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Transparency holds the key to a carbon market that delivers.
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Context
The transparent and efficient carbon markets have a critical role in combating climate change. There is an urgent need for private sector involvement and market reforms to address climate issues effectively.
Understanding the Carbon Credit Market:
- Role of Carbon Credits: Carbon credits, bought and sold in a voluntary carbon market, offer companies and investors ways to reduce greenhouse-gas emissions. They help finance new clean-energy installations, drive capital to high-reward projects, fund reforestation and ecological preservation, and finance the early retirement of coal plants.
- Potential Demand: There is enormous potential demand for carbon credits. Many business leaders recognize that tackling climate change is in their companies’ self-interest and are setting ambitious decarbonization goals.
- Market Failure: The current market for credits is opaque and riddled with inefficiency. Buyers can’t be sure which credits are credible, projects often don’t deliver what they promise, and sellers can’t be held accountable. This opacity breeds inefficacy and corruption.
Implications of a Transparent Carbon Credit Market:
- Addressing ‘Scope 3’ Emissions: Companies have far less control over their ‘Scope 3’ emissions, those generated by suppliers and customers. Allowing firms to buy credits against these emissions could dramatically increase demand for them.
- Greenwashing Concerns: Lack of transparency facilitates greenwashing, where companies exaggerate their climate efforts, undermining public trust in private sector initiatives.
- Role of Transparency: Transparency works. By creating real-time pricing and making it available to buyers and sellers, we can level the playing field and allow more capital to flow to productive assets.
Addressing the Challenges and Leveraging the Opportunities:
- US Policy Statement: The US has released a policy statement and set of principles for building more transparent, responsible, and effective voluntary carbon markets. This is an important step that builds on work led by the Integrity Council for the Voluntary Carbon Market and the Voluntary Carbon Markets Integrity Initiative.
- Global Cooperation: Encouraging other nations to join should be a priority for the Biden administration, including at November’s G20 summit in Rio de Janeiro.
- Impact on Climate Crisis: Fixing the carbon-credit market won’t solve the climate crisis on its own, but it will go a long way towards enlisting the market in the fight.
UPSC Mains Questions:
Q. Discuss the role of carbon credits in tackling climate change. Evaluate the current state of the carbon credit market and the challenges it faces.
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