Green Economy and Climate Mitigation: Topics of Relevance to Africa

Chapter 5 - Carbon assets in a contested global climate policy regime

Green Economy and Climate Mitigation 89 5 Introduction Individuals, corporates, financing institutions and governments worldwide are finding new ways of addressing climate change. Opportunities and new methods include the concept of carbon assets and engagement with the carbon market. The focus of this chapter is to understand what is meant by carbon assets and how these have been used in the mitigation of climate change, both globally and in Africa. Since there are so many carbon assets, discussion will be limited to the Kyoto Protocol’s Clean Development Mechanism (CDM), the joint implementation (JI) and voluntary carbon asset initiatives, such as the Voluntary Carbon Unit (VCU) or Voluntary Carbon Standard (VCS). The chapter will also deliberate on how Africa is going to be affected by carbon assets as global leaders take longer to agree on a post-Kyoto Protocol framework. The failure to conclude a new climate treaty both in Copenhagen in December 2009 and Cancún, Mexico, in 2010 has left a policy gap as regards carbon assets and the carbon markets. Carbon assets have their origins in the Kyoto Protocol. The Kyoto Protocol came into force in February 2005 and compels 37 developed countries to collectively reduce their greenhouse gas (GHG) emissions by 5,2 per cent between 2008 and 2012 from 1990 levels.2 This scenario creates the demand for carbon assets, thereby establishing carbon markets. The Kyoto Protocol stipulates three market-based mechanisms by which GHGs can be Carbon assets in a contested global climate policy regime1 Godwell Nhamo and Alfred Bimha 90 Green Economy and Climate Mitigation Carbon assets in a contested global climate policy regime reduced: the JI, emissions trading and the CDM. A summary of the carbon assets under the Kyoto Protocol regime is shown in Figure 5.1. Carbon assets are defined as ‘greenhouse gas emission reductions generated by a project when project emissions are less than those that would occur in a baseline scenario’.3 The carbon assets come in two major markets: the regulated (i.e. compliance) and voluntary markets.4 Although carbon credits are generic, they differ from region to region and from country to country. The compliance carbon credits include certified emission reduction (CER) units, which is the most common and originates from the Kyoto Protocol’s CDM projects in developing counties; emissions reduction units (ERU), which are similar to the CER, but based in the developed nations under the JI; emissions trading, popularised by the EU under its emissions trading scheme (ETS), which generates the European Union Allowances (EUAs) as credits; and the New South Wales Greenhouse Gas Abatement Certificate (NGAC). The NGAC certification process is very comprehensive and goes beyond the Kyoto Protocol requirements.5 The voluntary carbon credits include the VCU and VCS credits, which are robust global standards for approval Figure 5.1 The Kyoto Protocol and carbon assets Kyoto Protocol mechanisms International emissions trading Clean development mechanism Joint implementation Generic mechanisms that create carbon assets Generic carbon assets Assigned amount units (AAU) Carbon reduction units (CER) Emission reduction units(ERU) Green Economy and Climate Mitigation 91 Godwell Nhamo and Alfred Bimha of credible voluntary carbon credits.6 This chapter has two objectives: to continue raising awareness of the new asset regime and to document progress and policy directions regarding carbon assets, with particular reference to Africa. The Evolution of Carbon Assets There are over 30 atmospheric GHGs. However, under the Kyoto Protocol7 only six attract carbon credits: carbon dioxide (CO2 ), methane (CH4 ), nitrous oxide (N2 O), perfluorocarbons (Cx Fx ), hydrofluorocarbons (HFCs) and sulphur hexafluoride (SF6 ). These gases have been regarded as the most significant in terms of disastrous climate change and, therefore, in reducing them, countries earn carbon credits. In terms of the carbon assets and markets, there is a need for a common denominator in terms of the reduction point of GHGs in order to make them tradeable, and this has resulted in making CO2 the base gas.8 Table 5.1 shows how the carbon assets relate to conversion factors in terms of the main GHG emissions and their global-warming potential. Table 5.1 Carbon assets and conversion factors Greenhouse gas Global-warming potential Carbon dioxide 1 Methane 21 Nitrous oxide 310 Perfluorocarbons 6 500–9 200 Hydrofluorocarbons 140–11 700 Sulphur hexafluoride 23 900 Source: Adapted from UNFCCC 2010, Global warming potentials, http://unfccc...