By Boyd Cohen, co-founder, Kincentricity Social Carbon
Carbon trading is a $100+ billion global industry driven largely by the regulated markets in Europe, where most of the offset trading is done on the European Union Trading System (EUTS). The primary tool resulting from the Kyoto Accord for generating offsets for the EUTS is the Clean Development Mechanism (CDM). CDM is an instrument originally designed to enable countries and companies from the developed world to develop lower-cost, high quality carbon offset projects in developing countries.
While it has arguably succeeded with that goal, it has fallen well short of achieving one of its secondary goals, which is to enable local, sustainable development in the developing world.
Yes, massive new hydroelectric power plants in China create renewable energy sources for their population, but they also have detrimental impacts on local ecosystems and often cause the displacement of thousands of local villagers. Methane capture from an oil refinery in Argentina also can generate sizable amount of offsets for a profit but can easily lack local impact.
Somewhere along the way it feels like the carbon markets have lost their soul.
As is the case in the evolution of most industries, sooner or later, the focus moves strictly to profit maximization. In the case of carbon markets, early movers have grown to a large size and are increasingly being bought by even larger multinationals (e.g. see JP Morgan’s recent acquisition of Ecosecurities for roughly $200 million). This leads towards a shift to scale efficiencies and sourcing bigger projects that have the potential to reduce the greatest amount of offsets for the least cost, thus commoditizing carbon offsets.
Granted, profit maximization is important and I have no problem with companies leveraging the CDM for this purpose. Given that I have been a serial sustainable entrepreneur, am writing a book with Hunter Lovins specifically titled Climate Capitalism and, that I have a Ph.D. in Business from the University of Colorado, I could hardly be called a left-wing hardcore environmentalist removed from the economic realities of the business world.
However, there is significant opportunity, using carbon trading mechanisms, to develop small to medium scale projects in Latin America that have a true local sustainable development impact, and lead to what are commonly called social carbon or charismatic carbon offsets.
Nemocon, Colombia is a great example of one these places where this kind of development can take place. Nemocon has a community of 3,500 people where literally every member of the community, men, women and children work virtually non-stop with 500+ artisan kilns to produce bricks for the construction sector.
Elizabeth Obediente, a former petroleum engineer in Venezuela, and I recognized a the opportunity in places like this, and formed Kincentricity Social Carbon to encourage the kinds of the local, sustainable development that can occur in places like Nemocon.
The kilns Nemocon residents use are highly polluting and result in a high rate of respiratory illness and death in the community. The community is all below the poverty line as they have not been able to diversify their economy or create value added products. Lacking basic business fundamentals, they end up being subjected to price pressure and sell their bricks at the price set by purchasers who come to their community with their trucks and money in hand. Bricks that should be able to sell for 300 pesos elsewhere often sell for less than 100 in Nemocon.
The solution, therefore, has been to work with the community to form associations and to help secure competitive financing for the purchase of eco-efficient kilns, which will reduce harmful contaminants and emissions. This will allow them to diversify their economy because the new kilns can be used to make tiles, roofing, and other more value-added, differentiated products. They will also find that the new efficiencies free up children to actually go to school more regularly and others in the community to participate in the economy beyond working in the kilns.
But of course the community will need capacity building to understand how to diversify and to market their new products, and it takes the collaboration of various NGOs and other organizations to put the infrastructure in place to ensure sustainable development.
While this model is new and emerging, Kincentricity is not the only player in the carbon markets to seek true local sustainable development outcomes from its projects. An exciting initiative that has recently emerged in Asia is called Nexus.
Nexus is an alliance of social ventures and NGO’s committed to leveraging carbon finance “to reduce poverty, reduce emissions of greenhouse gases, and where possible achieve other benefits such as improved human health and conservation of biodiversity, in a sustainable manner.” Nexus is a Gold Standard majority pledger, which is the leading standard in the world for projects that not only meet the measures of quality of the CDM but also require demonstrated proof of local, sustainable benefits.
While new, I suspect Nexus will become an important voice and support system for the social carbon markets in the coming years. Other sustainable carbon standards worth keeping an eye on include the Climate, Community & Biodiversity Alliance and Social Carbon. Social carbon offsets sell at a premium because they are a differentiated, non-commoditized product. Who said doing the right thing has to be bad for the bottom line?
About the author: With a PhD in Business from the University of Colorado, Boyd Cohen is the co-founder of Kincentricity Social Carbon, an organization dedicated to fostering local, sustainable development throughout the world. Cohen is also the co-author of Climate Capitalism, with Hunter Lovins, which will be released in print in February, 2011. To find out more, visit kincentricity.com.