Environmental, social and corporate governance (ESG) investing – an increasingly popular trend in finance – is facing mounting scrutiny from both the public and regulators. It attempts to improve capitalism while dealing with the threats posed by climate change, thus focusing on both environmental and social goals to evaluate a company’s value. However, as an investment practice, it risks setting conflicting goals for firms, therefore distracting both the public and private sectors from the important task of mitigating the climate disaster. With public interest in ESG investing skyrocketing, it is worth taking a closer look at this practice. 

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What Is ESG Investing? 

Environmental social and corporate governance (ESG) is an alternative approach to evaluating the extent to which a corporation works on behalf of social or environmental goals, as well as its commercial performance. The term ESG dates back to 2004 and it is oftentimes expressed through a numerical score. By evaluating a corporation or a fund in this way, proponents of ESGs hope to raise the cost of capital for polluting firms and encourage socially and environmentally friendly corporate behaviour. 

With many governments gridlocked into inaction on climate change, some people feel that it is the firms’ responsibility to step up their game. By evaluating companies not just by their financial performance but also by their commitment to broader movements, proponents and policy-makers hope for alignment with the Sustainable Development Goals (SDGs) or the diversity, equity, and inclusion movement.

An example of ESG evaluation in a corporate environment might be a credit card company that invests in “data for good” programs – in which data is used to track the accessibility of financial institutions, or an oil and gas company that provides opportunities for investment in clean energy. The idea is that these investments in social or environmental goods will offset the concerns that investors may have and simultaneously raise the cost of polluting behaviour. Indeed, while the intentions behind ESG investing are good, this risks leading to greenwashing, a practice of companies that use marketing to convince the public that their products and business operations are environmentally friendly. And it may well be that the lack of a coherent and agreed-upon definition has encouraged those views. 

Why Is ESG Investing Growing So Quickly? 

A number of factors have pushed ESGs into the spotlight. With an estimated one-third of managed assets invested in ESGs – believed to be valued at around US$35 trillion – it is important to understand the reasons behind this astronomical growth. With climate change becoming an increasing threat to the world, more people have shown interest in wanting to align their financial commitments with their concerns about global warming and global injustice, particularly young people.

Seeing democratic and governmental institutions gridlocked into inaction, particularly with regard to legislation aiming to tackle climate change, people are turning to the private sector to solve larger societal problems. In fact, recent polling has suggested that a majority of people worldwide believe that companies should be responsible for paying for the growing cost of climate mitigation. Besides the public’s interest in ESG investing, the asset management industry is also increasingly attracted by it, since selling products that are billed as “environmentally friendly” or “green” is often a way to charge consumers higher prices. 

Despite the seemingly good intentions laid out in the definition, ESG suffers from a number of fundamental problems. First, in attempting to simultaneously tackle such a wide array of objectives from the environment and social governance to diversity, equity, and inclusion, this still provides a poor guide for both investors and firms. Inevitable trade-offs are going to be made as competing objectives determine the ESG status. 

The Economist recently laid out the prime example of Elon Musk and Tesla. As the CEO of Tesla, Musk is popularising electric vehicles (EVs) and, in theory, is helping to tackle the climate crisis. But what about the cost of lithium mining to the environment which supplies Musk’s EVs or Tesla’s corporate governance nightmare? While Telsa Inc. has since been dropped from the S&P ESG Index, this still warrants attention. Similarly, British American Tobacco was rated as the third-highest ESG performer, despite the obvious concerns around tobacco. Answering complex climate questions, such as how to facilitate just transitions or reach wind farm capacity without damaging the local ecology, quickly highlights competing goals in securing emissions mitigation. It is unfair and unrealistic to each of the goals put forward by ESG investing to suggest that conflicts don’t exist. 

The second major flaw with ESG is how the ratings are calculated. The Organisation for Economic Co-operation and Development (OECD) and other regulatory bodies have questioned whether the ratings or numerical scores attached to companies are sufficiently transparent. ESG ratings consider all three pillars in scoring, but many companies may excel in one or two but perform poorly in another – all while maintaining a high rating. 

Of increasing interest to the public and regulators is how the “E” in ESG is considered. Instead of measuring the impact that a company has on the Earth and society, ESG ratings measure the risk the world poses to a company’s profits. For example, in 2019, McDonald’s was responsible for producing an estimated 54 million tons of CO2 in emissions. However, in 2019, its ESG rating was upgraded after analysts determined that climate change did not pose a significant risk to the company’s profits.

These inconsistencies are reflected in recent research about ESGs. In a study conducted by the University of Columbia and the London School of Economics, they found that companies included within an ESG portfolio actually had worse compliance records for both labor and environmental regulations than those that were not included. They also did not find a significant change in the environmental or social behaviour of a company upon addition to an ESG fund. Other studies found that issues such as equitable pay for female employees tended to outrank climate considerations, once again highlighting the conflict in the definition of such fund. 

What Can Be Done to Improve ESGs? 

The increasing skepticism from both individual investors and regulatory bodies, coupled with turmoil in financial markets, have resulted in a decrease in money flow as well as slower economic returns for global ESG funds. Climate activists have also been calling for a rethink amid accusations of greenwashing.

The first point of action is increased regulation of the financial asset management space. At the end of 2019, the European Union outlined its Green Deal commitments. In March 2022, the US also introduced a climate disclosure rule proposal through the Securities and Exchange Commission (SEC) which opens the door for broad, federally mandated corporate ESG data disclosure. Taken together, these regulatory frameworks would clarify the expectations for disclosure for the companies and allow for more consistent, clearer, and high-quality reports for investors. 

Many financial experts and ESG-skeptics have suggested the separation of the three letters: “E”, “S”, and “G”. The fewer targets that firms have, the better the guidebook and regulatory framework and the greater the chance of firms actually hitting those targets. 

Perhaps it is easiest to simply focus on the “E” – the environment. But as has been discovered in the case of “green funds” or even “green NFTs”, it is clear that measuring the impact on the environment is still too broad. Perhaps the easiest and most significant way of measuring this is to consider emissions. There have already been calls for increased standardisation of a firm’s emissions disclosures. The more standardised, the easier it will be to make comparisons across firms and industries. This will make it  clearer for the public as to where to invest their money and for regulatory bodies to track who is doing the most to reduce emissions.

A growing number of consumers, particularly young consumers, are choosing to invest in cleaner funds, even if there are increased up-front costs. Making it easier for those potential investors to understand a) which funds are actually environmentally friendly and b) what actually makes a difference in mitigating emissions will be significant in financing climate action. 

Given the way they are currently structured, ESGs make a compelling argument for tougher government action and stricter regulation. It seems more clear than ever that transparent and consistent information lead by elected officials will do more to save the planet than catchy private sector abbreviations – ESG – and unregulated markets. 

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A proposal that has been circulated by former UK Prime Minister Liz Truss and the current government would curb the rapid growth of solar projects. Truss, who campaigned on this issue when vying for party leadership earlier this year, is a longstanding critic of the installation of solar panels on farming land. The new Environment Secretary, Ranil Jayawardena, argues that this policy is necessary to achieve growth and boost food production. Yet, landowners across the country are calling for the government to scrap the plan. We take a look at why the UK wants to ban solar projects from English farmland and explore alternative solutions. 

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Despite the claims from both former Prime Minister Liz Truss and other Conservative party ministers, ground-mounted solar panels currently occupy just 0.1% of all land in the UK; and even tentative proposals in place to scale up solar panel installation in line with net-zero promises are expected to occupy just 0.3% of all UK land. To put this in perspective, this would be equivalent to just 0.5% of UK agricultural and farmland. 

Solar Power In the UK 

Between 2010 and 2015, solar power in the UK highly benefited from feed-in-tariffs. A feed-in-tariff (FIT) is a policy instrument designed to support the growth and development of renewable energy, achieved by providing a guaranteed price for power generation. Prices for FITs can often be above-market prices for producers, intended to nurture an under-invested area of the market. As a result of this policy, the UK saw significant growth in the number of utility-scale solar farms. 

In 2016, when the policy of FITs was scaled back and the growth in the number of solar farms crashed. The solar market recovered slowly as the technology behind this renewable energy matured and private markets better understood the risks and rewards of investing in it. Deciding how and when to phase out government-backed investment in renewables is a complex task and is often balanced by considerations such as decarbonisation targets, energy security, and the cost of supporting such schemes. 

However, current UK government leaders are not debating the consequences of scaling back government support for solar development. 

What Does the New UK Policy Propose? 

The proposal by the Conservative party bans the development of new solar projects on agricultural land. In the UK, agricultural land is designated under the status of “best and most versatile” (BMV). Under the proposed policy, changes to how these designations are made would increase the amount of land considered under the BMV status. The outcome is this change would be to seriously restrict the areas of land available for solar development. 

Who Advanced the New Proposal?

The proposal to ban solar projects on agricultural land has been discussed by climate-sceptic lobbyists and other members of parliament (MPs) for a few months. Conservative MPs have been increasingly speaking out about both the number and the size of new ground-mounted solar projects, often citing concerns that have been raised in local campaigns against solar projects. For instance, the No Solar Desert campaign has been trying to halt the development of a 600-acre solar farm in North Nottinghamshire. And this is despite the fact that the proposed solar farm would provide clean energy to more than 140,000 homes, as the developer of the site, Island Green Power, suggested.

Opposers of the move have often supported their claims by citing their desire to see wildlife and biodiversity prioritised, as well as ensure that enough “productive land” is preserved for agriculture. Similarly, the UK government has cited food security concerns following the Russian invasion of Ukraine and subsequent concerns regarding global wheat production for wanting to halt the development of solar projects on farmlands. 

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How Much Land Do UK Solar Farms Actually Occupy?

Currently, solar farms in the UK have a combined capacity of around 14 gigawatts (GW). In the government’s energy security strategy published earlier this year, an outline was provided to deal with the UK’s energy crisis and pledges to achieve net-zero targets. Within this strategy, a pledge to increase solar power capacity from 14 GW to 70GW by 2035 was made. For context, a rough estimate is that for every 1 GW, enough energy is generated to power 750,000 homes. 

According to studies carried out by Solar Energy UK, 9.6GW of the current capacity in the UK is sourced from ground-mounted solar panels. Additional studies have sought to calculate the amount of land space required for current energy demands. Existing projects take up less than 1 square kilometre per megawatt (MW) of power generated. This means that the land coverage for existing projects totals 230 square kilometres (km2), equivalent to about 0.1% of land in the UK. 

While it sounds like a large area of land covered by ground-mounted solar farms, it is important to contextualise these numbers. Data collected and published by the UK government reports that agricultural land covers about 71% of UK land. This is perhaps best demonstrated graphically, in which existing solar farms use less than half of the land currently occupied by golf courses and airports, which cover 1,256 and 493 km2 respectively. 

Graphic demonstrating land use patterns in the UK from golf courses, airports, current and future solar projects. Source 

Nowadays, food security and food production are very controversial topics in the country. In the past three years, the UK has been heavily impacted by supply disruptions from the pandemic, Brexit, and, most recently, the Russian invasion of Ukraine. Government figures show that Britain imports 46% of its fresh vegetables and 84% of its fresh fruit. Studies have also shown that the UK would be particularly vulnerable to shocks in the Mediterranean, where increasing temperatures as a result of climate change have been disrupting food production. Only by transitioning to renewables can we begin to alleviate food insecurity as a result of climate change, once again making a case for a transition to greener sources of energy. 

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Can We Increase Solar Power Generation and Local Food Production At the Same Time?

The debate set in motion by the Conservative Party presents farming and solar power generation as fundamentally incompatible with each other. An interview with a UK farmer conducted by Carbon Brief highlighted the false dichotomy being presented by the UK government. 

A farmer in the UK suggested that the problem for them is not to “produce 10 units of food” or “10 units of energy”, but instead six units of both. By choosing farmland that has low yields and rotating between arable land and grassland, farmers are able to flexibly adapt to situations.

Graphic demonstrating the different types of agrivoltaic configurations (Source)

Moreover, a new option to use land to address both food security problems and the generation of new renewable energy is gaining traction across the world. First advanced in the 1980s, agrivoltaics allows crops to be planted below and on top of ground-mounted photovoltaic panels. According to recent data, Japan is a world leader in developing this technology, with nearly 2,000 agrivoltaic installations across the country. 

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And that’s not the only benefit of combining agriculture and photovoltaics. In 2019, a study demonstrated that energy production potential is actually increased in areas of croplands because of the cooling effect of crops’ evapotranspiration – a process in which water moves from the surface of the air and into the atmosphere. 

The buy-in from farmers for agrivoltaics is of enormous importance. As has been noted across many solutions developed to alleviate the impacts of climate change, stakeholder buy-in and public endorsement of such technologies can increase wide-scale deployment and lower costs.

Instead, by proposing to ban solar panels from farming land, Conservatives are presenting a false dichotomy: renewables or food security. In failing to be thoughtful and innovative in their policy solutions, the UK might be missing an opportunity to be at the forefront of the green technology revolution.

Disclaimer: Since this article was written, Liz Truss has resigned and Rishi Sunak was nominated by the Conservative Party to take on the role as Prime Minister of the UK. Given the currently volatility of UK politics, it is difficult to predict the future of this policy. However, in his initial bid for leader of the party in August, Rishi Sunak also campaigned heavily on banning solar projects on farmland. Given the support from other Conservative party members and the new PM, it is likely that some attempt will be made to move forward on this policy. 

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The post What’s Wrong With the UK’s Plan to Ban Solar Projects From Farmland? appeared first on Earth.Org.

Cobalt is quickly becoming the defining example of the mineral conundrum at the heart of the renewable energy transition. As a key component of battery materials that power electric vehicles (EVs), cobalt is facing a sustained surge in demand as decarbonisation efforts progress. The world’s largest cobalt supplier is the Democratic Republic of Congo (DRC), where it is estimated that up to a fifth of the production is produced through artisanal miners. Cobalt mining, however, is associated with dangerous workers’ exploitation and other serious environmental and social issues. As such, questions have arisen as to whether the transition to electric vehicles and cobalt-based batteries is yet another example of environmental problem-shifting and what a renewable energy transition without cobalt could look like. 

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The Importance of Cobalt in the Renewable Energy Transition 

There is an urgent need to reduce carbon emissions and address global warming in order to limit existing rises in temperatures. Meeting these goals, however, requires a complete transformation – changes to the ways that energy is produced, transported and consumed. A movement away from a fossil fuel-based economy requires the generation of alternative energy sources. 

The International Energy Agency’s (IEA) “Net Zero by 2050” report notes that roughly 75% of current greenhouse gas emissions are produced by the energy sector. As such, decarbonising the energy sector has dominated both technological and social innovation efforts, with electric vehicles being just one example. 

At the most basic level, EV batteries are charged and discharged through the flow of lithium ions between the anode (positively charged) and the cathode (negatively charged). The cathodes contain nickel, and play a role in delivering high energy density, which allows the vehicle to travel further. Cobalt in the cathodes ensures they don’t easily overheat or catch fire and helps to extend the life of batteries. An International Monetary Fund (IMF) report notes that a typical EV battery needs 8 kilograms (18 pounds) of lithium, 35 kilogram of manganese and 6-12 kilograms of cobalt.

In the race to develop battery-power to meet net-zero commitments, however, it is important not to overlook the global implications of such a transition. New energy sources, such as those required for batteries and electric vehicles, are now exerting enormous pressures on the environment. Two questions are quickly arising: Are there sufficient resources and ability to meet these increasing demands? And, just as importantly, what are the societal costs of meeting these demands in this way?

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What Is Artisanal Mining And Why Does It Matter for the Renewable Energy Transition? 

Efforts to meet the demand exerted by electric vehicles have so far been focused on increasing the supply of cobalt. In 2021, the Democratic Republic of Congo (DRC) was estimated to be producing between 60 and 70% of the world’s supply of cobalt. 

The majority of the cobalt that is extracted is actually a by-product of existing copper mines. However, they are currently unable to increase their output to meet existing demands and have little financial incentive to do so until copper prices also rise to complement mining activity. The other major source of cobalt outside of existing copper mines in the DRC is produced via “artisanal” mining, producing up to 15% of the global cobalt supply.  

Leading global sources of cobalt production

Given that artisanal miners in the DRC are currently producing more than Russia – the world’s second largest producer – the role that they play and the conditions under which they operate are important to understand. Artisanal miners hand-dig higher-grade ores than those extracted through industrial or mechanised production means. But there are well-reported problems with artisanal mining, both in terms of the social and environmental cost. 

The small mines in which artisanal miners operate are often dangerous and polluting. The mining and refining processes are often labour intensive and associated with a variety of health problems as a result of accidents, overexertion, exposure to toxic chemicals and gases, and violence. And these miners, known locally as creseurs, are so economically reliant on this informal economy that these dangerous conditions cannot afford full consideration. 

The environmental costs of cobalt mining activities are also substantial. Southern regions of the DRC are not only home to cobalt and copper, but also large amounts of uranium. In mining regions, scientists have made note of high radioactivity levels. In addition, mineral mining, similar to other industrial mining efforts, often produces pollution that leaches into neighbouring rivers and water sources. Dust from pulverised rock is known to cause breathing problems for local communities as well. 

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International firms that trade, refine and supply cobalt have been trying to understand how cobalt from artisanal mining has entered their supply chains. While in theory there are legal differences to industrial and artisanal mining supplies, in reality, the boundary between the two remains quite blurry. Despite pledges from companies to increase transparency regarding their cobalt sources and refineries or pledges to buy exclusively from other countries, very little in the conditions on the ground in the DRC have changed. 

A dominant reason why there has been so little change in the region in a decade are the strong economic incentives resulting from artisanal mines. It is currently estimated that between 140,000-200,000 people work as artisanal miners in the DRC and most earn less than US$10 per day. While low compared to living standards in the Global North, that is considerably more than most earners in the country, who are living on an estimated US$1.90 a day. 

Considering the vast economic incentives, both domestically and internationally to keep artisanal cobalt mines open, what does the green energy transition look like next? 

Can We Improve Cobalt Mining? 

Given that cobalt-based batteries are a crucial and inevitable part of the green energy transition, both large-scale industrial mining and artisanal mining are here to stay. A World Economic Forum (WEF) white paper in 2020 outlined the current state of artisanal cobalt mining in the DRC and offered recommendations to make the industry fair and safer. 

Among them are the formalisation of a traditionally informal economy, which would include the adoption of common standards and metrics, the establishment of a monitoring and assessment process and knowledge-sharing, to ensure that a formalisation process is a multi-stakeholder one. Overall, the WEF suggests that increasing transparency would result in industry-wide changes. It also points to attempts formalisation of the garment industry almost 20 years ago as an example of common standards and metrics. However, critics would suggest that these efforts do little to address the root causes of systemic issues present in the artisanal mining industry and point to an increase in human rights violations in the garment industry as evidence of failure. 

What Does Reducing Cobalt Dependency Look Like?

Rather than tackling supply-side problems with the cobalt mining industry, perhaps changes are better made on the demand side. Demand for cobalt is driven predominantly by the increased production of electric vehicles in an effort to decarbonise the transport sector. Some industry leaders have been attempting a pivot to cobalt-free batteries – technology which is already on the market. 

In 2020, Reuters reported that Chinese battery maker CATL was developing an EV battery that did not require the use of cobalt or nickel, both key components in traditional EV batteries. Tesla also reported that half the vehicles manufactured in the first quarter of 2022 were produced using cobalt-free lithium iron phosphate – known also as lithium ferrophosphate or LFP batteries – proposed to be more sustainable alternatives. 

But perhaps each of these alternatives are simply examples of environmental problem-shifting. In each of these scenarios, transitioning to EVs and developing cobalt-free batteries often lead to new, and sometimes more chaotic, complicated and severe environmental problems – something that we refer to as ‘environmental problem-shifting’. Critics have suggested that instead, a more radical and long-term solution would involve investments that decrease our dependence on vehicles, electric or fossil-fuel driven. Switching to electric cars addresses only a few of the issues presented by fossil fuels and clearly develops complications exemplified by cobalt mining in the DRC. Beyond batteries, cars also require tyres, whose manufacture and subsequent disposal happens at an enormous environmental cost. 

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While in many places cars are essential, this is often as a result of car-centric urban planning. A switch away from individual vehicles to electric mass transit, complemented by the development of separate bike lanes and broad pavements, would perhaps start to address this persistent issue of environmental problem-shifting. For some purposes and for some communities, using a car is unavoidable. But these are often easily substituted – cities like Amsterdam and Copenhagen are key examples of this. 

In a time of multiple emergencies – climate chaos, the pandemic, rising economic insecurity –  fast decision-making is a necessity. Technology is often cited as playing a critical role in catalysing the renewable energy transition, but it is important to remember that technologies exist to serve us, not to dominate us. Perhaps a more radical approach to decarbonising the energy sector does not involve problem-shifting to the DRC, but instead in drastically reducing our dependence on the concept of cars themselves. 

The post Cobalt Mining: The Dark Side of the Renewable Energy Transition appeared first on Earth.Org.

Crypto – often used as an umbrella term that encompasses all things cryptocurrency – has received significant and polarising attention over the past decade. Now, industry leaders have entered the carbon trading market with claims that taking these markets onto the blockchain could result in huge gains in environmentally friendly business approaches. But sceptics are unsure just what problem crypto is trying to solve and whether it will be successful in re-energising the carbon credit market as countries race towards net-zero goals. 

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What are carbon credits? 

Carbon trading – or the carbon market – was first developed and introduced in the 1990s. In assigning a cost to the environmental damage of CO2 emissions, companies could, in theory, track and offset their own emissions. By purchasing carbon credits tied to ‘green projects’ in the marketplace, businesses across a range of industries could continue their practices while offsetting emissions and therefore reducing environmental damage. 

For example, a mining company subjected to an emissions limit could purchase an offset credit owned by a forest owner who could agree to use that money to delay or reduce a harvest. This would then allow the mining company to pollute above their set limit, and use the avoided forest emissions as credit. 

Figure 1: The Mechanism of Carbon Offset Credits 

Now almost three decades after the introduction of the carbon market, policymakers and activists are unsure of its success. The market remains largely unregulated and discussions are often centred around which projects are counted for inclusion. In fact, several recent studies have highlighted that often, the associated projects are overvalued or have little to no positive impact on the environment. In fact, one study of California forest carbon offsets (worth more than US$2 billion, and the largest programme in the United States) found that almost one-third of all the offsets were over-credited. In total, this amounted to almost 30 million tonnes extra of CO2 emissions. 

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This problem of over-crediting has left critics of the carbon market frustrated. A combination of a lack of transparency and a systematic flaw in the way that these credits are calculated has ensured that projects are continually miscalculating both the pollutant emissions and the emissions saved. 

Taking the study of California as an example, there are often big misconceptions about what constitutes an environmentally friendly offset project. The vast majority of these projects do not involve the growth of new forests as it is often believed but are instead devoted to the development of practices known as ‘Improved Forest Management’ (IFM), which are considerably more incremental in the environmental benefits. Just this one example highlights some of the problems with carbon markets and their oftentimes exaggerated utility. 

Double counting – a term that refers to a situation in which two separate parties claim the same carbon removal project or credit – has also emerged as a problem with the current carbon market. It is indeed a considerable problem and has highlighted the gap between the theory and practice of carbon markets. So how does this happen? 

Most commonly, double counting happens when both the organisation offsetting the emissions and the host country of the project aiming to reach climate goals under the Paris Agreement claim the credits. This is obviously problematic: both a country and a company are claiming to be carbon neutral and yet, in terms of emissions reductions, nothing has actually been achieved. Beyond the immediate environmental effects, double counting also disincentivizes countries to take action to meet climate goals in the long term. 

How Does Crypto Fit Into Carbon Markets?

Crypto proponents believe that a solution lies in this carbon marketplace. Industry leaders have argued that the traditional carbon market is outdated, disorganised, and often lacking in incentives. They suggest that by moving carbon credits onto the blockchain  – a digital and open database – that crypto-economics could incentivise businesses to adopt more environmentally friendly approaches. 

Additionally, crypto traders argue that if more people got involved in crypto carbon credits, this would drive the price of credits up. In doing so, they hope to force companies to pay higher prices for emissions reduction or drive them to invest in more energy-efficient business practices. 

The starting approach from the crypto industry was to ‘sweep the floor’. This involved using a bridging process to purchase carbon credits that were already in circulation in the conventional market and migrate them to the blockchain, at which point a token would be issued to the owner. These tokens can then serve as tradable objects through which trading on the blockchain can take place. Although proponents of such a transfer to the blockchain often tie their mission to environmental goals, there is a clear financial incentive to the transfer. In the current marketplace, the price of carbon offset credits has traded in the range of US$1-2. There are also financial incentives to convert the Base Carbon Tokens (BCT) to KLIMA tokens; in the initial stages market prices for such tokens surged to a high of over $3000, demonstrating a clear profit for those involved. 

While in theory, the open-access blockchain technology provides increased transparency, an analysis of some of the first crypto carbon credits issued revealed two striking findings. The first was that a significant number of ‘zombie’ projects – projects that were not active until the economic incentives generated by crypto carbon credits were generated – had appeared on the blockchain. The second was that nearly all of the credits that had migrated to the blockchain through the Toucan protocol came from projects that had originally been excluded from the current carbon market because of concerns about the quality of the project. So what do these two findings mean for climate action?

What Are the Weaknesses of Crypto Carbon Credits?

The appearance of ‘zombie’ projects might initially sound positive. In theory, more projects for carbon offsetting should lead to a decrease in emissions. But often, if these credits aren’t finding buyers on the traditional carbon market, it is because buyers had concerns about the quality of the projects in the first place. By migrating these credits onto the blockchain, those concerns are not addressed. Instead, previously unsellable credits and projects are simply being used for revenue generation by the owners who “swept the floor” rather than the generation of new, exciting projects with real potential. But these projects are not the only credits of concern. 

The Paris Agreement laid out regulations for the carbon market in the rules for trading Clean Development Mechanism under Article 12, which prohibits the trading of credits before January 2013. This is to ensure that any new carbon offset claims are in line with revised standards. However, a staggering 84.8% of crypto carbon credits that were being traded would not have met the Paris Agreement regulations, as they were registered before 2013. In short, crypto carbon credits simply appear to be trading projects that would not have found buyers in the conventional markets. In doing so, this technology only serves to amplify existing structural problems within the current carbon market while avoiding regulatory standards put in place under the Paris Agreement. 

Crypto proponents claim that the advantage of migrating to the blockchain would be to tackle an outdated, non-transparent, and disorganised carbon market. In doing so, they hope to either drive the price up on carbon emissions or force companies to search for more energy-efficient practices. While it is true that the price may have been driven up for some credits, these appear to have benefited the owners of the credits; whereas the environmental benefits to this practice are either negligible or, in some cases, have been even made worse. 

But if crypto isn’t the answer to the carbon market’s problems, what is? 

Can We Fix the Current Carbon Market Without Crypto?

To address the significant problem of double counting, adjusting the national emissions targets in Article 12 was a good first step. This meant implementing a policy on the hotly contested ‘corresponding adjustments’. These adjustments mean that the CO2 emissions reduced or removed by the offsetter will be deducted from the greenhouse gas inventory of the project country. This mechanism ensures that for each carbon credit that is purchased on the market, only one country is claiming the emissions reduction. 

Ultimately, the biggest problem with carbon credits is the lack of a single standard of quality. This means that there is a high likelihood that many sub-optimal projects end up being priced and traded even if there is no benefit to the environment. If markets want to be serious about changes to climate change, there has to be a move away from the funding of small, individual projects and toward paying entire companies and therefore whole industries, to reduce emissions. Ultimately, crypto encouraged the funding of these smaller, negligible, and oftentimes defunct projects which is counter to solutions suggested by experts.

To have a single standard of quality, a reliable and verifiable benchmark for emissions reduction has to be put in place. In targeting individual companies and then industries as a whole, both voluntary and offset markets could be improved as the world aims for a low-carbon future. 

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The post Crypto Carbon Credits Are Providing a Solution to the Wrong Problem appeared first on Earth.Org.

In June 2022, the US Supreme Court dealt a substantial blow to the power of the Environmental Protection Agency (EPA) to regulate carbon emissions. In light of the EPA-climate change ruling, it is worth considering whether this is truly the first time that US climate leadership has been questioned or whether this is just the latest in a long-lasting decline. 

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What did SCOTUS rule on?

In a 6-to-3 vote, the Justices of the US Supreme Court (SCOTUS) have ruled that the agency is not allowed to take action in climate change matters without specific authorisation from Congress. The case is a clear sign of the increasing hostility of the US Supreme Court towards climate change regulation and some commentators have suggested that it signals the beginning of a decline in US leadership on global climate issues. 

The issue brought to the attention of the Justices was whether the country’s Environmental Protection Agency (EPA) could regulate coal-fired power plants, which are the second-largest source of carbon emissions in the United States. The Obama administration had set carbon limits on a state-by-state basis in an attempt to encourage less reliance on coal and instead push towards alternative energy sources. Although this action was blocked by the courts, the program met some of its targets simply because coal became increasingly more expensive than alternative energy sources. 

The Supreme Court, however, has now ruled that the EPA – along with other regulatory agencies within the US – are unable to consider or adopt rules that would be considered transformational to the economy unless Congress specifically authorises such actions against a designated problem, such as climate change. But the dysfunctionality of the US legislative branch over the past decades means that such approvals are extremely unlikely to happen. 

The most obvious consequence of the West Virginia v. EPA ruling is that it makes it significantly harder for the US to meet targets put in place for the Paris Agreement. The Biden administration has pledged to reach 100% clean electricity by 2035 and meet the United States’ goal under the Paris Agreement of cutting 50% to 52% of its emissions by 2030. In making this pledge, the United States attempted to put in place ambitious yet achievable goals and to assist other nations put in place similar targets. However, prospects are now bleak.

With the political landscape now significantly more challenging, it appears that the country will have to eye opportunities abroad. For example, the US has opportunities to act in the global financial sector by encouraging green investments and requiring the disclosure of climate risks. 

While the consequences of this ruling on the country’s climate agenda are perhaps more clear, it is worth taking a look at its implications on the global level. 

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Is This the End of US Climate Leadership?

The idea of US climate leadership on the global stage has always been a shaky one. In 1997, the world was sent scrambling when the country withdrew from the Kyoto Protocols. In an attempt to placate the country, new standards were set in a revised accord – the Paris Agreement – which essentially eliminated any legally binding emissions reductions or targets. However, in 2020, former President Donald Trump withdrew from the Agreement. Despite rejoining it immediately after Biden’s election, many environmentalists are sceptical that the country’s representatives are now engaging productively in global climate negotiations. 

Rich, polluting countries such as the United States have continuously stalled on delivering climate finance and support for other countries – particularly those in the Global South. Over a decade ago, a pledge was made to mobilise $100 billion annually in climate finance by 2020; yet to be met, the target is still only a tiny fraction of the money required to fight the consequences of climate change.

To suggest that the EPA ruling is the first time the US has abdicated its role on the global stage would mean ignoring the historical data in which the United States has consistently been among the biggest blockers in global climate change progress. For meaningful action to occur, it might be time for the world to look further than the US.

Can the US Still Regulate Emissions? 

The SCOTUS ruling should not be used as an excuse for a further delay of the global climate agenda. While the Supreme Court has suggested that the EPA cannot make ‘generational’ power changes, there is room for the Agency to take new action. The Toxic Substances Control Act (TSCA) provides more than enough scope for further regulation of carbon dioxide emissions. Introduced in 1976 and amended in 2016, the Act provides the EPA with the authority to impose reporting, record-keeping, and testing requirements as well as restrictions related to chemical substances and/or mixtures. 

The Act has previously been used to restrict harmful chemicals such as lead present in paint and polychlorinated biphenyls. By classifying carbon dioxide as a harmful substance, the EPA could regain regulatory power over emissions that circumvents the ruling from the courts. Some activists have suggested that doing so would not only allow for levies on carbon or deal with carbon legacies, but it would also allow the US – one of the biggest markets in the world – to apply those measures to imports as well. 

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With soaring energy prices and mounting pressure to take action during an economic crisis, the United Kingdom’s Chancellor of the Exchequer, Rishi Sunak, has announced new measures in May 2022. These actions aim to ease the burden of the cost of living. Windfall taxes, intended to curb massive corporate profits, on oil and gas companies could have been an opportunity to simultaneously tackle the cost-of-living crisis and climate crisis. Environmentalists, however, are sceptical that this policy approach will be successful. In overlooking the potential for ‘green strings’ that could be attached to these windfall taxes, this policy may, in fact, have the opposite effect. 

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What are Windfall Taxes and How Do They Help? 

A windfall tax, at the most basic level, is a one-off tax levied by a government on corporations which are operating under economic conditions that allow them above-average profits. With inflation worldwide currently at an average of 7.5% and the wholesale cost of energy rising, oil and gas companies have seen a massive increase in profits. This is also in part due to an increased demand as the world emerges from the worst parts of the Covid-19 pandemic and because of supply concerns as Russia’s invasion of Ukraine lengthens. It is important to note that windfall taxes were not designed to take into consideration environmental implications. Rather, it is in the redistribution process in which activists see space for green policies to take shape. In the wake of a pandemic which saw corporate profits soaring, windfall taxes have grown in popularity. In the United States, a staggering 80% of voters have expressed support for a one-off tax on energy companies. A windfall tax, therefore, could serve to re-distribute some of the profits earned by these companies. 

Global inflation is projected to be an average of 7.5% as of April 2022, with some countries being hit harder than others. 

Chancellor Sunak’s proposal in the United Kingdom will require energy companies to pay an additional 25% tax on profits on top of the previous 45% – this raises the total amount to a 65% tax on profits. Described as a “temporary targeted profits levy”, the proposal is expected to raise roughly £5bn in revenue to help support the government’s energy support package. The support package provides direct payments to households that can be used towards paying towards the cost of energy bills. This levy is anticipated to be phased out once the high fuel prices fall.

In designing such a windfall tax policy, numerous considerations have to be made. These include whether the tax should be imposed on energy imports as well as domestic products, whether there should be exceptions for small producers, or exceptions on profits below a certain threshold. At best, however, the UK’s windfall taxes provide temporary relief. At worst, they exacerbate a climate crisis that is already red hot; companies who invest in domestic oil and gas production are not going to want to pay taxes in full and are therefore likely to increase production and extraction of fossil fuels.

Crucially, environmentalists had hoped to see tax relief for companies who were using these large profits to make investments in renewables. In doing so, they were hoping to see a lowering of costs for renewables as well as an decrease in dependence on fossil fuels. Instead, the UK has introduced tax breaks for companies that invest in further ‘UK extraction.’ As such, the bill seeks to deliberately incentivise the fossil fuel industry to increase investments in oil and gas, and breaks with historic pledges made at COP26. Green party co-leader and Member of Parliament (MP) Carla Denyer reacted with anger when the policy announcement was made, suggesting that the “[the UK] needs to move beyond a windfall tax towards a carbon tax on all polluting industries, which would help fund a mass home insulation programme and drive the transitions to a green economy.” 

The UK’s Problem with Leaky Homes and Insulation

Experts and activists pushing for windfall taxes have suggested that the current action is too little, too late. Most importantly, they note that the UK has squandered another opportunity to include ‘green strings’ to a windfall tax policy. Beyond providing tax breaks for investment in renewables and incentivising climate-friendly corporate behaviour, activists suggest that policies around home insulation provide the perfect opportunity to address both climate and cost-of-living challenges. 

Home insulation and leaky houses have long been an issue in the UK. A report out of the University of Warwick detailed how the UK has some of the oldest and leakiest housing stock in western Europe – heat from radiators leaves the homes through the walls, windows and doors. A staggering nine in 10 households rely on gas boilers to heat their homes and the average UK household requires twice the amount of gas than a comparable European home. The consequences of this are disastrous for the climate, as domestic gas boilers account for one in seven tonnes of carbon the UK emits each year. 

The UK’s response to rising energy prices should serve as a poor example for other countries. Policy options to decrease our dependence on fossil fuels should be implemented at every opportunity, particularly those that invest in long-term solutions rather than quick-fixes. Crucially, breaking promises to limit new fossil fuel extraction made on the international stage at COP26 diminishes the UK government’s credibility for future green investments. At a time when the world is looking ahead to new pledges made on the international stage at COP27 later this year, credibility is invaluable for a government aiming to curb emissions. It also raises questions about what pledges the UK will be willing to make at the next international climate conference. As the International Energy Agency has warned that the exploitation of new oil and gas fields has to be stopped immediately to meet targets to mitigate the worst effects of climate change, this new policy does not meet the moment.  

Using revenue generated from the windfall tax to put money back in the pockets of consumers is a good start, but it’s only a temporary measure. And in doing so, dependence on fossil fuels to heat homes is further entrenched and long-term solutions aren’t addressed. So what would a green windfall tax have looked like? 

‘Green Strings’ for the Windfall Tax

The most immediate alternative policy would include tax breaks for companies investing in renewables. Investment in renewables ensures diversification of energy sources and strengthens alternative energy infrastructure. The uneven investment split between fossil fuels and other sources of energy jeopardises the security of energy supplies, with prime examples being the Russian invasion of Ukraine and the pandemic, and results in much larger price fluctuations. The Green Alliance’s head of economy, Sam Alvis, suggested that the policy would have been strengthened through an ‘investment allowance [in] certain categories of investment, for example, in offshore wind or green hydrogen”.

Alternatively, the government could instead prioritise home insulation using the money generated from the windfall taxes. Home insulations are expensive, and this is reflected in the data: between 2012 and 2019 the number of houses that were insulated dropped by 95%. Additionally, the National Energy Action has modelled that at the current rate of home insulation, it would take almost a century to retrofit existing homes in the UK to be energy efficient. Instead of only providing temporary financial relief, the money could be earmarked for consumers to spend on making their homes more energy efficient – decreasing the overhead costs of energy prices and decreasing the raw amount of fossil fuels used. These ‘green strings’ and alternative policies could serve as a win for everyone – for the people and the planet. 

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Featured image: Rishi Sunak, Chancellor of the Exchequer. Photo credit: Simon Dawson/No 10 Downing Street (CC BY-NC-ND 2.0)

The post The UK Missed An Opportunity to Make Windfall Taxes ‘Green’ appeared first on Earth.Org.

Interest in carbon capture, utilization and storage (CCUS) has been steadily receiving increased attention over recent years. This is particularly true in the wake of COP26 and bolstered by IPCC reports that suggest that they are essential technologies towards mitigating greenhouse gas emissions. But recent surveys and public opinion polling suggest that either the public is not confident, or doesn’t know enough about CCUS to back efforts. As public acceptance is vital for the successful implementation of any new technology, the public’s wariness and unfamiliarity with this technology suggest that it may currently be hindering wide scale deployment. 

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What is Carbon Capture, Utilization and Storage and Why is it Important? 

Carbon capture, utilization and storage (CCUS) is an umbrella term that describes a number of technologies in which carbon dioxide (CO2) is sequestered from the atmosphere and either converted into viable commercial materials or stored. The basic idea of CO2 capture technology has been around since the 1920s, when it was first used for the separation of CO2 found in natural gas reservoirs from methane gas. It is currently proposed as a method to capture CO2 from an existing industrial processing and storing it in subterranean structures – either depleted oil and gas fields or deep aquifer formations. From this process, experts estimated that the best technology could capture up to 90% of the CO2 emissions produced from the use of fossil fuels in electricity generation and industrial processes. 

The deployment of CCUS has been predominantly at the industry level. Photo by: International Energy Agency

From the perspective of a policymaker keen to tackle climate change, it is quite easy to understand the appeal of CCUS and related technology. The potential emissions reduction in capturing CO2 from industrial plants, and instead either recycling it to be used in the manufacturing or stored, is enormous. Moreover, the deployment of such technologies would likely result in non-climate benefits, including the creation of jobs, economic stimulus and in the case of utilization, a circular economy. Such benefits may be helpful in facilitating just transitions, particularly for regions in which the effects of climate change force mass job changes. Deployment of CCUS however, and in particular commercially viable deployment, is lagging. 

The Importance of Public Acceptance in CCUS

There are a number of factors that could explain the slow uptake of CCUS, but the most prominent arguments point to the high cost. Commentators in the field have suggested that the technologies required for CCUS are too expensive and unable to compete with comparative wind and solar electricity. Moreover, they have suggested that the viability of these techniques are dependent on carbon pricing policies that are, as of yet, not robust enough to support CCUS. However, recent reports from the International Energy Agency (IEA) have suggested that there is no single cost for carbon capture and utilization and as technologies continue to be developed, the commercial viability only increases. 

The global weighted average of the cost of renewable energy has fallen dramatically over the past year. Image: Our World in Data

This trend has also been historically observed, as the cost of renewables such as wind and solar have dropped as much as 80% in the last decade, suggesting that the successful deployment of CCUS may follow the same trajectory. Moreover, recent reports of rising carbon prices as a result of mandatory carbon markets are quickly making technologies such as CCUS more economically viable. 

Recent surveys and public dialogues have suggested that there exists an additional barrier to the successful deployment of CCUS: public acceptance. Although there are some examples of CCUS technologies in industrial settings, a wider deployment will be required to meet net-zero goals. As these technologies move beyond a relatively immature stage of development, public recognition and acceptance is likely to become increasingly important in successfully meeting net zero commitments. This is not a challenge that is singular to CCUS; the successful implementation of technologies are often influenced by the public’s viewpoint, as people need to be convinced of the advantages of the novel technology. 

Given that successful deployment of these technologies, and therefore efforts to meet net-zero commitments, is reliant on public acceptance the question becomes: what can be done to increase public acceptance of CCUS? 

How Do We Increase Public Acceptance of CCUS?

It is important to note that public acceptance, or social acceptance, is a broad term. Specifically, social acceptance should take into consideration three levels: socio-political, market and community acceptance. Socio-political acceptance refers to a broader acceptance of green technologies, from policymakers and the general public. Market acceptance, on the other, involves buy-in from relevant stakeholders and technology investors. And finally, community acceptance involves buy-in form local community actors, particularly those living close to the development of new projects. It is important that policymakers take into consideration all three facets when proposing new plans for wide deployment of CCUS.  

Investigating determinants of public acceptance for policies and technologies for the commercial deployment of CCUS is essential to understanding the feasibility and success of such technologies. As of yet, this research is underrepresented in industry and in academic literature. One simple first step towards better public acceptance of CCUS is simply to increase research into the intersection of social science and climate studies. Recent reports have suggested that there are misallocations in climate research funding: an estimated 0.12% of all funding for climate change mitigation research is spent on social science research. Instead, the vast majority of funding is directed towards the natural and technical sciences.  This suggests that although public acceptance of new technologies such as CCUS are identified as problematic, less is known about ways in which this can be addressed. Directing more funding into the intersection of climate change and social science research is essential, as new technologies for mitigating climate change are anticipated and will likely face similar public resistance. 

CCUS policies can take various forms, depending on which technology is being addressed. While this complicates public acceptance, as it is likely to vary depending across policy initiatives, what is known about public sentiment is promising. A broad range of policies have been introduced to increase deployment of CCUS, including the banning of new fossil fuel power plant construction without CCUS, government subsidies for CCUS development or increases in taxes on the fossil fuel industry. Initial studies have suggested that there is a broader backing for bans, rather than for subsidies and tax increases. Additionally, the public expresses more interest in CCUS when there is a greater distance of a plant from residential areas, following a similar NIMBY-ist (Not In My Backyard) that has been noted in other policy areas. Moreover, there have been reports suggesting that the public does not want to see investments in carbon capture be taken away from investments in other arenas, such as renewables. Interestingly, policy implementation is also preferred for sooner timelines rather than later. This suggests that once the public is aware of the benefits of CCUS and related technology, they are supportive of swift deployment and implementation. 

One reason for a lack of public acceptance appears to simply be a lack of knowledge on the topic. In international surveys carried out, the public either did not know about projects or had fundamental misunderstandings about the underlying science. In some of these international survey-style reports, carried out in the United States, China, Germany and Japan, the common theme that linked the three together include the role of trust, community compensation, and communication in increasing public acceptance of CCUS. 

While there is some skepticism about the long-term environmental benefits, overall there appears to be positivity surrounding CCUS as a tool for mitigating the effects of climate change. Simply put, people do not know enough about CCUS to have a strong opinion. As such, policymakers and proponents of CCUS need to invest resources into educating the public about the benefits of the technology, as well as building trust and a sense of community involvement in such projects. In making this investment, there is a greater chance that deployment of CCUS will be substantial and long-lasting, helping to meet net-zero commitments.

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