Planet Earth First poster by Greenpeace

‘Carbon debt system’ proposed for polluting companies to encourage eco commitment

Image credit: Photo Boards | Unsplash

An international team of researchers – including Artem Baklanov, research fellow of the International Laboratory of Game Theory and Decision Making, HSE University – has proposed treating greenhouse gas emissions as financial debt, thus providing immediate economic incentives for global enterprises to mitigate the harmful effects of their business activities.

In the research article, published in July in the journal Nature, the authors detailed a mechanism for controlling greenhouse gas emissions, inspired by the financial market.

By treating greenhouse gas generation as a financial debt, any company that releases carbon dioxide into the atmosphere would incur a carbon debt and must commit to removing its emissions. This commitment is called a ‘Carbon Removal Obligation (CRO)’ and carbon debtors would have to pay interest until their debts were cleared.

The money raised in this way could be used to cover the default risks of the CROs and the potential environmental damage caused by such ‘borrowing’. This reflects the fact that carbon borrowing can lead to short-term increases in the carbon budget target temperatures of 1.5°C to 2°C targets considered reasonably safe by the researcher community. Manufacturers who generate greenhouse gases can decide how much of their CO2 emissions to compensate for now and how much carbon debt they will either pay off in the future or settle by removing emissions from the atmosphere by technological means.

Enterprises would still be responsible for meeting deadlines and ensuring net-negative emissions, which would allow them to balance current and future emissions reduction based on their own expectations of developments such as potential technological breakthroughs.

The researchers demonstrate that due to the rapidly depleting global carbon budget, their proposed financial approach to carbon debt is essential to any reliable system for mitigating climate change. It allows widespread decarbonisation solutions to be implemented faster and more smoothly at a time when climate-related disasters could be triggered earlier than anticipated. The current generation has a lot to contribute to the fight against global warming without shifting the responsibility onto future generations – but only if we start paying off our debts right away.

With various estimates ranging from around 100 major enterprises being responsible for nearly three-quarters of global emissions (a statistic extrapolated in a 2017 'Carbon Majors' report produced by the Climate Accountability Institute) to 20 fossil fuel companies being responsible for a third of all carbon emissions (according to a 2019 Guardian article, also based on Climate Accountability Institute research), the need for major corporations to be held accountable for their overwhelming contribution to carbon emissions is clear.

One of the aims of the Paris Agreement is to reach zero carbon emissions by 2050. Some countries have already begun taxing greenhouse gas emissions, with more nations expected to follow in the future. Although this tax incentivises efforts to reduce emissions, the researchers said that special economic policy instruments are needed to guarantee net carbon dioxide removal (CDR) and ensure the viability of ambitious climate targets.

Under the Paris Agreement, the European Union, the United States, and the United Kingdom have pledged to reach net-zero carbon emissions by 2050 and to strive to limit global warming to 1.5°C this century. The term ‘net-zero emissions’ means not only reducing the amount of greenhouse gases generated, but also removing harmful emissions from the atmosphere using natural and manmade sinks. While efficient, widely available CDR technologies have yet to materialise, but will undoubtedly be required in order to meet the goals of the agreement by 2050.

In a February 2021 report, the UN warned that the international community is currently not on track to meet its targets. Earth’s so-called ‘carbon budget’ – an estimate of the maximum amount of greenhouse gases that can be released into the atmosphere over time – will be depleted within the next decade. Meanwhile, the number of extreme weather events is growing and there is mounting evidence that even slight climate warming could have catastrophic consequences.

There is currently a fundamental economic problem in how methods of mitigating the effects of climate change are assessed. Existing economic policy instruments for controlling greenhouse gas emissions are not sufficient to incentivise a global transition to a negative carbon balance, the researchers warned.

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