Carbon accounting 1.0 has crumbled – it’s time to rebuild on solid foundations

What’s at stake

Any sustainable future for human civilisation requires a solid base. The foundations we’re currently trying to build it on, however, are crumbling away faster than our increasingly desperate efforts to shore them up.

We need to take carbon accounting as seriously as we take financial accounting. Instead, we’re trying to fix flimsy, fatally flawed footings cobbled together decades ago, when our situation wasn’t so dire and we thought we had more time.

Current fixes to our current carbon accounting system are based on the same model, and so doomed to repeat the same mistakes. The more money is thrown at the problem by venture capitalists seeking to ‘win’ the latest El Dorado – and as this Financial Times article on the latest venture capital Gold Rush shows, a lot of money is being thrown at boring old carbon auditing – the more embedded The Problem becomes.

Build a system around money, and money becomes the primary objective. Competing commercial standards are racing to maximise profit.

Carbon accounting is a complex science. It requires approximations, bands, averages and estimates. So does our tax system, but governments don’t leave collecting public money to the market. The fact that they’re still prepared to do so shows how un-serious they still are about effective climate action, and how far we have to go.

Right and Wrong trade-offs

Any accounting system, whether for carbon or cash, requires trade-offs. Carbon auditing trade offs should be between the aspiration to design a perfectly granular carbon measuring device, and the practicalities of it being implementable and affordable at scale.

Involve venture capital and hedge funds, however, and the focus will shift to profit and shareholder value.

This article explains this paradox of using a system that optimises profit to address a problem created by optimising profit. To understand this fatal flaw is to realise why our current elaborate system of carbon accounting, carbon auditing, carbon credits, carbon trading, carbon taxes, carbon offsetting etc. we’ve inherited is broken beyond repair.

It’s why we urgently need to replace it with an honest, transparent, system founded on the accurate, accessible, open source standard to measure carbon emissions.

Any serious, long-term solution must be optimised for accuracy, not return on investment. It must be:

• free to use, so incorruptible
• open source, so designed to swiftly incorporate best practice as it becomes available
• directed at where most emissions come from, so focused on the needs of secondary supply chains not their big business clients

Seems impossible? This is See Through Carbon.

Carbon auditing is the keystone

Whichever system we end up using to mitigate the worst impacts of human-induced climate change, it will almost certainly require the use of market forces, guided by government regulation.

The keystone to this edifice is the immature business of carbon auditing. This video explains carbon auditing basics – it’s based on exactly the same principles as financial auditing, only it counts carbon instead of money.

At the moment, our carbon auditing system favours making up ‘carbon neutral’ greenwash, not the accurate measurement of real-world carbon footprints.

Replacing our current feeble carbon auditing with something much more robust is an urgent first step, but one we’ve yet to take.

Without knowing how much carbon we emit, how can we possibly hope to reduce it? 

The Carbon Credit Fig-Leaf

The venture capital hedge funds have spotted a booming market, but everyone involved in carbon auditing is aware of its flaws.

The Financial Times, that clear-eyed chronicler of capitalism, has also written an Emperor’s New Clothes primer on how the climate cost of greenhouse gases isn’t priced in, why it should be, and how it could be. It points at the fig-leaf we’re currently parading around in, and laughs.

The primer was written for schools, which begs the question of how many of our political leaders could explain unpriced externalities, and Pigouvian taxation in relation to carbon. The hedge funds competing for their standards to be adopted probably could, but choose to ignore their inconvenient implications. They’re too busy designing a snazzier fig-leaf.

The FT explainer spells out that the solution depends on government regulation rather than individual behaviour change. The money-driven carbon auditing standards know this too, which is why they’re gambling big. They sense the market is ripe for consolidating around one universal standard. Only one can prevail, but whoever wins will have a monopoly to print money by tracking carbon. The goal is clear, but at the moment, the choice of solutions remains an array of slightly more elaborate fig-leaves.

The Tyranny of Choice

Even well-intentioned governments are in a bind. They know we need a universal standard, but the only ones currently on offer share the same flaw. It’s why their response so far has been so feeble.

When pressed, governments usually flip-flop between explaining how complicated carbon drawdown is, and talking up the equally-complicated regulatory schemes they’ve come up with. Both mitigate against effective carbon drawdown.

These carbon credit and carbon trading schemes are so complex and full of loopholes they’re beyond redemption. This has serious and far-reaching consequences.

Funding Hospitals with casino winnings

Around the world, NGOs, consultancies and companies are working with local communities, or environmental ministries, on critical programmes to preserve existing wildernesses, keep trees in the ground, and retain our catastrophically-shrinking biodiversity.

Nearly all of them, in some way or other, depend on our current carbon credit system for funding. This house of cards starts with poorly-designed UN standards like REDD+, and ends in airlines cheerfully adding an optional ‘carbon offsetting charge’ to ‘save the planet’. Garbage in, garbage out. Why are we surprised it trashes the planet?

Effectively, bullshit carbon credits paid by greenwashing companies are being used as a tax to pay for the projects that will preserve human civilisation. We woudn’t accept funding our hospitals with casino winnings, so why do we put the future of our species in the hands of gamblers looking for a killing?We must do better, or fail.

Carbon drawdown schemes, need money, and right now have few other options than to jostle outside casinos, begging for loose change. They’ve obliged to build their own attempts to build a sustainable future on these crumbling foundations. This means fantasy carbon trading schemes are undermining real world carbon drawdown solutions.

There are plenty of alternative systems which would be much more robust, simple and effective, like removing the tax breaks and subsidies still awarded to fossil fuel, cranking them up instead, and transferring all those incentives to renewable energy.  

But most governments, fearing short-term political consequences, have preferred to use the fig-leaf of carbon credit schemes to give the illusion of climate action. The credibility of carbon offsetting has been washed away by a greenwash tsunami , as scandal after scandal emerges proving those guilt-absolving trees never get planted, die, or were imaginary to start with.

The current carbon accounting system is broken beyond repair – it must be replaced by a carbon auditing standard that provides solid underpinning, like See Through Carbon.

Individual behaviour, government regulation and carbon audit standards

It’s tempting to think of the transition to a clean economy as a huge leap. It is in fact a trillion tiny steps – steps that each of us take, many times a day, all around the world, when we decide how to live, and what to buy.  Because these steps are taken by individuals, or companies, we think of them as matters of personal choice or conscience – hence all that flight-shaming, vegan-bashing, and tit-for-tat Twitterstorms.

But these don’t have to be individual choices. When it comes to money, governments are fine with removing that choice and making it compulsory. Paying tax is not a choice – unless you’re rich enough to game the system.

Governments need the political will to remove this element of choice – we’d no longer have to agonise over taking airplanes if aviation fuel were taxed at 1000%, for example. Political will is the main factor, but governments also need to be as confident in the tools being used to measure impact as they are in their tax collecting departments.

In each of these trillion steps lurks an uncosted externality, the carbon cost of which is borne by all of humanity now and in the future, as each greenhouse gas molecule released joins the others forming the blanket around our planet. These costs are what any carbon audit system should measure.

As greenhouse gases continue to rise to new records, eliminating these trillion little externalities is key to carbon drawdown. The frustratingly simple solution, as the FT explains to schoolchildren, is to price in the true cost. 

But before you can price it, you have to make sure everyone is accurately measuring it – this is carbon auditing.

There’s no point in taxing goods in the shop window, when out of sight at the back door, huge volumes of black market stock are being sold for cash.

Political will, weakened by Big Oil lobbying dollars, remains the major obstacle to carbon drawdown. The sooner our governments apply carbon regulation with the same rigour as they do financial taxation and regulation, the sooner we can speed up carbon drawdown. 

But first we must understand why our current system doesn’t, and can’t, work. To move on, we need to be clear why all the complicated carbon trading and offsetting schemes economists have promoted for decades have failed so spectacularly to reduce global carbon emissions.

Carbon Credits – not the answer

Since the 1990s economists have constructed a theoretically elegant solution. Carbon trading, using ‘carbon credits’, appeared to be a seductively neat solution to the ‘externalities problem’.

It trusted market forces to do the right thing. Carbon trading schemes were based on the notion that it was relatively expensive for developed countries to reduce carbon, but much cheaper and easier for developing countries.

It doesn’t matter who releases the carbon molecules, the thinking went, so why not use market mechanisms to reduce carbon in the most efficient manner possible?

The result – an elaborate international system of carbon emissions trading to facilitate this appealingly reasonable-sounding solution. Rules were agreed, contracts were signed, carbon markets established, trading conducted.

Many people, mostly in the rich countries, mostly wearing suits, made their livings from this new market in carbon. It seemed we could account for carbon externalities without really noticing anything different or having to change anything in our daily lives.

But…the rate of increase of greenhouse gases slowed down not a jot. By and large, business has continued as usual.

Economists tried to finesse the problem, either claiming things could have been worse, or that minor adjustments were required. So far, however, carbon emissions trading has been a failure at best, and a scam, at worst.

Those invested in the current carbon trading system are reluctant to close the ledger on their living, but all the evidence so far is that it’s been a big dud, and an unfortunate distraction from effective climate action.

More Rules = More Loopholes

The more complex the solution, the more rules are required to make it work as intended.

This creates a perfect environment for bad actors determined to resist change, and a confusing system that doesn’t reward good actors trying to do the right thing.

Focus on a proxy for action – carbon credits – rather than the real thing – reducing carbon – and you create a fuzzy grey area. Amid the smoke and mirrors, it’s hard to distinguish the well-intentioned from the exploitative. 

Take British energy company Drax. Its advertisements, plastered with wind turbines, suggest a company doing its utmost to abandon fossil fuels. Its balance sheet reveals a foot-dragging fossil fuel addict, willing to abuse any complex indirect carbon reduction scheme as cover for inaction.

Drax’s cunning plan combined two different schemes – carbon credits and carbon capture. This double play provides even more room for manoeuvre when you don’t really want to change. Strip away the greenwash, ignore the smoke and mirrors, and here’s the wheeze Drax’s suits came up with:

• Drax says it will grow vegetation in the UK
• Drax says it will burn that vegetation
• Drax says it will by some means TBC capture the carbon released by burning its vegetation
• Drax says it will find somewhere TBC and bury the carbon it somehow captures
• Drax builds actual new fossil fuel power stations in the USA
• Drax proposes to ‘pay’ for these power stations with carbon offsets from its imaginary vegetation scheme

Ingenious, creative, resourceful…and utterly ineffective in reducing carbon.

Too good to be true

While smart lawyers perform accounting contortions, and conjure ‘Carbon Neutral’ badges our of thin air, atmospheric physics continues its remorseless progress.

Carbon trading has turned out to be just another ‘out of sight, out of mind’ deception, another excuse for inaction. 

Any form of ‘offsetting’, so often a euphemism for ‘exporting’ the true cost of our carbon addiction, is now clearly part of the problem, not the solution. Every day brings new evidence that offsetting schemes have wildly exaggerated their claims. This is to be expected when they system under which they prospered favoured Vatican-like indulgences and imaginary ‘carbon neutral’ stickers, rather than real-world carbon counting.

If we’re serious about reconciling the inconvenient truths of carbon externalities, we need to grow out of these fantasies. The elegant theoretical constructs fashioned by economists are as ineffective as the silver bullet machines dreamed up by engineers. Carbon trading and offsetting, like carbon capture machines that suck the CO2 from the air, promise much, but never quite deliver.

Carbon capture is just another excuse for pusillanimous politicians to delay taking action, a phantom cavalry that will never arrive. Like nuclear fusion, carbon capture at scale is permanently just over the horizon.

No more business as usual

What schemes like carbon credits, carbon trading, carbon capture, carbon offsets etc. have in common is they don’t require rich countries to significantly change anything.

If things appear too good to be true, they usually are. It’s time to abandon the fantasy system of carbon trading and offsetting, and start taking responsibility for cutting our own carbon emissions now.

And that starts with measuring our carbon footprints accurately, removing the obstacle of money. 

Which is why we need See Through Carbon.