The moral conundrum of carbon credits

Make Me Smart November 14, 2023 Transcript

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Kimberly Adams 

Hello, I’m Kimberly Adams, welcome back to Make Me Smart, where none of us is as smart as all of us. Kai is out today but joining me is Marketplace’s Nova Safo.

Nova Safo 

Kimberly Adams, it’s really good to be here with you. It’s Tuesday, November 14. And and we’re going to deep dive today. I’m excited to be digging into today’s topic carbon credits.

Kimberly Adams 

Yes, I know. So this is part of our ongoing climate series, which, as I’m sure those of you who regularly listen, thank you very much have heard many of the world’s biggest companies have been setting Net Zero climate goals in recent years. And they’re using carbon credits often to get there. But we want to know how these carbon credits actually work and whether they’re actually an effective tool to fight climate change. So here to make a smart about this is Pedro Martins Barata, he is the associate vice president for carbon markets and private sector, decarbonization at the Environmental Defense Fund. Welcome to the show.

Pedro Martins Barata 

Thank you. Great to be here.

Kimberly Adams 

Great. So let’s start with the very obvious question. What are carbon credits exactly?

Pedro Martins Barata 

So carbon credits, essentially, let’s let’s take this this example. I’m a consultant here in Portugal, Lisbon, Portugal, where I’m calling from, and I want to compensate my footprint, my carbon footprint, because I’ve been doing a lot of travel these last few weeks. And one way of doing it could be that I pay somebody else to reduce their emissions. How do I do that? Well, I go to a country in the developing world, where they have little access to renewable energy, and I finance a project on renewable energy. That project reduces emissions, because in that country, the baseload, what typically gets used as energy to produce electricity is most likely coal or natural gas. So I’m reducing the use of coal, I’m reducing the natural gas, so I’m reducing those emissions, then I have a methodology that calculates that impact, I transformed this methodology that tells me how much carbon is actually being reduced, I issue out credits for that for that amount, and I get to sell them internationally.

Nova Safo 

I think there’s two things I want to address here. One is, you know, if you go on a travel booking site, I’ve done this, you go to buy a plane ticket, and it tells you how much carbon you’ll be burning for that ticket. And then you have the option to go by, I guess, an offset or a credit, what’s the difference between the two for one? And second of all, is that actually doing anything when you go? And by that? You know, $10, right. $20 worth of credits?

Pedro Martins Barata 

Right, let’s let’s, exactly, let’s start with a distinction. A carbon credit, is what you get, by having this process that I mentioned, somebody calculates the difference between the emissions that would have happened, and the emissions that really happened with the project. So if the project is reducing those emissions, you get credits for those tonnes of carbon that were not emitted, that are reduced, that’s a credit. Now, one use of these credits is to compensate, or as people say, offset somebody else’s emissions. So your travel site, for example, you got to travel, your airline says, you know, would you care to offset your emissions? You offset with carbon credits.. When do you offset with carbon credits, some people just for ease of language, they call them carbon offsets. So to the to the point of is this actually doing any good? Well, it really depends on two things that let’s talk first about the quality of what you’re buying. Let’s say that I am buying a project in a country that already has tons of renewable energy projects. And that is already where renewable energy is very commercially available. And yet I’m financing and I’m claiming that this renewable energy was there. And it’s motivated because I took that decision to buy that credit. If if that happens, then you are not really doing anything additional. And you’re just transferring money to some to some country to some developer, but you’re not motivating any real emission reduction. The other issue is more of a moral issue is if we were to allow everyone and everybody to say well, I don’t need to reduce my emissions, because all I’m going to do from now on, is I’m going to pay somebody else, I’m going to buy carbon credits, and somebody else will do the emission reductions for me. Now, in theory, the environment sees the same outcome, whether I’m reducing or somebody else is reducing. So there shouldn’t be anything problematic about it. Yet, there are people that that would say, well, wait a moment, let’s say you’re the traveler on the on the on the airplane, so supposed to be somebody that has some means of reducing emissions, could potentially do something else. But you’re, you’ve chosen to just go and buy some carbon credit from a poor country. So the question then is, is it morally right for you that have potentially other ways of reducing your emissions to kind of offload your responsibility onto somebody in the you know, in the developing world, etc. So there are some who would claim that offsetting is a bit like in the Catholic Church, when we had indulgences where you went to the Pope, and you cleaned yourself from your sins, by essentially making a down payment on to the Catholic Church, that back in the Middle Ages? So is it really it’s a complicated moral issue? And I would say, it really depends. It depends on the credits, and depends on what you’re trying to do with it.

Kimberly Adams 

How do we even end up with this system, because this feels like quite convoluted when you lay it all out like this?

Pedro Martins Barata 

Well, the the idea of a carbon market is actually is quite an old one. And you have carbon markets that function slightly different than they are actually compliance markets, what we call compliance markets, I.E, these are markets that are regulated markets, and that serve a public purpose. So they’re law in the in the EU, if a company in the EU has a cap on its emissions, it can, so to speak, violate that cap, if it buys emissions allowances from other companies in the system, then what happened was, we had companies that are not in any of these compliance systems, but companies that want to do and want to show that they’re doing something significant about climate change. And so what they tend to do is, the first thing is, well, let’s go and buy some carbon credits, and kind of mitigate our carbon footprint, which is all good. But I think at this time in place in time, we want to do something more we want to get something more from from the companies. So what we’re asking, generically, what society is asking is, for each company to look at their business model, look at what they are emitting, looking how they can reduce those emissions. And then and only then once they have committed to reducing emissions at home, then look for opportunities to finance emission reductions elsewhere, right. And that’s where carbon credits come in, can have a real big benefit, because they are one of the best tools that we have to mobilize private sector finance.

Nova Safo 

Let’s go back to that airline analogy. We have all those folks who are going to be traveling for Thanksgiving. If they wanted to offset their travel by buying carbon credits, how would they be able to do that in a way that actually makes a difference? How do you tell a good carbon credit from a bad carbon credit that’s worthless?

Pedro Martins Barata 

So there are various ways that a consumer can look at how to approach carbon credits and carbon offsets. The one thing that I would first stipulate is that you don’t do it by going on a an airline website, for example, and just clicking on a tab without knowing what the project is that you are financing with, because that’s a black box. So if you want to do this properly, you should engage in what we would call due diligence of carbon projects. Now, the vast majority of consumers who are traveling for Thanksgiving would not be able to do this, because that takes a lot of time. So there are tools available from various organizations, including EDF, that allow you to have a little bit of a better sense of what quality really means. The other thing that I would say is that there is a whole initiative that congregates, EDF, but also other environmental organizations, banks, other types of institutions foundations, and that’s an initiative called the integrity Council for the voluntary carbon market. And what we are trying to do is exactly tag credits that we think are high quality. So we have a whole checklist of criteria to define what is a high quality carpet credit, and we hope within six months to come out with our first tax.

Kimberly Adams 

The fact that you all are the ones making these resources tells me that there’s not exactly a global standard when it comes to these credits. And I wonder what regulation in this market looks like or lack thereof? And if there’s any efforts to sort of standardize these credits?

Pedro Martins Barata 

Well, exactly. So there isn’t right now, there isn’t a global standard of quality. So what the the initiative I mentioned, the integrity Council, what it wants to do is establish that international and global standard of quality across the entire market. Now, the global standard of quality will, that we are trying to put will solve for one of the issues in the logic our market, and that’s the quality of the underlying credit. But it doesn’t solve for other issues such as, you know, the moral conundrum of should I offset or not offset etc. And, and there are other initiatives that are looking at different pieces of this puzzle. At the same time, what we’re seeing, and we’ve seen it in different places in Europe, and in the US, we’re seeing a growth in actual financial regulators or competition regulators, looking very keenly at issues like the claims, when a company comes out and says, I’m putting in a carbon neutral LNG, that claim in certain countries in Europe is no longer illegal, because the the understanding from certain certain court systems is that if you’re putting out in the in the in the in the world, liquefied natural gas, which is a fossil fuel, you cannot claim that fossil fuel to be carbon neutral, because it gives the impression that the driver when when it drives with with LNG, it’s bus that somehow it’s harmless. And and for some in Europe, that’s that’s not so right. So there’s more and more, let’s say an accent of regulation coming from governments and coming from financial and competition and advertising regulators.

Nova Safo 

This all sounds really complicated. And it’s all towards the goal of net zero, not actually zero emissions. So my question is, not only is it time to just basically get past net zero one, and our carbon credits really the solution here? Or do we need to actually move past them and look at much more, you know, concrete steps that all of us can take?

Pedro Martins Barata 

Carbon credit is just a tool. So first of all, what is the goal, the goal? Why did we call it net zero, its net zero, because even at the global level, we know that there are some emissions of carbon that we cannot reduce, at least not with the current level of technology that we have. And so what happens at that, at that point, is when we need to get to net zero is we will have to have the technologies to remove carbon from the atmosphere. And today, there’s only really one technology that we can deploy at scale. And that’s force, force , essentially, our our, our single removal technology that we have, and we’re working really hard to get other removal technologies by then. So net zero is a goal is not nobody, I think questions that the reasonability of netzero. The question is, do we need this as a global net zero goal that we have? Do we need to have each company pursue its own net zero strategy? I would say yes, because that is a very big motivator for companies to company companies are motivated by targets. And that theory is a very motivating target. It has already led to significant amount of finance going into decarbonization options. But we should not lose sight that not everything has to be done by companies. First of all, not everything has to be done voluntary. And quite the opposite. I would actually even say, if, if we can, what we should be looking to get is more and more mandatory policies that really drive emission reductions to capital net zero is a worthy goal. But it shouldn’t detract from the fact that we need everything that we have in our arsenal to decarbonize as quickly as possible.

Nova Safo 

All hands on deck right. Pedro Martins Barata is with the Environmental Defense Fund and he spends a lot of time thinking about carbon markets and private sector, decarbonization. Thank you for coming on and giving us this important, you know, primer on this whole area. Thank you.

Kimberly Adams 

Yes. Thank you, Pedro. Appreciate it.

Pedro Martins Barata 

Thank you.

Kimberly Adams 

You know I was really struck by this idea that trees are kind of the only carbon removal project, you know, product that we have at scale. Because we had another show, we were talking about carbon capture and carbon, you know, removal and all these different technologies or storing carbon and whatever carbon sequestration. But yeah, the only one of these strategies we have to deploy at scale is trees.

Nova Safo 

Yeah.

Kimberly Adams 

You know what we want to hear what you all think about carbon credits, and how well this works as a climate solution. I know, it seems at the end of all these conversations, we’re like, oh, we need a little bit of everything. But where do you all think should fit in the mix, you can reach us at 508-827-6278. That’s also known as 508-U-B-SMART, we’re gonna be right back.

Nova Safo 

Okay, Kimberly, it’s time for some news.

Kimberly Adams 

You know, why don’t you go first, because it looks like yours is more on topic with what we just discussed.

Nova Safo 

You know, it’s almost like on cue, the White House released the latest National Climate Assessment, this is a really big deal. It comes out every four to five years. And it gives us a sense of where we are, and how much we’re being impacted by climate change, you know, where we are in that process. And well, there’s some bad news, things we will already know extreme weather events have become really common, going from once every four months in the ‘80s to once every three weeks this last year. That’s the bad news, the good news, we are headed in some good directions, the country’s energy related greenhouse gas emissions fell 12%, between 2005 and 2019. Even as the population grew even as the economy grew, so that’s good. Wind energy costs dropped 70% solar energy costs dropped 90% over the last decade, these are all positive things, we still have a lot of work to do, according to this report. And one of the most important elements of it is a new chapter in this particular assessment that looks at economics of climate change, the economic impacts, and what did they find? This will not be a surprise to a lot of people either. I’m gonna quote this families living below the poverty line often live, where climactic changes are expected to be the to be the most economically damaging, like the already hot SE. And, you know, historic segregation and housing discrimination has resulted in many black and other minority communities living in neighborhoods exposed to environmental risks. So still lots of work to do. But some signs of hope.

Kimberly Adams 

You know, it’s interesting that they brought in sort of this, this climate justice component, I remember after George Floyd was murdered, and there was sort of this big announcement from the White House to take a whole of government approach to, you know, addressing issues of racial discrimination and issues related to race. One of the things that they promised was to take a racial justice lens to a lot of different things. And I, this is sort of another example, I guess, of where that’s showing up to see this showing out showing up in the climate assessment. But yeah, that’s a it’s very uneven, these impacts of climate change. You know, the photo on the story that you linked to from Reuters of, you know, the floods in New York, it’s just a reminder of how almost regular these extreme, these very extreme climate events have already become. Right. Okay, that’s grim. But I appreciate that you started with the good news. So thank you for that. Thank you.

Nova Safo 

We needed it. And we got a glimmer of hope somewhere.

Kimberly Adams 

Some glimmer of hope. Well, my story, as you know, I don’t know if it’s optimistic or negative or whatever. It’s kind of, anyway, so there’s a story in NBC News about people working overtime right? And how lots of folks who talked about the staffing shortages and how you know what it does to wages, what it means for people looking for a job. But one of the things that chronic staffing shortages and chronic sort of low unemployment, which is good, because it means that most of the people who want a job can still get a job. But businesses are still really struggling to fill positions, especially in a lot of a lot of industries where you need a certain number of people to do a job at a given point, thinking firefighters, nurses, police officers, child care facilities. And so what’s happening is that people in these fields are working tons and tons of overtime. So I’m just going to read from this article. From firehouses and police stations to hospitals and manufacturing plants, workers say they are being required to work increasing overtime hours to make up for post-pandemic worker shortages — leaving them sleep-deprived, scrambling to cover child care duties, and missing birthdays, holidays and vacations. While the extra hours can provide a financial boost, some workers say the tradeoff is no longer worth it, and and as they see no end in sight to a problem that has now lasted several years. And I don’t know if you remember the potential strikes on the railroad where the Biden administration intervened to stop those workers from going on strike. But a big part of it was them saying, Look, yes, we want more money. But really, we want our time back. Because we’re being forced to work all this overtime, and we’re tired. The, I think it was also it came up in the UPS negotiations when they were getting ready to go on strike saying that they were tired of being forced to work all of this overtime, and they wanted their time back. And, you know, after fighting for wages for so long, especially post-recession, not the pandemic recession, but the recession prior to that people had to fight since the Great Recession, people had to fight so hard to get wages up. And now it’s interesting to see people really fighting for their time, because they’re burned out. And there’s not enough people to do the jobs that need doing. And, you know, they’re pushing this this article points out people are the labor unions are pushing for employers to raise wages further and invest in training and improve work environments to fill these empty roles. But it is an ongoing issue, you know, just being short staffed and people being tired.

Nova Safo 

Yeah, this overtime, though, for one, one thing? Is it really overtime when it’s mandatory? I mean I guess you’re making overtime money.

Kimberly Adams 

It’s overtime legally if you’re working more than 40 hours a week.

Nova Safo 

But I always think of overtime as somewhat voluntary. You know, like, would you please work a little extra because we need more, but like when it’s so, when it’s mandatory overtime? Just I don’t know, it has a different ring to it for me. But second of all, do you think this problem started during the pandemic, or it just made it worse?

Kimberly Adams 

I think the pandemic made it worse. I mean, we’ve got a lot of trends in society that contribute to workforce shortages, you know, the rising cost of college education and certificate programs for fields like nursing, for example, or the medical field. And so that increases barriers to entry for these jobs where we have an aging population that needs more medical care, but fewer people going into the field because it’s too expensive. And it takes too long to get the degrees, you know, with too long being subjective, obviously. And then also, you know, starting from the Trump administration, extreme crackdowns on immigration that reduce the number of immigrants we had coming into the country, often who had these higher levels of skills to fill these jobs are thinking again, of nursing or of you know, in some technical fields and things like that. And so I think that the pandemic then exacerbated some, you know, already happening trends plus population declines, etc.

Nova Safo 

Yeah, which ignored one of the things that we know fundamentally, that gives America its economic strength is the fact that we can import labor more easily than other countries can and that helps us out and helps grow our economy. And we haven’t been doing it. Yeah. Alright, well, that’s it for the news. Kimberly, what do you think, should we do the mailbag?

Kimberly Adams 

I think we should.

Nova Safo 

Let’s do it.

Mailbag

Hi Kai and Kimberly. This is Godfrey from San Francisco. Jessie from Charleston, South Carolina. And I have a follow up question. It has me thinking and feeling a lot of things.

Kimberly Adams 

So as we were just discussing last week, we talked about carbon capture technologies and some of the risks that come with them and we got a message about another kind of carbon capture. Let’s hear it.

Reginald

This is Reginald from Scottsbluff. Nebraska. I did a cursory search of your program history and didn’t find anything related to carbon sequestration from growing crops. By the inflection in your voices the carbon capture show was a bummer to both of you. So consider this topic as potential set up for your souls is a burgeoning industry and ag production. There’s much you have to know on how to use it for improving the environment on the macro scale. But it is as simple as planting seeds and growing crops. I’m an ag producer in western Nebraska and Eastern Wyoming. I’m all in on these concepts. Keep up the great work.

Kimberly Adams 

Oh, thank you. That’s, that’s nice to hear Reginald. And so our producers added this note that by planting cover crops, as Reginald was just discussing, farmers can help keep CO2 in the ground, the plants basically take in more CO2 and less is released from the soil. And there are there are efforts to develop carbon offset programs that would pay farmers for planting cover crops. And so this is an alternative to just like leaving a field sitting empty in between plantings, but just to like maybe plant Clover or something that allows that carbon to stay in the ground, which you know, over hundreds and thousands of acres I can imagine will will make a difference.

Nova Safo 

Got it. Okay, here we go. Before we go, we’re going to leave you with this week’s answer to the Make Me Smart question. Which is what’s something you thought you knew but later found out you were wrong about? This week’s answer was prompted by last week’s answer, Logan had shared that he thought he was wrong about science as the end all be all climate solution.

Bernadette

This is Bernadette from Atlanta, Georgia. I really appreciated Logan’s response to the Make Me Smart question. Like him, I thought science would provide solutions to the climate crisis. And so I became an engineer, I work on water and waste infrastructure. But after five years in the industry, I now see how what we design and build and who benefits from it is really driven by policy. Some of Biden’s policies have given me hope, especially the civilian climate corps. But I’m concerned about the upcoming election for next year. And now more of my hope is really coming from new and younger candidates on other party tickets like Claudia De la Cruz.

Kimberly Adams 

Wow, thanks, Bernadette. It’s a, it’s interesting how much more open everybody is now about talking about age as a an issue in the 2024 race. You know, I feel like six to eight months ago, everybody was kind of tiptoeing around the topic. And now lots of folks are saying with their full voice that we really need younger people in politics. And there’s more conversations to be had about that I’m sure in the coming year.

Nova Safo 

Indeed. And, you know, almost on cue as well, along with the climate report, national climate assessment that came out, Biden administration did announce another $6 billion in investments towards, you know, helping the country become more resilient. So we’ll see what shape that takes, but it’s a promising sign again.

Kimberly Adams 

All right, we want to hear your answer to the Make Me Smart question. Our number is 508-827-6278, also known as 508-U-B-SMART. Make Me Smart is produced by Courtney Bergsieker. Ellen Rolfes writes our newsletter. Today’s program was engineered by Jayk Cherry with mixing by Brian Allison. Our intern is Niloufar Shahbandi.

Nova Safo 

Ben Tolliday and Daniel Ramirez composed our theme music. Our senior producer is Marissa Cabrera. Bridget Bodnar is the director of podcasts. Francesca Levy is the executive director of Digital and Marketplace’s vice president and general manager, and our boss is Neal Scarbrough.

Kimberly Adams

Our boss. Everybody’s boss.