Criticisms on Carbon Credit Scheme
Environmental restrictions and activities have traditionally been imposed on businesses through regulation. Many people were, and still are, uneasy at the use of a novel market-based approach to managing emissions, although the concept of Cap and Trade eventually won the day in international negotiations.
The Kyoto mechanism is the only internationally-agreed mechanism for regulating carbon credit activities, and, crucially, includes checks for additionality and overall effectiveness. Its supporting organisation, the UNFCCC, is the only organisation with a global mandate on the overall effectiveness of emission control systems, although enforcement of decisions relies on national co-operation. The Kyoto trading period only applies for five years between 2008 and 2012. The first phase of the EU ETS system started before then, and is expected to continue in a third phase afterwards, and may co-ordinate with whatever is internationally-agreed at but there is general uncertainty as to what will be agreed in post-Kyoto negotiations on greenhouse gas emissions. As business investment often operates over decades, this adds risk and uncertainty to their plans. As several countries responsible for a large proportion of global emissions (notably USA, Australia, China and India) have avoided mandatory caps, this also means that businesses in capped countries may perceive themselves to be working at a competitive disadvantage against those in uncapped countries as they are now paying for their carbon costs directly.
A key concept behind the cap and trade system is that national quotas should be chosen to represent genuine and meaningful reductions in national output of emissions. Not only does this ensure that overall emissions are reduced but also that the costs of emissions trading are carried fairly across all parties to the trading system. However, governments of capped countries may seek to unilaterally weaken their commitments, as evidenced by the 2006 and 2007 National Allocation Plans for several countries in the EU ETS, which were submitted late and then were initially rejected by the European Commission for being too lax .
A question has been raised over the grandfathering of allowances. Countries within the EU ETS have granted their incumbent businesses most or all of their allowances for free. This can sometimes be perceived as a protectionist obstacle to new entrants into their markets. There have also been accusations of power generators getting a 'windfall' profit by passing on these emissions 'charges' to their customers. As the EU ETS moves into its second phase and joins up with Kyoto, it seems likely that these problems will be reduced as more allowances will be auctioned.
Establishing a meaningful offset project is complex: voluntary offsetting activities outside the CDM mechanism are effectively unregulated and there have been criticisms of offsetting in these unregulated activities. This particularly applies to some voluntary corporate schemes in uncapped countries and for some personal carbon offsetting schemes.
There have also been concerns raised over the validation of CDM credits. One concern has related to the accurate assessment of additionality. Others relate to the effort and time taken to get a project approved. Questions may also be raised about the validation of the effectiveness of some projects; it appears that many projects do not acheive the expected benefit after they have been audited, and the CDM board can only approve a lower amount of CER credits. For example, it may take longer to roll out a project than originlly planned, or an afforestation project may be reduced by disease or fire. For these reasons some countries place additional restrictions on their local implementations and will not allow credits for some types of forestry or land use projects.
