Carbon Credits: Origins, Effectiveness & Future

University dissertation from Environmental and Energy Systems Studies, Lund university

Abstract: Carbon credits are used as an instrument for climate change mitigation. Each credit represents a reduction in greenhouse gas emissions (GHGs) equivalent of 1 ton of carbon dioxide. Crediting mechanisms and the Clean Development Mechanism (CDM) of the Kyoto Protocol in particular have been important for the international efforts to limit GHG emissions and the engagement of developing countries in mitigation activities. The CDM (or similar mechanisms) is also expected to be valuable in the continued international efforts necessary to limit global warming. However, the environmental credibility of the credits has been questioned. A key concern is that the credits do not represent ‘real’ or additional emission reductions. This doctoral dissertation critically examines the effectiveness and environmental credibility of credits through studies of additionality and the CDM, which has largely dominated the carbon credit market. In-depth case studies of methodologies applicable and applied to large-scale electricity generation CDM projects are included. The primary research questions are ‘What is an effective carbon credit?’ and ‘Do Certified Emission Reductions (CERs) earned through the CDM represent additional emissions reductions?’ Conceptually, additionality and effectiveness are closely related. Additionality is essentially a measure of effects and effectiveness relates to the achievement of some end (e.g. emissions reductions). The effectiveness of CERs can be interpreted in various ways and tends to be a politicized issue. Environmental additionality is certainly not the only concern affecting the effectiveness of credits, but it is an important one. To answer the research questions, this dissertation seeks to broaden the understanding of additionality compared with how it is currently approached under the CDM and examines its relationship to effectiveness. Furthermore, the following are examined: (a) the generally accepted idea or theory of emissions reductions in carbon crediting (b) how this or some other theory (or theories) is followed through in practices, and (c) the appropriateness or credibility of this approach in relation to the expected emissions reductions. This is also compared with historical experiences with credit-based systems preceding carbon crediting and what can currently be envisioned as the path ahead for carbon crediting. The research findings show that the environmental integrity of the CDM can be improved. Furthermore, the findings suggest that the sector-specific standardized baselines officially agreed at the climate negotiations in 2010 can significantly improve the environmental integrity of CDM. However, both in the current context and in the continued development of the CDM (or similar mechanisms), findings show that it is important to give more attention to the plausibility of the theory of emissions reductions underlying the creation of credits.