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Banks and carbon trading

Dodgy Deals

Carbon trading as a false solution to climate change

Carbon trading, including trading permits in a cap-and-trade system as well as 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.

Carbon trading, especially through banks' proprietary trading desks, is a way for banks to make money from 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 entering the market (carbon credits that are based on promises to reduce emissions that fail to deliver and collapse in financial value - see this study for more details).

BankTrack calls upon private sector banks not to engage in ‘false solutions' to climate change, such as carbon trading. See 'A Challenging Climate 2.0 - What banks must do to combat climate change'.

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, i.e. 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 studies by Stanford, and CarbonTradeWatch). 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 (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 shifting the world economy towards a sustainable footing.

CDM dodgy deals financed by international private banks:

REDD dodgy deals financed by international private banks:

For any question or information on private banks and carbon trading/offset mechanisms, please contact Yann Louvel, BankTrack Climate and Energy Campaign Coordinator. 

Back to Banks, Climate and Energy

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