Carbon Trading For Sustainable Future

As the global community confronts the pressing challenges of climate change, sustainable development has become more than just a buzzword; it's a critical imperative. The ever-increasing levels of greenhouse gas emissions, primarily carbon dioxide, are creating a host of environmental and socio-economic issues. The unsustainable levels of carbon emissions resulting from human activities such as industrial manufacturing, transportation, and energy production have contributed to the deterioration of the climate. Recognising the urgency to address this problem, governments, organisations, and individuals alike have sought solutions to reduce and mitigate their carbon footprint. One such solution that has gained momentum in recent years is carbon trading.

Concept 

Carbon trading is an economically oriented approach aimed at addressing the challenge of global warming by curbing the release of greenhouse gases, notably carbon dioxide, stemming from the combustion of fossil fuels in the framework of carbon markets. Businesses and individuals have the opportunity to compensate for their emissions by acquiring carbon credits from organisations committed to diminishing or eradicating their own greenhouse gas outputs. This system essentially creates a financial incentive for emissions reduction and fosters environmental responsibility within a market-driven context.

Since the Kyoto Protocol, under the United Nations Framework Convention on Climate Change (UNFCCC), there has been a notable increase in the worldwide implementation of clean development mechanisms (CDM) and emissions trading systems. The targets for the first commitment period of the Kyoto Protocol covered emissions of the six greenhouse gases, including carbon dioxide.

Carbon trading is a market-based approach that aims to reduce greenhouse gas emissions by putting a price on carbon. It enables companies and governments to trade emission permits, which represent a certain amount of carbon dioxide (CO2) emissions. By implementing a cap on total emissions and allowing entities to trade these permits, carbon trading creates a financial incentive for reducing emissions and investing in cleaner technologies.

If a company exceeds its allocated emissions limit, it can purchase extra permits from another company that has managed to reduce its emissions below its allocated limit. This transaction benefits both parties, as the emitting company avoids paying potentially higher fines for exceeding its limit, while the reducing company gains a financial reward for its efforts.

Carbon trading

In 2001, the government of Nepal entered into a significant agreement with the World Bank's Forest Carbon Partnership (FCP). This landmark Emission Reduction Payment Agreement (ERPA) paves the way for Nepal to receive up to US$45 million in support aimed at curbing carbon emissions resulting from deforestation and forest degradation. Over the course of the agreement, spanning until 2025, Nepal is expected to achieve a remarkable reduction of 9 million tons of carbon dioxide emissions, specifically within the Terai Arc Landscape. Under this agreement, Nepal will receive USD 5 for every ton of carbon dioxide emissions successfully mitigated.

Nepal as a least developed country has the opportunity to participate in the Reducing Emissions from Deforestation and Degradation (REDD) programme, which allows developed countries to purchase carbon offsets from countries like Nepal. Basically, REDD+ is a voluntary climate change mitigation framework developed by the UN Framework Convention on Climate Change (UNFCCC) that plays prominent role in the conservation and sustainable management of forests, and enhancement of forest carbon stocks in developing countries. In the pursuit of sustainable and greener futures India has made a significant step by introducing the Carbon Credit Trading Scheme (CCTS). 

The Energy Conservation (Amendment) Bill, 2022, through which this innovative scheme is brought into force, gives the federal government the authority to create a framework for carbon trading. With the CCTS, India aims to create a thriving domestic carbon market, encouraging industries and entities to reduce their carbon emissions through a market-based approach.

Significance

One of the major benefits of carbon trading is that it unlocks the potential for sustainable development. By putting a price on carbon, it encourages industries to adopt cleaner technologies and energy sources, such as renewable energy, to reduce their emissions. This not only helps combat climate change but also fosters economic growth and job creation in the renewable energy sector.

Furthermore, carbon trading provides a source of funding for sustainable development initiatives. The revenue generated from the sale of emission permits can be reinvested in projects that promote sustainability, such as reforestation efforts, renewable energy infrastructure, or energy-efficient building programs. These investments not only lead to reduced emissions but also have positive social and economic impacts on local communities.

Carbon trading has opened doors to a new era of international collaboration through the exchange of carbon credits. This globally recognised tool is instrumental in bridging nations and unifying their efforts towards a common goal: mitigating the devastating impacts of climate change. Countries across the globe can participate in emissions trading schemes that facilitate the exchange of carbon credits, solidifying international partnerships in the face of this worldwide crisis. Such collaborations strengthen the ties between nations and encourage the transfer of cleantech expertise, research, and resources. Also, the mechanism of carbon credits intersects with goal 7, goal 8, goal 13 and goal 15 of Sustainable Development Goals (SDGs).

Carbon trading facilitates such collaboration at international as well as at regional levels. These schemes bring nations together, transcending geopolitical boundaries. The European Union's Emission Trading System (EU ETS) is one of the world's largest carbon market which works on 'cap' and 'trade' principles. It aims to make polluters pay for their greenhouse gas emissions, helps bring emissions down and generates revenue to finance the EU's green transition. The EU member states under European Climate Law aim to become climate neutral by 2050.

Nepal has a vast potential for renewable energy, such as hydropower, solar, and wind energy. By investing in these renewable energy projects, Nepal can reduce its dependency on fossil fuel-based energy sources and generate carbon credits, which can then be sold in the international market. Nepal has set a goal to achieve net zero carbon emissions by 2045, which aligns with the growing global focus on climate change mitigation. Many developed nations have made commitments to reduce their emissions and are actively looking for ways to achieve these targets. By participating in global carbon markets, Nepal can contribute to these efforts and receive financial support for its sustainable development initiatives. The participation in carbon trading can provide Nepal with access to climate finance and technology transfer. Developed countries often channel funds to developing nations through mechanisms like the Green Climate Fund to support their climate change mitigation and adaptation efforts. By engaging in carbon trading, Nepal can demonstrate its commitment to reducing emissions and attract financial assistance to support its transition to a low-carbon economy.

Positive impacts

In order to fully harness the potential of carbon trading, governments and organisations shall establish the frameworks that ensure transparency, accountability, and integrity in the carbon market by preventing any fraudulent activities or market manipulation. Additionally, it is important to ensure that the benefits of carbon trading reach local communities and vulnerable populations. Investments generated through the sale of carbon credits should be directed toward projects that have positive social and economic impacts. This includes initiatives that promote community development, enhance livelihoods, and protect the rights of indigenous peoples and local communities.

(The author is a BALLB student at Kathmandu School of Law.)