechanism and its ability to lower carbon emissions effectively,” Sykes said. “The suggestion that the United States should be careful not to repeat its flaws seems wise.”