By Zara Jain
Since 1944, economists have established one fundamental instrument for evaluating the well-being and incomes of countries and people around the world — what we know today as gross domestic product (GDP). The rapid increase from a mere 7 trillion, to an astonishing 95 trillion USD in under 100 years is unimaginable (Our World in Data). Our global GDP has increased over tenfold, but at what cost?
There is no doubt that the world and the economy have grown and progressed: but should countries with a higher percentage increase in GDP be considered to have developed more, without bearing in mind the damage to the environment? Shouldn’t credit be given to countries who have advanced, albeit in a limited capacity, and have however maintained a low carbon footprint? Currently, no one is held accountable for their own greenhouse gas emissions, so why would any nation be incentivised to change?
One example of this is the United States of America, the largest economy in the world with a size of nearly 21 trillion USD. However with great power comes great responsibility, and this growth has not come at any low expense. In 2020, U.S. greenhouse gas emissions totalled 5,981 million metric tons (13.2 trillion pounds) of carbon dioxide equivalents (EPA, 2022). On the other hand, one small nation known as Tuvalu has a much smaller GDP coming in at only 63 million USD as of 2021. Their current carbon footprint rests at zero MtCO₂, and they plan to continue this trend by doing away with fossil fuels altogether (O’Neill, 2019). Nations such as this one have been maintaining extremely low carbon footprints, helping to protect the planet and the human race, without receiving any payment or credit. Don’t these countries deserve something in exchange, allowing them to be more competitive in the international arena? At this stage which of these countries should be considered more developed? Shouldn’t the definition of “developed” be reframed to incorporate “the cost of this economic growth”?
This is why many are beginning to believe GDP is not a fair measurement of success. Maintaining high economic growth at the cost of the well-being of future generations should never be an option. But how can we limit greenhouse gas emissions globally, whilst allowing all nations to grow, and benefiting the countries who have worked hard to reduce their carbon footprint?
At the moment, one solution has to come to rise with great potential. Carbon credits. These are verified certificates for a unit of emissions reduction or carbon removal, enabling carbon offsets to be bought and sold in a carbon marketplace (Paia Consulting, 2021). This solution juggles and solves many problems at once, not only limiting total carbon emissions but helping to quantify them to create a fair and equal environment between all countries.
Currently, there are 2 markets for carbon credits. Voluntary and mandatory. The mandatory market consists of companies and governments who are legally required to reduce their emission due to a range of reasons. The voluntary market is considered the private investors, governments, non-governmental organizations, and businesses territory. Those who voluntarily purchase carbon offsets to reduce their emissions, or the majority being private firms purchasing for resale and investment (Corporate Finance Institute, 2020). These markets are regulated through carbon reduction schemes, such as ‘the Clean Development Mechanism under the Kyoto Protocol, the European Union Emissions Trading Scheme (EU-ETS) and the California Carbon Market’ (Vanessa, 2021).
Carbon credits are still in their nascent stage, with the majority of the world not even knowing of their existence; but if they were to become more widespread and mandatory, the resulting change could be both huge and immediate. Though this carbon credits solution seems plausible, it is yet to work. One of the main reasons being the existence of the voluntary market. Due to it being voluntary, the citizens are more likely to obtain carbon credits only to utilize as stocks. The undeniable human greed once again comes into play, and in order to go around this improvements must be made.
One refinement should be the establishment of a global mandatory carbon credits market and allowing the voluntary one only to be used by individual investors, not businesses or countries. Through this, each country is assigned a specific number of carbon credits by the UN depending on several factors. As countries are able to sell and buy carbon credits, this new motive may deem to be highly beneficial, as money is majorly the guiding point for most businesses and nations. This provides countries with the incentive to save carbon credits, resulting in a gain in wealth as they are able to sell on the market. As the total number of carbon credits for the whole world is a set limit, the total emissions will be too, and within the limit, these credits may be traded. Furthermore, it allows countries who are conservative with their credits to sell them, allowing them to earn more money to grow and increase their GDP.
When deciding the limits for each country, many factors must be considered. The most important being: is it a developing or developed country, size of the population, size of GDP, market type (eg. manufacturing/service), etc. Once all components are deliberated, countries are assigned percentages of that year’s global allowance. However, reducing emissions to a safe level cannot all be done at once.
Currently, we stand at 417 PPM – parts per million of chemicals per unit volume of water – and “If humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted, paleoclimate evidence and ongoing climate change suggest that CO2 will need to be reduced from [current levels] to at most 350 ppm.” — Dr James Hansen (“Why 350? – MN350”). By compounding 98% annually, the total combined CO2 emissions for all countries will be reduced by 2% each year and will allow us to reach 350 PPM in under 10 years. What this means is that the year 1 allowance will be 408 PPM (98% of 417), year 2: 400, and year 3: 392. Though these seem like huge changes, it will only be a 2% decrease in allowance for each company, and this small change individually may allow our earth and humanity to survive and prosper.
In addition, penalties should be applied, for example, a fine greater than a payable number, each time a country emits greater volumes than permitted. As countries may distribute the carbon credits to the individual businesses depending on their values, by putting an allowance on the carbon emissions a business can emit, they must stay under, or there is a possibility of them receiving a lower allowance the next year. If this cycle were to continue, the allowance is continuously compounded lower for the specific business. By assigning not only a fine but a penalty as well, it ensures that richer countries and businesses do not get away with just paying it off. This ensures every business isn’t negatively impacted by the choices of one, but instead each one individually pays a price.
In conclusion, though reducing emissions may be difficult, just a small change from each individual could prevent irreversible change to our Earth and environment. This not only allows economic growth to continue increasing trade, but also does so without harming the citizens, protecting economic welfare and development.
(The author is Zara Jain, Grade- 12, United World College of South East Asia, Singapore, and the views expressed in this article are her own)
