Carbon Credits As Today’s New Currency

Carbon credits are set to become a currency of the future as companies
and individuals try to reduce their carbon footprints. Carbon now has a
price and a carbon credit is a measure of that.

Today, one of the efforts to offset greenhouse gas emissions undertaken by countries is the issuing of Carbon Credits. Its main objective is to reduce carbon dioxide emissions to near 1900 levels. National governments set caps or quotas of carbon emissions on industries. Each operator then has an allowance of credits, where each unit of it entitles them to emit one tonne of carbon dioxide. In addition, operators that have not used up their emission quota can sell their unused allowances as Carbon Credits to other operators.

The mechanism used in Carbon Credits gives it the potential to become the world’s next great currency. First, the scope of Carbon Credits is global since everyone in the world is affected by carbon emissions. The effects of carbon emissions impact both rich and poor countries. Second, Carbon Credits are not likely to be affected by weather disturbances and local political events, unlike national currencies like the Euro, which fluctuates depending upon several factors. Since the scope of Carbon Credits is so large, it will not likely to be easily affected by a disturbance within one nation.

If Carbon Credits are then considered as today’s new currency, then how much is it actually worth? At the moment, the market pegs the price of a unit of Carbon Credit at around US$ 10-30. But what exactly is the basis of this price? How do we measure the worth of carbon dioxide emissions, and how many credits do we have to buy to actually reduce carbon dioxide levels in the atmosphere?

An idea that will help us picture the worth of Carbon Credits is to juxtapose them with trees. Trees are actually the only things that humans can manipulate that can absorb carbon dioxide. To give us an idea of the worth of carbon dioxide emissions, let us examine the market value of trees and compare how much carbon dioxide they absorb.

Since the terms of the Kyoto Protocol are that trees should be left to stand for 25 years before cutting them down, let us use 25 year old maple and pine trees as a basis for the computation of the worth of Carbon Credits. A 25 year old maple tree absorbs an average of 1.1 kilograms of carbon dioxide per year, totaling up to 27.5 kilograms of carbon dioxide in its lifetime. Therefore, thirty-six 25 year old maple trees are needed to absorb a tonne of carbon dioxide, the equivalent of one Carbon Credit. With each tree costing US$ 50, a cost of a Carbon Credit should be around US$ 1,800.

Meanwhile, a 25 year old pine tree absorbs around 6.82 kilograms of carbon dioxide per year, totaling up to 170.5 kilograms of carbon dioxide in its lifetime. Therefore, if six 25 year old pine trees are needed to absorb a tonne of carbon dioxide, and each tree costs US$ 50, then the equivalent of a Carbon Credit is US$ 300.

The results of the computations above suggest that the US$ 10-30 market value of a Carbon Credit is way under priced when trees are used as a basis of the cost. The formula that was used was very simplistic as it only accounted for 2 kinds of trees. There are other variables that could affect the computation such as tree species, lumber prices, and the age of the trees.

In reality, Carbon Credits are way more complex than the price of the trees. They may be the world’s next great currency, but it seems that it is hard to comprehend their value in the context of people’s everyday lives.

Source: Buzzle
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