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Shall I buy carbon footprint certificates, Economist?
Economist & Photographer / No. 64
E: Good morning, Photographer.
P: Good morning, Economist.
E: Long time no see. Where have you been?
P: On holiday.
E: Any details? Maybe some pictures?
P: Another time. There are more important things.
E: I'm all ears.
P: As you probably know, travel generates a significant carbon footprint. I am considering buying certificates that offset the footprint of my summer travelling. What do you think of that, Economist?
E: I want to show you a chart.
E: You basically have two options for buying carbon certificates. There are official, intergovernmental carbon markets like the European Union Emissions Trading System (EU ETS) on the left side of this chart. And there are voluntary carbon markets, like the one on the right. Companies that pursue a net zero strategy but do not achieve it entirely through their own efforts buy there. Or you could purchase such a certificate, usually through an intermediary, to free yourself from your CO2 debt.
P: I see. But what's your point?
E: Look at the different prices. The state-organized certificates for one ton of CO2 (on the left) are around 50 times as expensive.
P: Why the difference?
E: It is probably not 50 times more attractive to emit, respectively save, CO2 in Europe than anywhere else in the world.
E: So, since the governmental markets are well monitored, a relevant part of the price difference might come about because the voluntary markets are flawed.
P: How can you know?
E: There is a clue. The price per metric ton of carbon dioxide removed from the atmosphere has fallen under 2 Euro, down from around 9 Euro early last year.
P: Why is this a clue?
E: This happens when a crowding-out effect occurs.
P: What is that?
E: The markets for voluntary certificates lack of regulation. As a result, CO2 savings are double counted, incomplete, or just fictitious. An example, a certificate seller might claim credit for stopping a forest from being cut down when there was no plan to cut it down in the first place. Such bad certificates crowd out the good ones since the bad certificates are significantly cheaper, and the low price is attractive to buyers. So, most people will buy cheap but flawed certificates. More expensive (but perhaps of better quality) certificates disappear from the market because no one buys them.
P: What to do?
E: Most economists say we need a single, regulated, unified global market with a single price. Recently, the New York Times put it this way:
"A separate carbon market for voluntary projects made sense in the early years of fighting climate change at the corporate level, when any kind of effort was better than nothing. But it should be a second-best solution now that all countries have ostensibly committed to reducing their carbon emissions."
< silence >
E: Have I spoiled your holiday in hindsight?
P: You can't do that. But maybe, for my next vacation, I won't try to reduce my CO2 footprint afterwards but will plan the holiday differently.
E: Sounds reasonable. Will you now show me some pictures of your holiday?
P: Another time. Have a nice day, Economist.
E: Have a nice day, Photographer.