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Carbon credits are a market-based approach to controlling carbon emissions. The mechanism
operates by setting a cap on the total amount of greenhouse gas emissions that industries or
countries can emit. The cap is then divided into allowances, which are distributed to the
industries or countries. If an industry or country emits more carbon than its allowance, it must
purchase additional carbon credits from projects that reduce or remove carbon emissions.
The externalities associated with carbon credits focus on the benefits and drawbacks of this
market-based approach. One of the primary benefits of carbon credits is that it incentivizes
the development of renewable energy projects. Renewable energy projects such as solar,
wind, and hydroelectric power have been shown to reduce greenhouse gas emissions
significantly. By providing a financial incentive for these projects, carbon credits help
facilitate the transition towards a low-carbon economy.
However, critics of carbon credits argue that it does not address the root cause of climate
change, which is the overreliance on fossil fuels. The system can also be complex and
opaque, which can lead to fraud and corruption. Additionally, some argue that carbon credits
create a moral hazard, as the purchase of credits may give industries or countries a false sense
of accomplishment, leading them to continue emitting carbon at high levels.
The REDD+ project works by providing financial incentives to communities and individuals
to protect forests. The project also includes capacity building and awareness-raising activities
to promote sustainable forest management practices.
Reflection on the Pros and Cons of “Carbon Credit” and Why It Does Not Necessarily
the Best Option to Tackle Climate Change
The pros and cons of carbon credits have been widely debated. On the one hand, carbon
credits can incentivize the development of renewable energy projects and other initiatives
that reduce greenhouse gas emissions. They can also provide a financial incentive for
industries and countries to reduce their carbon footprint.
On the other hand, carbon credits do not address the root cause of climate change, which is
the overreliance on fossil fuels. The system can also be complex and opaque, which can lead
to fraud and corruption. Additionally, some argue that carbon credits create a moral hazard,
as the purchase of credits may give industries or countries a false sense of accomplishment,
leading them to continue emitting carbon at high levels.
Another solution is to implement different incentive schemes that reward industries and
countries for reducing their carbon footprint. For example, instead of just allowing industries
to purchase carbon credits, governments could provide tax incentives or subsidies for the
implementation of renewable energy projects.
Furthermore, there is a need to create a more transparent and accountable system for carbon
credits. This would involve setting clearer guidelines and standards for the development and
implementation of carbon credit projects. The system should also include independent
monitoring and verification to ensure that the projects are delivering the promised reductions
in greenhouse gas emissions.
In conclusion, the externalities associated with carbon credits focus on the benefits and
drawbacks of this market-based approach. Carbon credit practices differ in different regions
and countries, with Cambodia being an example of a country that has implemented carbon
credit projects, such as the REDD+ project. While there are pros and cons to the carbon credit
system, proposed solutions such as more careful planning, different incentive schemes, and
creating a more transparent and accountable system can improve its overall efficiency and
effectiveness. Ultimately, the carbon credit scheme should be viewed as part of a broader
strategy to tackle climate change and transition to a low-carbon economy.
References:
-International Emissions Trading Association. (2021). What are carbon credits? Retrieved
from: https://www.ieta.org/resources/What_are_carbon_credits.pdf
-European Commission. (2021). EU Emissions Trading System (EU ETS). Retrieved
from: https://ec.europa.eu/clima/policies/ets_en
-California Air Resources Board. (2021). Cap-and-Trade Program. Retrieved
from: https://ww2.arb.ca.gov/our-work/programs/cap-and-trade-program
-United Nations Development Programme. (2021). Cambodia. Retrieved
from: https://www.undp.org/content/undp/en/home/countryinfo/KH.html
-United Nations Framework Convention on Climate Change. (2021). REDD+. Retrieved
from: https://unfccc.int/topics/land-use/workstreams/reducing-emissions-from-
deforestation-and-forest-degradation-and-the-role-of-conservation
-Climate Focus. (2021). Carbon credits: pros and cons. Retrieved
from: https://climatefocus.com/news/carbon-credits-pros-and-cons