New Carbon Credit Bill allows trading in carbon offsets
With the tabling of the Carbon Credit Trading Bill, 2022, on Wednesday, The Bahamas joins a growing list of countries aiming to take advantage of the so-called “cap and trade” sector through legislation.
A survey of the sector, however, reveals that the matter is quite complicated, with at least two major environmental groups arguing that carbon offsetting – the baseline of the new bill – hurts more than it cures. Nonetheless, The Bahamas’ three biggest have their own lessons to teach at this early stage of the game.
The legislation aims to introduce the regulation of the trading of carbon credits and enable the Securities Commission of The Bahamas (SCB) – and not the Securities Exchange Commission as incorrectly reported – to provide certainty for those persons who have been inquiring on participation in this growing sector.
The discussion begins with understanding what a carbon credit is: a carbon credit is a kind of permit that represents one ton of carbon dioxide removed from the atmosphere. They can be purchased by an individual or, more commonly, a company to make up for carbon dioxide emissions that come from industrial production, delivery vehicles or travel.
There are two “markets” for carbon credits: voluntary and involuntary, or compliance. For the voluntary market, carbon credits are most often created through agricultural or forestry practices, although a credit can be made by nearly any project that reduces, avoids, destroys or captures emissions.
In the compliance market, governments set a cap on how many tons of emissions certain sectors — oil, transportation, energy or waste management — can release. Under this regime, should an oil company, for example, exceed the prescribed emissions limit, that company must buy or use saved credits to stay under the emissions cap. If that same company stays under that cap, it can save or sell those credits. This is the definition of the so-called “cap-and-trade” market, with the cap being the amount of greenhouse gases a government will allow to be released into the atmosphere.
In May, the World Bank reported that there were 64 carbon compliance markets in operation around the world, with the largest carbon compliance markets in the European Union, China, Australia and Canada. And while regulators, businesses and environmentalists have debated globalizing a cap-and-trade market for carbon, Alok Sharma, president of this year’s United Nations Climate Change Conference (COP26), said it is challenging to agree on a common time frame, common price, common measurement and transparency.
Another critical plank for evaluating the sector is appreciating the difference between carbon credit and carbon offset; while carbon credits stands for the right to emit carbon, carbon offsets represent the production of a certain amount of sustainable energy to counterbalance the use of fossil fuels. Again, carbon offsetting is a voluntary mechanism as there is no obligation to participate in any of the carbon offsetting schemes.
The UK & EU
The United Kingdom (UK) has a carbon emission trading scheme called the UK Emissions Trading Scheme (UK ETS), which is cap and trade and came into operation on January 1, 2021, following the UK’s departure from the European Union. The cap is reduced in line with the UK’s 2050 net zero commitment.
According to the UK government website, the UK ETS maintains the scope of the European Union (EU) ETS – a key pillar of the EU’s policy to decrease greenhouse gas emissions across its member states as well as Iceland, Norway and Liechtenstein – with participation mandatory for the power sector, energy intensive industries and aviation. It will cover around 100 participants in Scotland who account for 28 percent of Scotland’s greenhouse gas emissions.
In March 2021, the Carbon Capture, Utilization, and Storage Tax Credit Amendments Act of 2021 was introduced in the US Senate. This bill extends an existing carbon dioxide sequestration tax credit through 2030 and permits taxpayers to elect to receive a payment in lieu of the tax credits for carbon oxide sequestration and qualifying advanced coal projects.
The picture in the US is a little more complex, however. In December 2021, California lawmaker Ro Khanna introduced a bill into the US House of Representatives that would prevent investors from securing carbon capture and sequestration tax credits if the carbon is used to boost oil production. Despite the serious unlikelihood that the bill would be adopted into law, its introduction reflected what observers called “a deep political divisions in Congress over whether and how carbon capture can be used as a tool in the fight against climate change”.
In fact, up to October 2021, the US Department of Agriculture had not adopted or set its own standards for carbon credits. But it does finance carbon capturing projects and publishes data to help agricultural businesses capitalize on the market. And 11 US states participate in something called the Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade program established in 2009. California began operating a cap-and-trade program in 2013, and it is linked with a program in Quebec, Canada.
Last month (June 2022) the government of Canada launched Canada’s Greenhouse Gas Offset Credit System, a key measure outlined in Canada’s 2030 Emissions Reduction Plan. Canada has established a unique, two-tiered approach to climate change regulation: at the federal level, there is a national carbon pricing policy which sets a minimum price on greenhouse gas (GHG) emissions throughout Canada. This is supplemented by several provincial initiatives, which have established various mechanisms to tax, price or otherwise set limitations on GHG emissions – including intensity-based emissions reductions legislation and cap-and-trade-based systems.
While governments are wrestling with regulating carbon trading, the environmental lobby is consistent in its argument that the only way out of the climate crisis is to get to “real zero”. The issue they raise may have some implications for The Bahamas’ interest in the market.
Greenpeace International, already on the record as calling carbon offsets “a scam”, said in November 2021, “Carbon offsetting is truly a scammer’s dream scheme. It’s a bookkeeping trick intended to obscure climate wrecking-emissions.”
Seeking to answer the question, “What is wrong with carbon credits?” UK group Friends of The Earth said in October 2021, “Carbon offsetting and nature offsetting are both worsening the climate and nature emergencies. They can’t be made to work, at least not at scale, and trying to do so is dangerous distraction from the real job at hand, cutting carbon emissions and restoring nature.”
These considerations are brought into special focus because, in the interpretations section of the Davis administration’s Carbon Credit Trading Bill 2022, a “tradeable carbon credit” is partially defined as “a carbon physical transaction which is…a tradeable offset that is certified voluntarily and is consistent with international standards.”
Given the fervor with which Prime Minister Philip Davis continues to pound home his government’s commitment to climate change and the leadership role he aspires to in the international debate, it remains to be seen whether exposing The Bahamas to trading in controversial carbon offsets becomes a silver bullet to scupper what might otherwise be a revolutionary stance.