This interview was originally published by Debate.Energy on their website.
If you put a price on something, you'll get less of it. That's the theory behind carbon pricing. To learn more about carbon markets and their climate-protection potential, Debate.Energy talked to Jeff Swartz, a senior manager at Zurich-based South Pole, a leading carbon solutions firm.
For twelve years. I started out in California, then moved to China for five years before coming to Europe in 2012. I took a terrific course in graduate school at the Monterey Institute taught by Professor Jason Scorse, a proponent of Pigouvian economic theory which points out that positive and negatively externalities often aren't included in the price or a good or service. The fact that we're not fully paying for pollution or any other environmental externality was a lightbulb moment for me. It inspired me to make carbon pricing and climate policy my life's work.
South Pole is a climate solutions company. We help other companies and public sector organizations take climate action. We provide advice, manage funds with investments of over $100 million in the past ten years, and help customers measure their carbon footprint and find the right carbon offset products. I lead our ten-member climate policy and carbon pricing advisory team, which works with some of our most important public sector and corporate clients.
It allows low-emitting countries to sell their excess emission allowance to higher-emitting countries. Countries can therefore look outside their borders for opportunities to reduce emissions, which gives them greater flexibility. The climate crisis won't be solved by individual countries acting alone. Article 6 is important because it enables them to work together and thus do more to protect the earth's climate. That's why it's crucial for COP26, which will be held in Glasgow in November 2021, to reach agreement on how to implement Article 6.
Carbon credits are measurable, verifiable emission reductions from activities—like renewable-energy or forestation projects—that avoid or displace fossil fuels or sequester greenhouse gases. These activities must also need climate finance. In short, they must be additional to activities that would've taken place anyway. Carbon credits are subject to rigorous verification by two third-party agencies and to a review by a panel of experts at a leading carbon offset standard like Verra or Gold Standard. After an organization or an individual buys a carbon credit, the credit must be permanently retired so it can't be reused. A carbon credit involves a lot of steps and a lot of oversight.
This criticism is one-sided and, to be honest, is becoming tiresome. Companies buy offsets voluntarily. They do this either in addition to their legally mandated obligations or because their emissions aren't regulated. Why criticize companies for voluntarily spending money on climate action? Criticism should be directed instead at governments that aren't instituting carbon pricing (U.S., Japan, Australia) or at governments whose carbon pricing doesn't cover the entire economy. For example, Europe's emissions trading scheme (ETS) may finally—15 years after its inception—be extended beyond power generation, heavy industry, and airlines to encompass sectors like maritime transport, road transport, and building-specific heating. Governments need to move faster. Critics should spur them to do so.
Tremendously. The Kyoto Protocol, which took effect in 2005, required only developed countries—36 in all—to set a binding emission-reduction target. They could meet their target in part by buying offsets from Clean Development Mechanism (CDM) or Joint Implementation (JI) projects. The Paris Agreement of 2015, by contrast, requires all 197 signatories to submit emission-reduction plans. Similarly, the CDM's successor, the Sustainable Development Mechanism, will be available to all parties, which gives it a much wider scope. As for carbon pricing, about 40 countries have some sort of mechanism. I hope many more join in. This would move us steadily closer to a global carbon price. Without it, countries will continue to ignore the negative externalities of their greenhouse gas emissions.
Right now, markets are most affected by low carbon prices, which result from weaker demand for carbon allowances in the EU, California, China, and other markets. Thankfully, so far no government has delayed the creation or growth or creation of a carbon market. Looking into the future, I'm inspired by Joe Biden's ambitious climate plan for the United States. He aims to propel America's energy transition while simultaneously creating jobs. I'm hopeful that governments worldwide will look for ways to tie carbon pricing to job creation and to use revenues from carbon pricing to support underserved communities. That will help ensure that carbon pricing is fair and doesn't harm the most vulnerable members of our society.