Are Carbon Credit Exchanges Ethical?

Carbon Credit Exchanges Ethical

Carbon credits are becoming increasingly popular as a means for companies to mitigate their climate impact. This has led to the development of carbon credit exchange where companies can purchase and sell these credits. While this can help with environmental concerns, several ethical issues are raised with these markets. These include the fact that they allow the wealthy to evade their responsibilities, that it puts a price on the natural environment, and that there are not enough offsets for everyone. This paper considers these issues through the lens of moral philosophy and economics.

The carbon market is made up of two different parts: the compliance market and the voluntary market. Compliance markets are run under the authority of a regulatory body, such as the Commodity Futures Trading Commission (CFTC). These markets are meant to control emissions in an industry, for example, the carbon offset market for international aviation, created through the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) program.

Are Carbon Credit Exchanges Ethical?

These markets work on a system of caps and trades. A cap is a limit on emissions, which decreases over time, and a trade is a way to circumvent the emission limits by paying someone else to reduce their emissions. The main issue with these markets is that they are often not transparent or accountable to the public, so it’s difficult to tell how much pollution is being reduced or if the offsets are legitimate.

The voluntary market operates a little differently. Many big companies, from Costco to Apple, now buy clean energy in order to neutralize their carbon footprints. One of the most popular ways to do this is by purchasing “carbon credits” from an offsetting company, which is then able to say that it has offset its own emissions. This is a very attractive market to companies that are concerned about their carbon footprint, and is a huge reason why carbon offsetting has become so popular.

Generally speaking, these carbon credits are purchased from projects that would have happened anyway. For example, tree planting projects are a popular source of offsets. However, a number of academic studies have found that these projects are often not adding any additional benefits to society and are being used as greenwashing. This has raised serious concerns about the reliability of these markets.

To address this, a group of senators has written to the CFTC urging them to investigate and regulate these voluntary markets. Currently, the CFTC has only antifraud and anti-manipulation authority over the spot or cash markets, where carbon is traded. This is an issue that will require congressional action if the senators want to see change happen.