How carbon credits could help and hurt the climate

The European Commission is set to permit countries to use carbon credits to "outsource a portion of their climate efforts to poorer countries from 2036," said Politico. These credits will also count toward the Commission's 2040 climate target. Carbon credits have become a significant part of many countries and companies' plans to reduce emissions. But while some claim any reduction of emissions is good regardless of location, others say that the system allows polluters to keep polluting.

What are carbon credits?

They are "permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases," said Investopedia. This can apply on an individual level, national or global scale. Individual companies can purchase credits to bring down their own carbon footprint; for example, ByteDance, the parent company of TikTok, "purchased more than 100,000 tons of carbon credits from Rubicon Carbon, a carbon management and investment company," to help reach their 2013 carbon neutrality goal, said Data Center Dynamics. In the global market, countries "unable to reduce enough greenhouse gas emissions through conventional methods would be able to purchase credits from other countries that implemented emission-reduction projects such as afforestation," said Earth.org.

The carbon credit market usually works through a cap-and-trade system. The government sets a cap on the maximum emissions an industry or even an entire economy can produce. The cap is then divided into allowances that can be traded. The trade is a "market for companies to buy and sell allowances that let them emit only a certain amount, as supply and demand set the price," said the Environmental Defense Fund. Trading "gives companies a strong incentive to save money by cutting emissions in the most cost-effective ways." Another way to offset carbon emissions is for emitters to invest in projects that reduce emissions in developing countries, which are not required to have targets.

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Are they effective?

Carbon credits have become a staple in the fight against climate change but they have also faced scrutiny, with many questioning their effectiveness. On the one hand, carbon credits can be a "way to raise funding for CO2-cutting projects in developing nations," said Reuters. They also "create a monetary incentive for companies to reduce their carbon emissions," and "those that can't easily reduce emissions can still operate but at a higher financial cost," said Investopedia. Ultimately, the "atmosphere doesn't care where the emissions reductions happen," Barbara Haya, the director of the Berkeley Carbon Trading Project, said to Science News.

Those opposed say that carbon credits distract from the true goal. "Achieving net zero should begin with every effort to eliminate or reduce the burning of fossil fuels, the main cause of global warming," said Science News. The existence of carbon credits allows polluters to "continue to engage in practices that are systemically unsustainable," said Sentient Media. "There's a growing consensus among experts" that carbon offsets are "not an effective tool for fighting climate change, and in some cases may do more harm than good." There is also evidence to suggest that "existing protocols do not ensure carbon credits are consistently real, high-quality and accurately represent 1 ton of avoided, reduced or removed emissions," said a study in the journal Earth's Future.

Carbon credits should perhaps only be a piece of the emission-reduction puzzle, not a substantial portion. "The amount is important, because it shows how much you change in your own economy," said Ana Toni, the CEO of the COP30 climate summit set to take place this November in Belem, Brazil, said to Reuters. "If it's really a big amount of (credits), you're not changing your own economy."