Will selling carbon credits help reduce carbon emissions?

European Commission (EC) President Ursula von der Leyen, speaking at a meeting of world leaders in Glasgow, said: "We must make the global carbon market a reality in order to raise the price of carbon, since nature can no longer pay this price."

In her opinion, the rise in the cost of carbon quotas will contribute to the advancement of carbon-neutral economies of the countries of the world and will help reduce greenhouse gas emissions. EU head of diplomacy Joseph Borrell in Glasgow stressed that EU countries "are currently responsible for 8% of global greenhouse gas emissions."

“To succeed in the fight against climate change, we first need to work with the largest sources of greenhouse gases - China, the United States, Russia, Japan, Saudi Arabia, Canada, India and others,” Borrell said.

It is noteworthy that European companies, whose activities lead to carbon emissions, pay certain fees and include these costs in their budgets.

There are carbon exchanges in Europe that allow companies to obtain or endorse green certificates.

The European Commission is of the opinion that the rise in prices for carbon credits in Europe in 2021 has become one of the important factors in the emergence of the EU gas crisis in September-October, because the companies incurred additional financial expenses against the background of problems with the availability of the necessary fuel reserves before the heating season.

On the eve of the COP26 meeting, the influential financial institution HSBC prepared an analysis in which, in particular, he recalled that 191 countries of the world, which account for 96% of global greenhouse gas (GHG) emissions, have ratified the Paris Climate Agreement (adopted in 2015), and 196 countries have submitted climate commitments (NDCs) at national levels.

“It is possible that COP26 will conclude discussions on Article 6 of the Paris Agreement on carbon trading and credits, which have been causing a lot of controversy since 2015,” said HSBC experts.

There are currently approximately 64 carbon pricing schemes in the world that cover more than 20% of global greenhouse gas emissions.

About 35 countries around the world (mostly in the EU) are introducing a carbon tax, and 29 countries are working on trading schemes.

There are certain carbon certifications “awarded” by a particular regulator to companies that commercially help “offset” or “offset” actual CO2 emissions.

Quotas are set mainly in relation to the emission of 1 ton of carbon.

The second subparagraph of Article 6 of the Paris Agreement on Climate Change states that "the parties are allowed to use carbon emissions saved or avoided in other countries (or other parties) to reflect them in their national climate commitments."

But there is no clear system of accounting (financial) accounting of whether the reduced emissions are deducted when working in one country and whether they are added when working in another country.

HSBC believes this can be done through the ITMO (International Climate Mitigation Transfer) system.

It is also important to distinguish between the concepts of “avoiding carbon emissions” and “eliminating carbon emissions (carbon footprint”).

In Glasgow, experts can also discuss how long carbon certificates or ITMOs can be given.

In fact, ITMOs allow countries to buy green permitting certificates for their national obligations.

But isn't there a need for restrictions here? Are the causes of the carbon emissions important?

“The problem is that these rules, which make sense to one side, may not be acceptable to the other. There are many nuances to be agreed upon, ”HSBC believes.

In addition, it is necessary to discuss whether the quotas from the Kyoto Climate Protocol (preceded by the Paris Protocol, was adopted in 1997) should be transferred to the new system and whether they will correspond to the new challenges in the world.

International independent experts believe that the market may be flooded with quotas for "carbon emissions" and undermine the implementation of the global climate targets of the Paris Agreement.

CO2 trading is becoming an increasingly important factor affecting the export and import of oil and gas to different countries of the world. In some states, exchanges for trading such goods have been operating for several years, in some they are only being launched now.

Trade is not only in so-called carbon credits, but also in credits for them, when one company resells unused quotas (since it has not exceeded the permissible emission standard) to another. Moreover, CO2 futures are already traded in some countries.

Notably, in the UK, which is hosting the COP26 Summit in Glasgow, greenhouse gas emission quotas have been sold since 2017, but significant trade growth has been going on from December 2020 to this day.

In the EU itself, in 2021, prices in the European Carbon Emissions Trading System, which has been operating since 2005, have almost doubled compared to the level before the COVID-19 pandemic.

The European Emissions Trading System (ETS) has an estimated turnover of more than € 51.4 billion per year. The European Emissions Trading System has become a model for the creation of similar sites in California and several provinces in Canada. Also in the United States, there is a system for calculating emissions for energy companies Regional Greenhouse Gas Initiative, which extends to the eastern states of the country.

In early 2021, the European Parliament approved a carbon tax law, which is a de facto duty on imported goods in the EU. It also allows you to issue quotas for CO2 emissions for European companies free of charge.

Until 2023, such a bill must be implemented by the European Commission. Similar initiatives in the EU have spurred CO2 futures prices and are now driving the cost of quotas to rise.

Until the new law comes into force, enterprises in the EU have to buy constantly rising quotas, and this affects the final cost of their products and services. For this reason, European companies are calling for a faster cross-border carbon tax, which will make their products more competitive in the EU.

Currently, there are 24 national and subnational markets where CO2 emissions trading takes place. About 20 more such trading platforms are under development. Markets in China and New Zealand have already been launched in 2021.

The money turnover when trading in these markets is very serious. China has launched the first phase of its national emissions trading system, which will regulate more than 4.3 billion tons of emissions from more than 2,000 power plants.

In New Zealand, the government has already set this year a cap on total emissions from sectors covered by the New Zealand ETS of 40 Mtpa from 2021 to 2025.

Singapore plans to launch a new global exchange and market for carbon credits by the end of this year, supported by banks DBS (DBSM.SI), Standard Chartered (STAN.L), Singapore Exchange (SGXL.SI) and state investor Temasek Holdings. It should be added that since 2005 there are more and more such sites in Asia.

It is curious that Ukraine should launch a system for monitoring, reporting and verifying greenhouse gas emissions by the second quarter of 2022.

Carbon regulation in the Russian Federation may start working from 2022-23. But the basic principles have been made public:

- reporting on carbon emissions should primarily be provided by companies whose annual emissions are more than 150,000 tons of CO2 equivalent; then those with an indicator of more than 50,000 tons.

- the emission quotas allocated by the state (the process may start in 2030) for emissions, if necessary, one enterprise will be able to resell to another.

But it is not yet clear whether national carbon solutions abroad will be recognized over time.

At the moment, in order to legalize a project to reduce emissions abroad (if these are not quotas issued by the government, but the voluntary desire of companies to reduce emissions), a set of existing standards developed by organizations from the UK, Switzerland and the USA is being used.

Situation in Azerbaijan

In Azerbaijan, enterprises of the oil and gas industry and metallurgy "suffer" from carbon emissions. The Minister of Ecology and Natural Resources of the country, Mukhtar Babayev, is also in Glasgow, where he holds various bilateral meetings and participates in discussions on measures to prevent global warming.

Meanwhile, SOCAR reports that by the end of 2021 the percentage of carbon concentration in dry air will be only 2%, and by April the state-owned company will reach zero carbon footprint (carbon neutrality).

An informed source told ASTNA that this was achieved by freezing work on old onshore fields (as part of reducing production under obligations to OPEC +) and by using modern technologies for capturing carbon at SOCAR's basic fields, for example, the shallow waters of Guneshli and Neft Dashlary.

“Thus, SOCAR does not fully use its carbon quotas and has even started selling them. In particular, through the Norwegian company Carbon Limits, a contract was signed with Rosneft, which wanted to buy a SOCAR carbon quota (130 euros for the equivalent of 1 ton of CO2) for a green certificate for the operation of this Russian oil company in the European market, ”he said. informed source.

Thus, Azerbaijan has also become involved in international carbon trading, and with an increase in its gas exports to the EU, it will become more actively involved in other processes initiated by Europe in relation to the development of "green energy".

It should also be noted that by 2019 Azerbaijan has actually fulfilled its obligations to reduce carbon dioxide emissions by 35% by 2030, since it has reduced emissions to about 34 million tons of CO эквивал equivalent (in reality it is -36.3% compared to 1990). At the same time, the country continues its steps, following the global idea of carbon neutrality and intends to reduce carbon dioxide emissions by another 2.5-3 percent. The largest carbon dioxide emissions (as of the end of 2019) are in the electric power industry (90 percent of energy facilities run on gas) - 36% of the total carbon emissions. The remaining emissions came from transport (24%), the housing sector (19%), oil and gas production and refining (5%), the commercial sector (8%) and manufacturing industry (7%).