Carbon Bonuses: A Potential Solution

Climate change, although a natural phenomenon on Earth on a time scale of tens of thousands of years, has become an unnatural climate crisis because of its massive impact in a relatively short period of time. The causal relationship between the climate change we are experiencing and human activities has been demonstrated: it was after the industrial revolution that this phenomenon began to progressively harm the environment, deriving the greenhouse effect and bringing with it more extreme weather events. The series of environmental imbalances on our planet has led to the need to try new options to address the problem.

Globally, governments and companies have been forced to seek alternatives for sustainable recovery and to try to reverse the damage caused. One of these alternatives is carbon credits.

What is a carbon bond?

Carbon credits, also known as carbon credits, are market incentives to reduce greenhouse gas (GHG) emissions through a scheme where a certain amount of emissions from a company or government is assigned a monetary value. A carbon bond represents the equivalent of one ton of carbon dioxide (CO2e) and its value varies depending on the market in which it is sold, exchanged or withdrawn.

For example: A company may have the right to emit a certain amount of carbon, represented by a certain number of carbon credits; if it emits less than that limit, that company has “extra” bonds that it could sell to another company. If it issues more than that limit, the company has the obligation to pay for that surplus by buying more carbon credits. This makes reducing emissions more convenient and cost-effective for the company.

Carbon credits can be classified according to how they are generated or the reason for which they are granted (International Trade Center, 2015):

Carbon Reduction Credits: These are generated through the collection or removal and storage of GHGs from the atmosphere (carbon sequestration) and their permanent collection and storage. They can also be understood as bonds that are generated thanks to environmental projects that are actively capturing carbon so that it stops contributing to climate change. These bonds generated represent captured carbon.

Carbon Offset Credits: They are obtained through the cleaner generation of energy from renewable sources such as the sun, water and biological fuels, or through the more efficient use of energy in general within the activities of a company or a country. They can also be understood as bonds that are granted for issues that were avoided thanks to better production and operating practices. These bonds granted represent avoided carbon.

Correctly implemented, this system makes it possible to offer incentives to private companies to be proactive in their environmental contribution, regulating the emissions generated by their production processes and granting the right to emit CO2 as an exchangeable good when they have implemented all possible measures to reduce emissions. At the same time, the system also promotes ecological restoration and conservation initiatives to increase the amount of carbon captured using nature-based solutions.

Origins

The decade of the seventies constituted a rupture of “development” paradigms. After this revolution, environmental and social issues began to be part of the agenda of nations and economic growth per se was questioned.

The concept of sustainable development formulated by the United Nations in 1987 was a watershed in various reforms in global trade, production and consumption relations. The idea summarized of sustainable development according to the 1987 publication “Our Common Future”, a report of the World Commission on Environment and Development, is:

“Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Sustainable development encompasses different sectors of society and the economy, and carbon markets are one piece of the puzzle. Given the need to take measures to counteract the process of accelerated global warming, the genesis of these markets took place since 1992 in Rio de Janeiro during the adoption of the United Nations Framework Convention on Climate Change, which sought a commitment to the stabilization of GHG emissions.

Five years later, in 1997, the Kyoto Protocol was created. Playing an extremely important role in this issue, he defined the structure of the carbon market where the quantified objectives of emission reductions and market mechanisms to reduce the cost of implementation were established. This protocol was ratified in 2005 and its period of validity was from 2008 to 2020.

Although the Kyoto Protocol was critical in moving towards sustainability, it had several deficiencies and it was necessary to create another international agreement in 2015: the Paris Agreement. This agreement has as its vision the improvement and resilience to climate change and its premise is the reduction of GHGs to achieve emission neutrality by the middle of the century. It was adopted by 196 parties at COP21 and came into force in 2016. One of the long-term strategies of this Agreement is the market mechanism, meaning that countries will be able to use tools such as buying and selling emissions and setting the price of carbon, thus encouraging activities to reduce emissions.

Collective responsibility is extremely important in this agreement: developed countries must finance developing countries with at least 100 billion dollars annually starting in 2020 for mitigation and adaptation plans. This agreement is unprecedented, since for the first time in history, countries are coming together for a transcendent cause and thus joining forces to achieve tangible change.

How does the carbon market work?

Carbon markets have as their main objective the reduction of greenhouse gas emissions through the purchase of emission permits and include the use of forests and forest plantations as carbon sinks (Bravo, 2006). This type of market operates similar to other markets where supply and demand exist and can be traded in the financial market. Carbon bond transactions are directly related to GHG mitigation.

But... How do you capture the carbon represented by a bond or credit? A good example of this process is taking place in the municipality of Tapachula, Chiapas, where more and more forest damage has occurred due to coffee plantations. The ecosystem of the area is characterized by mesophilic mountain forest and tropical forest, which are ideal for growing coffee and at the same time being a carbon sink under sustainable management.

The municipality's coffee growers decided to act to implement better cultivation practices and reverse the damage of years ago. Toroto helped them design and launch a project whose purpose is that all the emissions that are generated, from the time the coffee fruit is planted to the final product, are offset through the capture of carbon by the forest, as a result of sustainable and restorative forest management where the flora and fauna of the area are preserved.

The components of the project:

Project design;
Survey of monitoring sites;
Preparation of the forest carbon inventory;
Preparation of the manual of species in the area;
Verification by an accredited body;
Issuance of carbon bond certificates;
Permanent restoration work in the jungle;
Constant monitoring, reporting and verification over the years.

Essentially, photosynthesis is the basis of these forestry projects. During this process, from the CO2 that is absorbed, the oxygen (O2) that we breathe is returned to the atmosphere and the carbon (C) becomes part of the wood and organic mass of the tree. About half the weight of each tree is carbon that was in the atmosphere and is now in its trunk.

What is being done during the project is to establish monitoring sites in the jungle; approximately 100. At each monitoring site, the diameters and heights of all trees are measured. This allows us to know, with an error of less than 7%, the amount of carbon that is in the entire reserve and the amount of carbon that is captured year after year. This process is also audited by a scientific verifier who certifies the veracity of Toroto's work.

Through the actions implemented in the forestry project, the objective is to capture more carbon than would have been captured without the project. Therefore, this captured carbon is considered “additional” and makes it eligible to be part of a certified carbon bond. This is the type of bond that represents captured carbon and can be purchased by a company that needs to offset the emissions it has not been able to reduce.

Technology and Transparency

The development and use of new technologies is extremely important to be able to manage this type of project. For example, in order to achieve the survey of the forest carbon baseline, Toroto has an engineering team that adheres to the GHG protocol. It is used to measure and report greenhouse gas emissions, implementing knowledge according to the conditions of each region. Another technology implemented in this type of project are geographical information systems (GIS), necessary to manage and analyze data such as spatial location with 3D maps and scenes, identifying patterns, relationships and particular situations.

Along the same lines as the development of new technologies and projects to combat climate change, the visibility and transparency of the carbon market is important. Toroto offers a Mexican platform called Metaregistro, where you can search and locate carbon credits on interactive maps as well as consult the data that concerns them, providing visibility and traceability to the carbon market.

Let's keep in mind that climate change is a problem of such magnitude, that with individual actions alone it will be very difficult to see a tangible impact. It is important to act collectively as a society, demanding changes as consumers but also as citizens from decision makers. In addition, it is essential to inform us about the new proposals being made at the national and international levels to address GHG emissions and to be part of the climate conversation, amplifying the various existing and emerging solutions, including the responsible application of carbon credits.

If you are interested in learning more about the transparency of carbon markets and the role of technology, join the webinar on the Metaregistration, on August 18 at 13:00 p.m. Sign up here!

Bibliography

• International Trade Center. (2015). Retrieved July 30, 2021 from http://www.intracen.org/guia-del-cafe/el-cambio-climatico/Definicion-de-los-bonos-de - carbon/
• Eguren, L. (2004). The carbon market in Latin America and the Caribbean: balance and perspective. Sustainable Development and Human Settlements Division. (pp.7-8). Chile: United Nations - ECLAC.
• Labandeira, X. Leon, C, Vasquez M. (2007). Environmental Economics. (pp. 27). Spain: Editorial Pearson.