The beginners guide to the carbon markets

Peter Miles, CEO of eHempHouse, provides a short guide to carbon markets, and what steps should be taken at COP26 to ensure greater transparency and accountability.  

Throughout COP26 you’ll probably hear people use the term ‘carbon markets’. What does it mean and why does it matter so much?  

Most People are now aware of the disastrous consequences of allowing unregulated CO2 emissions. It is the primary cause of climate change; the impact of which can no longer be ignored. To give you the scale of the problem: we currently have nearly 420 parts CO2 per million in the atmosphere.  Pre-industrialisation it was 280 parts per million.  It is doubtful whether we’ve yet reached peak emissions as countries like China are still increasing their output.  

Some people argue that we need to stop all emissions immediately. However, in practical terms that is not going to happen. Governments, companies and individuals are not willing to make such a sudden and drastic change to their lifestyle.  And even if we stopped all emissions today, the world would continue to heat up. To fight the climate emergency, we have to take a threefold approach: 

  • Remove CO2 
  • Replace polluting products 
  • Develop mitigations for being able to live with the changed climate 

Achieving the above is more challenging for some sectors than others. The most challenging are Oil, Gas & Coal, Construction, Transport and Agriculture. It is doubtful that these sectors will make expensive changes unless they are incentivised to do so. Cement production alone, for example, produces four to five per cent of global CO2 emissions. 

It is possible to harness natural resources to cut emissions and remove CO2 from the atmosphere.  That can be done because not all products are polluting; some are not merely carbon neutral but carbon negative (the production absorbs more CO2 than it gives out). Hempcrete, for example, is a highly effective alternative to cement. As it is made from biodegradable industrial hemp plant, it is carbon negative. Hemp absorbs more CO2 than any other crop, more even than trees. Only mangrove swamps absorb more. However, hempcrete is currently more expensive to produce, so how can you get industry to make the switch unless they can see profit in it? Are consumers prepared to pay for more expensive, but environmentally friendly products?  Recent history has taught us the depressing answer to that question. 

Despite the lack of clear economic incentives, many companies are committed to reducing their emissions and achieving carbon neutrality. However, that is going to take time to achieve and that is time that the world simply does not have. In parallel to working towards carbon neutrality we have to be removing CO2 from the atmosphere. 

We also have to accept the fact that some countries, companies and people don’t care. They focus on profit to the exclusion of everything else and will break the rules to increase their returns.  Instead of working towards becoming carbon neutral, their focus will be on taking advantage of the cheaper prices they can achieve by ignoring the environment. These are the sort of people who will dump toxic waste into rivers and the ocean. They will only change if they can see it is in their commercial interest to do so. 

To achieve real change, in our capitalist system, we have to provide economic incentives to both stop the pollution and remove CO2 from the atmosphere.  We have to work with the system and to recognise the cost of CO2 in financial terms. The carbon markets are the first step towards this. They are already allowing polluting industries to offset their emissions by buying carbon credits from recognised carbon negative projects (see below for an example). The carbon markets allow the polluters to trade their pollution with those who are able to absorb it. The customer can be assured that the pollution they’re causing, through their custom, is being offset. You are most likely to experience this when you fly. 

At eHempHouse, we are providing the SB system (a Smartbox) free to African farmers so that they can successfully process organic hemp.  We are able to do this because we sell the carbon offsetting on the carbon markets. It is a powerful example of how it is possible to use an economic lever to apply a reasonable ‘cost’ to carbon, that is then used to invest in meaningful actions that augment natural capital systems.  

Whilst this is a great start, I’m hoping that COP26 goes one step further and agrees a carbon price that sets a true economic value on the pollution. This change would mean that CO2 emissions become a classic externality ‘cost’ and a carbon price is added to all products & services. It would mean that every company is given a commercial incentive to take responsibility for its pollution. The carbon price is essential if we’re to move to sustainable capitalism.  I hope COP26 is brave enough to take this step. 

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