Carbon Financing
Now, more than ever, humanity is confronted with the risk of extinction resulting from climate change. Polar ice melts, heatwaves, rising coastal waters, raging mother nature calamities giving rise to climate refugees, among other climate-related disasters are at an all-time high. As a measure to mitigate this, countries developed carbon financing.
Carbon financing is a method for rich countries to pay for their pollution-related global warming sins by transferring funds to countries with minimal or very low emissions. This arrangement was made possible by the Kyoto Protocol with renewable energy at its core. It is achieved by funding projects that trap carbon dioxide, such as the growth of mangroves along the coast, gas capture from landfills, swamps, and forests, as well as reducing emissions through the development of clean energy, among other things. Rich countries earn credits/offsets for financing such projects, allowing them to emit a certain amount of carbon dioxide or greenhouse gases.
How does it work:
Cabon financing often takes two forms: the compliance market and the voluntary market.
The compliance market is pretty well developed and regulated by governments or international bodies. These entities set limits on the amount of emissions that can be emitted by industries with those going beyond the limits required to buy carbon credits from those who saved to remain within prescribed levels.
In voluntary markets, Communities with abundant land can opt to adopt one of the carbon-trapping projects and trade them with firms in developing countries that are producing excess greenhouse gas emissions. Alternatively, communities and private persons can approach such firms and ask them to fund their projects. Voluntary markets are not regulated per se but are commonly used by firms as a sort of CSR.
Currently, the law regulating carbon trading in Kenya is at its rudimentary stages having been brought to parliament. The law seeks to regulate how carbon trading is done with revenue sharing with different stakeholders like community, county governments, national governments, research institutions, private owners, etc being at the core of the revenue sharing formula.
Which companies are already producing carbon credits
Companies already producing sustainable energy like geothermal power, wind energy, etc can already start trading in carbon credits. Olkaria Geothermal has certified emission reduction credits. At the Kenyan coast, a community is already trading in "blue credits” by planting mangroves at the seashores and trading this monetarily. Kenya recently sold carbon credits to Saudi Arabian firms, including Saudi Aramco, in what is expected to pave the way for future transactions.
It should be noted that the primary goal of carbon financing is to reduce greenhouse gas emissions, with monetary gain serving only as an incentive for communities to benefit from maintaining low global temperatures.
Is it all glitter
Critics argue that rich countries will use their financial clout to fund projects as an excuse to burn more fossil fuels, worsening global warming and affecting even countries implementing carbon-cutting projects.
To meet carbon emission reduction targets, governments and other regulatory bodies must collaborate; otherwise, the effort will be futile. The United States, a major emitter, withdrew from the Paris Agreement, implying that they can produce emissions with no regulator on their doorstep, casting a bleak future for the debate over greenhouse gas emissions.
Carbon financing is a financial shot in the arm for the communities of poor nations. It is also a profitable business for those who sell carbon credits.
About the author: Lary Kibet is a Financial analyst This email address is being protected from spambots. You need JavaScript enabled to view it.
