Kyoto and carbon offsetting

11th November 2021

There has been a major shift in public opinion regarding global warming in the last few years, the debate on its authenticity has finished and now the focus has shifted to action. Governments are finally picking up this, with a recent poll suggesting that Australians rated climate change as a bigger issue than the economy. So the question is, what needs to be done and how do we do it? Whatever happens it will require unprecedented levels of global cooperation but fortunately that process has already begun. The Kyoto protocol is the first legally binding international treaty for the reduction of GHG emissions. Signed on February 16, 2005 by over 160 nations that agreed to reduce emissions by 5.4% of 1990 levels, only a handful of countries refused to sign including two of the worlds biggest per capita emitters, the US and Australia. The Kyoto Protocol is more than a practical way to set emission targets it’s also a symbolic recognition, that climate change is real and we better do something about, now.

What is less well known are the 3 ‘flexibility mechanisms’ that were introduced with Kyoto to give countries cost effective way of meeting their Kyoto targets. Basically these mechanisms allow nations to trade their greenhouse gas (GHG) emissions, so if one country is coming under their Kyoto target they can sell their extra GHG reductions to a country that isn’t going to meet theirs. This is the foundation of an internationally regulated carbon market. This ability to trade pollution puts a financial element in reducing emissions, don’t meet your targets you’ll get fined, surpass yours and you sell them for a profit. Since it doesn’t matter where emission reductions are made, their effect on the atmosphere is the same, so what’s important is that Kyoto nations as a collective reach their goals.

There are different carbon markets though out the world depending on where you are and if you’ve ratified Kyoto or not. The largest regulated market is the European Union Emission Trading Scheme (EU ETS), this gives a secure platform for the trading of carbon for those countries that have agreed to Kyoto. North America has their own voluntary trading system called the Chicago Climate Exchange while Australia implemented the first carbon trading system in the world, the NSW Greenhouse Gas Abatement scheme (GGAS). So at one stage Australia was the global leader in stopping climate change, hopefully one day we can regain that title. What these environmental stock markets do is, give a secure place to trade, put an agreed price on pollution, and help enforce recognised standards on the quality of GHG reductions.

A new industry has been born around these carbon markets; carbon traders and brokers that buy and sell units of GHG reductions also known as ‘carbon credits’, carbon off-setters that allow the public to voluntarily offset their carbon emissions as well as carbon abatement projects that generate carbon credits through GHG reductions. These carbon abatement projects operate throughout the world and do their job in a variety of ways; methane flaring from garbage tips, replacing incandescent light bulbs with their more economical cousins CFL’s, planting trees and avoiding deforestation, covering manure pits at pig and dairy farms and replacing wood burning stoves with solar cookers. With the introduction of a carbon market these carbon abatement projects are made financially viable, allowing new technology and methods to enter the market place.

So, is carbon trading the answer to global warming? There will be no ‘one’ solution to climate change but if done correctly carbon trading will be a significant part of the final solution. While many businesses, individuals and nations are reducing their GHG emissions out of a sense of environmental responsibility many don’t and so by putting a price on pollution we are putting a financial incentive into the picture. With the introduction of a national Australian carbon market, the government can punish companies that don’t meet their reduction targets and reward the ones that do. This is a good thing. Most people agree that something needs to be done about climate change and done quickly, international carbon markets are the mechanisms that will allow this ‘something’ to occur on a global scale. It’s also fundamental that we as individuals become aware and responsible of the GHGs we create, directly and indirectly. Educate yourself about climate change, calculate, reduce and offset your GHG emissions, make informed decisions about the products you buy, lobby politicians on the need for action and get your friends to do their bit. Only by acting together will we avert the worst effects of global warming but it can be done. The debate is over, the time to act, is now.

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