Did you know the Paris Agreement of 2015 and the Kyoto Protocol of 1997 are international accords responsible for laying out the famous carbon emission goals? Did you know that by the former agreement, Nationally Determined Contributions (NDCs) are set for greenhouse gas (GHG) emissions reductions in the countries that are party to the agreement? Did you know the Paris Agreement is ratified by all countries in the world except for some six countries? Did you know these emission goals have given rise to national GHG emission targets in all but those six countries? Did you know that the Paris Agreement requires all parties to put in their best efforts through the NDCs to achieve long-term GHG emission goals? Did you know that parties to the Paris Agreement have come up, or at best, are coming up – for those countries that have not yet done so – with regulations to back these emissions targets? Did you know Article 6 of the Paris Agreement pertains to the establishment of international compliance carbon markets governed by the rules of the agreement? Did you know Ghana is proudly a party to this agreement? Through the Environmental Protection Agency (EPA), Ghana has done a commendable job in amending its Act (now a proposed Bill) to append a part that deals with Carbon Markets and has made it available online, inviting comments from the general public and all industry players to help shape it before it’s presented to the next stage in accordance to article 6 of the Paris Agreement. True!
I personally think about this development as ‘good news’ for all emitters of carbon dioxide globally as well as for environmentalists and climate change activists. And this is why; with these new regulations in force in every region, the pressure on businesses and organisations to find ways to reduce their carbon footprints will dwindle tremendously because of the use of these carbon markets.
What are carbon markets?
Think of this market as a place where carbon emissions and other greenhouse gases are traded. It is basically a market where carbon credits that are generated by the reduction or removal of greenhouse (GHG) emissions from the atmosphere are traded. And this market is approved by Article 6 of the Paris Agreement’s rulebook as stated earlier. It is an approach to limit the climate crises by creating a market for emissions. Interesting! Researchers have come up with a way to sequester carbon, using technology and storing it for future use. Basically, in a carbon market, carbon credits or carbon offsets from one region can be sold in another region for the use of countries whose emissions are above their target. Meaning, different types of businesses can create and sell carbon credits by reducing, capturing, and storing emissions through different processes, which can be sold to other businesses that have exceeded their emissions quota. This market basically turns carbon emissions into a commodity and gives it a price. Awesome!
Carbon credit or carbon offsets?
Although ‘carbon credit’ and ‘carbon offsets’ are usually used interchangeably, they operate in different ways. ‘Carbon credits’ are also known as ‘carbon allowances’ that give say ‘Company B’ permission to use the excess carbon sequestered and stored by “Company B”, in exchange for revenue. Revenue from carbon credits flows vertically, usually from companies to regulators although companies with excess credits can still sell them to other companies. On the other hand, offsets are those credits that flow horizontally between companies without regulators. In this case, when ‘Company A’ removes say a unit of carbon from the atmosphere as part of their normal business activity, they generate a carbon offset that can be purchased by ‘Company B’ to reduce their own carbon footprint. (carbonpricing.com, 2022)
How viable is the carbon market?
In Ghana, for example, the framework for the carbon market is still ‘under works’ by the Environmental Protection Agency (EPA) of Ghana; however, in the United States, the State of California specifically has set the ball rolling and operates its own market where credits are issued to residents for gas and electricity consumption. The idea is that credits issued each year are typically based on emissions targets under a ‘cap-and-trade’ programme. These carbon emission limits are set by regulators (i.e., the cap), which are slowly increased over time, then traded. Other forms of cap-and-trade programmes exist in countries like Canada, the UK, the EU, China, New Zealand, Japan and South Korea, with many more countries and states – such as Ghana, Chile, Jordan, Singapore, etc. – considering implementation. Statistics show that more than two-thirds of countries around the world are planning to use carbon markets to meet their NDCs to the Paris Agreement (World Bank, 2020).
A new revenue stream for businesses
This can be a significant revenue stream for sellers. Companies and organisations selling carbon credits could make additional revenue just by being environmentally conscious in their operations. This is a win-win for environmentalists and climate change activists alike. Yay! Statistically, it is estimated that trading in carbon credits could reduce the cost of implementing NDCs to the Paris Agreement by some more than half – by as much as US$250billion by 2030 (World Bank, 2020). I promise you, this is not an illusion; Tesla – the electric car maker – has, over the years, obtained carbon credits from various local authorities and later sold these credits for proceeds. The company sold carbon credits to legacy car manufacturers to the tune of US$518million in just the first quarter of 2021.
I see good times for the nation Ghana when the new EPA bill is passed into law, and the Legal Framework on Carbon Markets comes into being. At that point, not only will the country contribute to the fight against climate change, it will also be a major source of revenue generation, all things being equal.
Edna is a lecturer, UPSA Law School. Inspired to commence the achievement of her scholarly dream, she graduated from the University of Illinois, Urbana-Champaign, USA (UIUC) with a Master of Laws (LL.M) Degree in Regulations, Sustainability and Compliance.