BankTrack calls upon private sector banks not to engage in so called ‘false solutions’ to climate change, such as carbon trading. See 'A Challenging Climate 2.0 - What banks must do to combate climate change'.
Carbon trading as a false solution to climate change
- It does little to contribute to real emissions reduction.
Carbon trading, both trading permits in a cap and trade system and trading carbon offsets has become a common component of banks’ individual and collective response to the threat of climate change. However, there is growing evidence that carbon markets do little to contribute to real emissions reduction, while delaying the necessary structural shift from carbon to no/low carbon energy economy.
- In addition to not being a solution, carbon trading also poses systemic risks due to "sub-prime" carbon credits.
Carbon trading, especially through banks’ proprietary trading desks is a way for banks to make money off money, without contributing new capital towards solving climate change. As with other forms of derivatives, the use of such increasingly complex instruments creates potential systemic risks when this entails over-abundance of “sub-prime” carbon credits (subprime carbon are carbon credits that are based on promises to reduce emissions that fail to deliver and collapse in financial value) entering the market (see this study for more details).
Carbon trading and offset mechanisms
All existing carbon trading schemes allow emitters to purchase emissions reductions credits from outside of the scheme to comply with their targets, ie to offset some of their emissions reduction obligations. Through
this reliance on carbon trading and the role that emissions trading schemes
play in generating increased demand for offset credits - such as with the Clean
Development Mechanism (CDM) - carbon trading is not only failing to deliver on its
cited goals of guaranteed emissions cuts and technological innovation, it is actively
undermining global efforts to reduce greenhouse gas emissions and bringing
further negative social and environmental impacts. Many CDM offsets are not additional, resulting in business-as-usual emissions levels (see for instance this study, or this one). In addition, some of these projects have serious adverse impacts on marginalized communities in the Global South.
There are proposals under consideration in the negotiations for the extension of offsetting mechanisms to include forest carbon trading through Reducing Emissions from Deforestation and Forest Degradation or REDD. The same problems with offsetting apply to REDD but the scheme also has major implications in terms of impacts on the rights and livelihoods of forest-dwelling communities and Indigenous Peoples.
BankTrack believes that the emphasis placed by banks on carbon trading as a solution to the climate crisis is fundamentally misdirected. Commercial lending and securities underwriting must focus on capitalizing new activities that help save energy and reduce emissions, thus shift the world economy towards an energy economy.
CDM dodgy deals financed by international private banks:
> Bujagali Hydropower Project - Uganda
> GALFAD
incinerator project - Indonesia
> Buon Kuop Hydroelectric Project - Vietnam (CDM Validation Terminated!)
> Plantar
Project - Brazil
> Sasan Ultra
Mega Power Project (UMPP) - India
REDD dodgy deals financed by international private banks:
! > Ulu Masen - Indonesia - Coming soon
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*Note: ! represents a new dodgy deal page
