CARBON MARKET
1. Context
COP29, the ongoing climate conference in Azerbaijan’s capital Baku, has given a fillip to the idea of using carbon markets to curb carbon emissions by approving standards that can help in the setting up of an international carbon market as soon as the coming year
2. What is the Carbon Market?
- A carbon market is a system where entities can buy and sell the right to release carbon into the atmosphere. If a government wishes to limit carbon emissions, it can issue carbon credits, which grant the holder permission to emit a specific amount of carbon dioxide.
- Each carbon credit represents 1,000 kilograms of CO2. By controlling the number of credits issued, governments can regulate the overall level of carbon emissions.
- It's important to note that those without carbon credits are not allowed to release carbon into the air.
- The concept of carbon credits originated in the 1990s in the United States with the introduction of a cap-and-trade model to manage sulfur dioxide emissions.
- Individuals and companies that possess carbon credits but do not require them can sell these credits to those who need them.
- The market price of carbon credits is influenced by the forces of supply and demand. Additionally, carbon markets may involve trading carbon offsets, where businesses that pollute can buy offsets from environmental organizations.
- These offsets typically represent projects like tree planting, which absorb a certain amount of carbon from the atmosphere to counterbalance emissions
3. Advantages of Carbon Markets
- Pollution and climate change caused by carbon emissions exemplify what economists refer to as an externality. An externality occurs when the costs of an economic activity are not properly incorporated into the market price due to the lack of well-defined property rights.
- For instance, a company that buys raw materials, like iron, must pay the supplier for the right to use the material, incurring a specific cost. However, when the same company releases carbon into the atmosphere, it typically doesn't have to compensate anyone for this emission.
- Essentially, companies can release waste into the air without bearing any financial burden. This results in unchecked environmental pollution, as firms lack the financial incentive to reduce their carbon emissions.
- Carbon markets, where the right to pollute is bought and sold, can address this issue by charging firms for emitting carbon, thus helping to reduce emissions.
- The combination of standardized accounting practices and technological advancements has enhanced companies' ability to track and report their carbon emissions.
- While this remains a challenge for many small businesses, especially in developing countries where tracking supply chain emissions is difficult, innovations like real-time data tracking in the energy sector are improving the accuracy and depth of corporate carbon accounting.
- Nonetheless, many corporations prefer voluntary reporting mechanisms, such as the Carbon Disclosure Project.
- They are generally opposed to government-imposed carbon emission limits, fearing that such regulations could lead to production restrictions or higher costs.
- Additionally, companies argue that the variability in production processes and supply chains makes it hard to establish an optimal carbon budget for each facility.
- Large multinational companies, including ExxonMobil and General Motors, support carbon markets where carbon credits can be freely traded, with prices set by market dynamics.
- They believe this approach would allow for more efficient allocation of carbon credits than government mandates
4. Challenges
- Even when a carbon market is in place, governments that are not focused on reducing emissions may increase the number of carbon credits available, which can lower the cost of emissions and result in no significant reduction in pollution.
- Alternatively, some governments may impose a strict cap on the supply of carbon credits but allow companies to bypass the system by illegally emitting carbon.
- The effectiveness of carbon offsets also depends on how motivated business owners are to address carbon emissions, which is often minimal.
- Critics argue that companies buying carbon offsets may do so more for image purposes than out of a genuine commitment to reducing emissions, and may not ensure that their investments are effectively offsetting carbon emissions.
- Furthermore, some critics question how a government could determine the optimal supply of carbon credits.
- They contend that politicians, who do not face direct economic consequences for their emission reduction policies, may restrict the number of credits too much, potentially hindering economic growth
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For Prelims: Carbon farming, COP21, Paris Agreement, carbon cycle
For Mains:
1. What is Carbon farming? discuss the effective techniques within carbon farming for reducing greenhouse gas emissions, and explain the challenges that exist in implementing them, particularly in developing countries like India. (250 Words)
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Previous Year Questions
1. With reference to carbon nanotubes, consider the following statements (UPSC 2020)
1. They can be used as carriers of drugs and antigens in the human body.
2. They can be made into artificial blood capillaries for an injured part of the human body.
3. They can be used in biochemical sensors.
4. Carbon nanotubes are biodegradable.
Which of the statements given above are correct?
A. 1 and 2 only B. 2, 3 and 4 only C. 1, 3 and 4 only D. 1, 2, 3 and 4
2. With reference to the recent developments in science, which one of the following statements is not correct? (UPSC 2019)
A. Functional chromosomes can be created by joining segments of DNA taken from cells of different species.
B. Pieces of artificial functional DNA can be created in laboratories.
C. A piece of DNA taken out from an animal cell can be made to replicate outside a living cell in a laboratory.
D. Cells taken out from plants and animals can be made to undergo cell division in laboratory petri dishes
3. Consider the following statements (upsc 2016)
1. The Sustainable Development Goals were first proposed in 1972 by a global think tank called the 'Club of Rome
2. Sustainable Development goals has to be achieved by the year 2030
Which of the statements given above is/ are correct
A. 1 Only B. 2 Only C. Both 1 and 2 D. Neither 1 Nor 2
4. LPG stands for (MPSC 2017)
A. Liquidity, Profitability and Growth
B. Liberalisation, Privatisation and Growth
C. Liberalisation, Privatisation and Globalisation
D.None of the above
5. Pradhan Mantri Ujjwala Yojana was launched (RRC Group D 2018)
A. July 2017 B. January 2018 C. May 2014 D. May 2016
6. In the context of WHO Air Quality Guidelines, consider the following statements: (UPSC 2022)
1. The 24-hour mean of PM2.5 should not exceed 15 μg/m³ and annual mean of PM2.5 should not exceed 5 μg/m³.
2. In a year, the highest levels of ozone pollution occur during the periods of inclement weather.
3. PM10 can penetrate the lung barrier and enter the bloodstream.
4. Excessive ozone in the air can trigger asthma.
Which of the statements given above are correct?
A. 1, 3 and 4 B. 1 and 4 only C. 2, 3 and 4 D. 1 and 2 only
Answers: 1-C, 2-A, 3-B, 4-C, 5-D, 6-B
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Source: The Hindu
