Examples of criticisms:
- “Carbon credits allow polluters to go on polluting” (i.e., they are a form of “greenwashing”)
- “Carbon credits are not a long-term solution and can ‘lock in’ high-carbon infrastructure”
- “Carbon credits create an incentive to avoid regulating certain sectors and industries”
These kinds of criticisms are not so much about whether carbon credits are a valid form of climate change mitigation, but rather whether they create “perverse” incentives. Carbon credits were conceived as a way to facilitate investment in cost-effective mitigation options that organizations would otherwise not be able to access. The temptation, however, can be for organizations to use carbon credits to achieve all (or large parts) of their GHG reduction goals, rather than make the investments needed to significantly reduce their own carbon footprint. The counterproductive result can be that they continue to pursue high-emitting activities – and invest in high-emitting equipment and facilities – effectively “locking in” higher emissions over the long run. This concern is the primary reason that many observers advocate for treating carbon credits as a complement to aggressive internal climate action, not a primary means of mitigation.
Another possible perverse incentive created by carbon credits is to discourage needed regulation.
These kinds of criticisms are not so much about whether carbon credits are a valid form of climate change mitigation, but rather whether they create “perverse” incentives. Carbon credits were conceived of as a way to facilitate investment in cost-effective mitigation options that organizations would otherwise not be able to access. The temptation, however,
can be for organizations to use carbon credits in lieu of making the investments needed to significantly reduce the emissions they have been allocated responsibility for (sometimes contrary to their stated commitments). The counterproductive result can be that they continue to pursue high-emitting activities – and invest in high-emitting equipment and facilities – effectively “locking in” higher emissions over the long run. Many observers advocate for treating carbon credits as a complement to aggressive internal climate action, not a primary means of mitigation.
Another possible perverse incentive created by carbon credits is to discourage needed regulation.[1] Regulations that require GHG mitigation could deprive project developers of revenue from selling carbon credits, because any avoided emissions or enhanced removals would no longer be “additional” (see Additionality). Project developers may resist such regulatory changes. Regulation, however, is often a much more effective and comprehensive way to lower emissions across an economy. From a climate policy perspective, therefore, carbon credits have been viewed as an interim solution
a way to accelerate action in the near term, but one that must ultimately (and explicitly) be replaced by more comprehensive policy action in the future.
[1] See Wara and Victor (2008).