What is a Carbon Credit? Its true definition is the ESO or Exchange Soil Offset or, more popularly the CO2e or Carbon Dioxide equivalent but what is it equivalent to? We know that 1 Carbon Credit equals 1 Tonne of CO2 and for every 3.67 Tonnes of CO2 there is 1 Tonne of Carbon.
The main thrust behind the Carbon market is that it derives its Carbon from notional reductions in the activities of polluters. Our natural environment can't solve our problems quickly enough nor change our polluting mentality and since we value Carbon sinks as the preferred final destination for atmospheric CO2, we should put a value on our pollution reduction activities as well. Increasing the number of trees we plant is nothing if we don't attempt to reduce pollution in the first place. The Carbon Market is currently guiding businesses through the process of acquiring Carbon Credits by helping to reduce their emissions from what has been termed 'business as usual' methods.
So if any company based anywhere (any company from any nation that has signed up to the Kyoto Protocol) can demonstrate that it has installed new technology or practices that reduce their CO2 emissions from what they would have been under normal market conditions, then the amount of saved tonnes of CO2 can be used to determine the number of Credits that can be sold to other industries that, if they have also signed up to the Kyoto Protocol, they must hold to offset their own pollution. It is a pollution tax after all and those seeking to reduce their pollution the most have this way of being rewarded for it. One day the ownership of Carbon Credits will be mandatory so there should always be a market for however many you have gained.
Savetheplanet launched its own Carbon Credit back in 2005 and so far the market has decided to keep the real Carbon Credits well away from the global populace that should really be exposed to the idea of a Pollution tax. Let's call them Credits because Science Fiction films have referred to the Credit as being the currency of the future anyway. So far, I have printed off the first batch of notes you can see below, I guessed that the 20 Credit note would be enough currency to entitle the holder to drive for 20 weeks at current technology levels. Owners of hybrids might be entitled to drive for more weeks but until I can work out the true value of a Credit, it's difficult to know how it compares to a loaf of bread, a litre of petrol or a pair of Levi jeans. Or a tree. Maybe every piece of technology we manufacture will have a Carbon Credit equivalent stamped on it.
Carbon Credits have the potential to be the next great currency because we need a way to value things against each other and CO2 is becoming a very relevant benchmark. Despite us not really wanting to change our current currency system (which sounds silly), we will have to invent something that puts a price on pollution and do something that stops us having more extreme weather. It might be almost mandatory to use Credits one day (Kyoto was set up to do that and we all pollute don't we) and there seems to be no alternative world currency that escapes local political intervention that we can all trust. Currently (2008), Credits hold the same value where ever you are because CO2 has a global impact and their price is subject to usual market forces found in stock exchanges. If everybody wants them, their price goes up.
At the moment, the Carbon market is quoting one Credit as being worth US$20 - 40, but what precisely is the picture of a Carbon Credit? What does it compare to and is this vague picture a reason why nobody I know wants to trade in them? It should be based on something more tangible than "the ability to decrease CO2 production to near 1990 levels" (Kyoto uses 1990 as a baseline date). In the initial stages of the use of the Credit, nations are voluntarily signing up to the Kyoto agreement by buying Credits to offset their CO2 production, although ultimately the agreement states that all parties should be legally bound to account for their CO2 output by investing in carbon sinks and buying an equal number of Credits and any money used to purchase Credits should be invested in the development of energy saving schemes. As the idea of trading Credits gathers pace and we are warned of climate and weather patterns becoming more obviously disruptive, the need to counter CO2 emissions will increase and the demand for Credits will become greater. Since the Credit is so inextricably connected to CO2, CO2 itself should be considered to be the currency, it has to be. In the distant future, we might end up earning ourselves so many Credits from a programme of accelerated CO2 reduction that we might render the Credit (the ability to reduce CO2 levels) worthless, which would be a good thing. But still, how much does CO2 cost, or more accurately, how much does the natural sequestration of CO2 cost. In other words, how much is a tree?
Most people see trees as the solution to the CO2 problem. There are ways to store CO2 underground but the tree is the only known thing we can "control" that absorbs CO2. I want to see how many trees it takes to absorb 1 Tonne of CO2 (1 Credit) so that I can grasp the size and scale of a real Credit. The oceans absorb a lot of CO2 (shells are calcium carbonate) but we have no control over this constant. Our farming methods and the way we handle our waste affect levels of CO2 but if you try to imagine what one Credit looks like, a tree or number of trees is a great way to give it context. So what is the market value of a tree and how much CO2 does it absorb?
Well that ultimately varies from tree to tree. An Oak in the UK is not the same as a Eucalyptus in Australia. Each tree has a different ability to absorb CO2. In practice, if the lumber price of a tree is less than its value for CO2 absorption, then foresters will naturally leave the tree to stand. So far, the unit for one Carbon Credit is given as 1 Tonne of CO2. So how many trees does it take to absorb 1 Tonne of CO2? And which particular trees do we choose? If the price of Carbon Credits were increased, would it mean that more trees would have more value if left to grow?
Since the terms of the Kyoto agreement are that trees should be left to stand for 25 years before being felled, I have used the example below to calculate how many 25 year old maple and pine trees are needed to absorb 1 Tonne of CO2.
Typically, a tree reaches a size of around 14" dbh (diameter at breast height and depends on species) at the age of 25 and according to forest charts this size of tree has a marketable volume of 130 board feet. With prices varying from US$300 - 700 per thousand board feet, this one tree can be worth anything from about US$35 - 75.
According to www.tufts.edu an average 25 year old maple tree absorbs 2.52lbs (1.1kg) of CO2 per year. Over 25 years that's 27.5 kgs. It means that 36 trees are needed to absorb one Tonne (1000kg) of CO2 and with each tree having a value of around $50, each Carbon Credit should cost at least 50 x 36 trees = US $1800. Otherwise there is more value in felling the trees. Using these trees to give estimates to their carbon value gives very expensive Carbon Credit prices. Clearly these particular trees are not very good at absorbing high levels of CO2.
According to the same website, an average 25 year old pine absorbs 15lbs (6.82kgs) of CO2 per year which means that the cost of a Carbon Credit when measured with this tree is approximately 6 times cheaper at US$300. In other words it takes $300 dollars (6 trees) worth of lumber of this type of tree to absorb 1 Tonne of CO2. If these trees are used as a benchmark for prices the Credit would cost $300. It's interesting to note from the website I refer to, how 50 year old trees consume much more CO2 than 25 year old trees.
The dilemma is which trees are we to use as the "average tree" for giving Carbon Credits their value. By having a look at the necessary charts for lumber prices, it seems to be hugely variable from region to region and species to species with prices depending on the time of the year and three measuring tables (International, Scribner and Doyle) all measuring trees differently.
My guess at $1800 and $300 for the cost of each Credit using my simplistic theory is way off the estimates of $20-40. I had imagined that a Carbon Credit would be easy to weigh and to grasp, but just as the Signatories of Kyoto are finding out, its definition is hard to place in the context of our daily lives. It would be nice to say that a Credit is equivalent to two trees growing to 50 years of age, but it really is not that simple at all.
Maybe my note which gives the driver 20 weeks driving for 20 Carbon Credits could be an indication of how much a Carbon Credit is after all. Using a simplistic ideal for working out the value of a Credit might mean it is more frequently used.
 |
ARTICLES |
Articles are invited under this Carbon Credits section. Please send enquiries to Contact.
