If the climate stick doesn’t work, try the carrot
Given that Japan has publicly stated along with Canada, Russia and New Zealand that they will not extend the Kyoto Protocol agreement, this leaves the EU and Australia along with China, India, Brazil and South Africa to agree on an extension. If an extension of the current commitments to the Kyoto Protocol does not happen in Doha COP-18 this December, then the world will have to wait until 2020 for a new replacement climate treaty to take effect.
If that happens, then we will have to content ourselves with mandatory carbon cut efforts by individual countries and states to implement carbon tax and cap and trade programs, plus a smattering of voluntary carbon reduction efforts. What then is the “break the glass in case of emergency” plan for funding carbon mitigation schemes?
In Japan, a cap and trade scheme was dropped in 2010 after strong pressure from industry. In its place, the government is planning a carbon tax that will kick in starting April 2016. Already, opposition to this has gathered as well from business groups. A Reuters report quotes a researcher at the government backed think tank Institute of Energy Economics of Japan as saying that the carbon tax will cost Japan about 80 billion Yen annually starting 2016.
The Australian carbon tax and the California cap and trade schemes are also encountering their own share of opposition. In China, it is still too early to tell how the newly enacted cap and trade scheme will fare.
One backup plan to augment the individual efforts of countries and states which will probably get less opposition is to strengthen the voluntary carbon emission markets, a place where corporations and individuals voluntarily buy emission credits to offset their own carbon emissions. These people and companies do it without regard for whether there is any mandatory requirement for them to do so, like a carbon cap. In its 2012 report, Bloomberg New Energy Finance said that the worldwide market for voluntary carbon grew to $576 million in 2011. Japan has its own J-VER scheme launched by the Ministry of the Environment as a domestic voluntary carbon offset system.
Regarding the criticism that supporting carbon offsets is simply a way to improve a company’s image, naysayers can view it that way. But it does fill a real funding void for renewable energy and energy efficiency projects whose funding pool is threatened by the instability of the mandatory carbon markets.
For example, large companies like Google and GM purchase emissions credits from the carbon markets to allow them to claim that their overall carbon emissions is zero. These credits then help fund other renewable energy and energy efficiency projects to displace or lessen the need for fossil fuel based energy sources, as companies involved in renewable energy can tap these markets in the same way that companies tap the stock market to fund their activities.
But if there is no carbon cap in place, any voluntary trading that happens becomes weak, as we are simply relying on the goodwill of some conscientious companies and individuals. If an economic recession happens in the future, and profits go south, the first thing to get cut from budgets are non-core expenses, like these purchase of emission credits. There should be a way to make these emission credits take on more business sense, else even the most environment-friendly CEO will find it hard to justify these expenses to his/her board.
One way is to grant tax credits for corporates and individuals who voluntarily purchase these credits, especially if a carbon cap is not mandated. Governments around the world should see that any tax revenue shortfall from these tax credits will be offset anyway by a decreased need for countries to spend their own money on carbon mitigation and adaptation, as the success of a voluntary carbon market ensures funding for renewable energy and energy efficiency projects. This in turn drives an increase in green employment, such as people who will install solar panels on rooftops, do energy audits, or help install and maintain wind turbines, and generates its own multiplier effect and will generate its own tax revenues.
If the Doha COP18 conference cannot muster enough support for a new or extended Kyoto treaty, countries can still move mitigation and adaptation by supporting tax credits for voluntary carbon emission offset purchases. The money that flows into the voluntary carbon markets can augment existing carbon tax, cap and trade and actual mitigation efforts in many parts of the world.
While it is important for all countries to sign a worldwide binding climate treaty, the experience from the past high profile Conference of Parties from Copenhagen, Cancun and Durban has not been promising. As for carbon tax and cap and trade, oppositors are trying to gather steam against both measures. Thus it wouldn’t hurt to pass tax credits for voluntary purchase of emissions credits as a “break the glass plan” so that countries around the world can have something tangible to support the pronouncement they make for climate change avoidance.