When will Vietnam complete building its own laws regarding carbon credits and the carbon credit market? PART 2
Part 2: What future for carbon credits?
The consequences of global warming: pollution, natural disasters, floods, abnormal heat waves, global climate change…
After only 3 years of COVID-19 from 2019 to 2021, it was thought that the war against climate change would come to a dead end when countries such as the US, China, and Europe focused more on economic development during and after the pandemic due to global production disruptions. The emergence of populist movements such as President Donald Trump’s “America First” policy and Brazilian President Bolsonaro’s policy of sacrificing forests for the economy has also made the fight against climate change seem to be under scrutiny. However, the disasters of climate change have quickly shown that carbon certification is never outdated. It can also be said that carbon certification is only one part of the fight against climate change, but it is the core part that helps reduce global emissions and rebalance the Earth’s ecosystem.
Future climate change conferences need to focus more on substance rather than just recommendations, support, and blame. According to many environmental and economic experts, the economy from 2020-2040 will move towards a global environmental economy, meaning individuals will be held accountable for every consumption that immediately affects the environment, rather than waiting for the future. Yesterday, an Indian exhausted by the extreme heat of up to 40oC might not understand why. However, this is entirely responsible for the huge carbon emissions that increase every day from irresponsible consumption and production activities in another country. The question is: why do some suffer from unusually bad climate disasters while others profit from it? Western legislators are under pressure from environmentalists and climate change advocates, as well as from large economic corporations emitting high amounts of carbon, when it comes to policy drafting. Therefore, current environmental policies are still quite vague or not drastic enough.
Is it time for stricter monitoring of carbon certificates?
An example of the ambiguity in the application of environmental laws in carbon credits is the purchase of outdated or counterproductive carbon credits. A recent analysis of global data by Nikkei Asia Review reveals that almost 40% of the carbon credits that companies purchase are more than five years old, a trend that experts warn is undermining progress in reducing greenhouse gas emissions. Nikkei examined data from 2009 published by Verra, one of the world’s largest carbon offset accrediting bodies, evaluating approximately 99,000 credits used to offset 192 million tons of CO2. The data includes the names of the companies that bought the credits. While older credits do not necessarily reduce carbon emissions less effectively, they can hinder efforts to reduce greenhouse gases since intermediary institutions seldom assess whether a project can be implemented on a credit basis, such as afforestation, once a credit is issued. A reforestation project in central India, which received credit between 2012 and 2014, is a clear example of the challenges. Satellite imagery shows an increase in tree clearance in the project area and that the construction of solar panels has not been successful. A reforestation project in Uruguay, which received carbon credits in 2007 and was expected to last for 100 years, is currently at a standstill, leading to further deforestation.
Today, a company may buy carbon credits generated from planting a forest in a poor country for three to five years, but the credits may become meaningless the following year due to economic problems in the region.
The Nikkei analysis shows that 38% of the credits purchased by companies, equivalent to 73 million tonnes of CO2, are over five years old, while over 4% are at least ten years old, and only 37% are three years old or younger. If credits supporting such failed projects continue to be traded, they will undermine global decarbonization efforts.
Forecasting the carbon credit market in the future?
The real carbon credit market only operates and applies to large companies and many developed countries. Meanwhile, in many countries, the concept is not even mentioned in their laws. Thus, it basically covers a very small number of companies and individuals that cause carbon emissions globally. But the current climate change emergency clearly needs wider mass adoption. According to some environmental experts, the future application of the carbon index will be replaced by a composite pollution index. This index cannot be applied only to companies or countries in general, but should apply to individuals. That means if you ride a motorcycle today and consume 1 liter of A92 gasoline, an environmental tax will be imposed on you through the price of the gasoline you consume. Other goods that have a greater carbon footprint than the norm will have a carbon tax imposed on the company that produces that good, and then it will show up in the cost of the product you buy.
However, carbon credits are not just about imposing taxes or penalties, but also in the credit you receive for reducing your carbon emissions. This is shown by selling carbon credits from other companies such as planting forests, maintaining tree cover, or simply saving more than the amount of carbon released. This is possible for individuals, although it is more difficult to measure than for an economic entity. For example, one resident will be given a certain amount of carbon credits, but if they save money by walking instead of riding a motorcycle or taking public transport instead of taking a private car, they will be recognized for consuming lower-than-usual carbon credits and will be rewarded. This idea is getting a lot of interest from environmentalists because it is obviously very realistic instead of vague, and more clearly, the poor will benefit from less consumption.
However, an idea is still just an idea if it is not put into practice. Therefore, how detailed the law on carbon credits will be developed by environmental lawmakers and how it will be applied is an open question for the future.
WINCO is one of the pioneering law firms in environmental activities. WINCO has been and is collaborating with relevant agencies to provide feedback and improve the 2020 Environmental Law in order to work towards amending the 2023-2024 Environmental Law. We are always aware of the importance of legal professionals in shaping a healthy legal environment that protects the environment and the habitats of people and living creatures on the planet. WINCO also aims to actively engage in activities related to wildlife and green trees in Vietnam. We are pleased to introduce an article exploring carbon credits and their significance in combating global warming and climate change.