Gresham\u2019s Law says that bad money drives out good. If you have two coins with a face value of $1, you will spend the bad one that contains 25 cents\u2019 worth of metal and stash away the good one that contains $1 worth of metal.<\/p>\n
Something like Gresham\u2019s Law is at work in the carbon offset market, which was set up to fight climate change. Bad carbon credits are driving out good carbon credits. And that\u2019s a big problem for the effort to curb the greenhouse gas emissions that are heating up the planet and wreaking havoc from the Arctic to the Antarctic.<\/p>\n
An Aug. 16 report for clients of the British bank Barclays put a positive spin on the problem but contained some worrisome information.<\/p>\n
The Barclays report focused on the voluntary carbon market. That\u2019s the one that companies such as Microsoft and Salesforce are using to help reach their goals of net-zero carbon emissions. If they can\u2019t reduce their own emissions all the way to zero, they can go into the market and buy credits from someone in, say, Brazil who has earned them by planting trees to soak up carbon dioxide from the atmosphere. The voluntary carbon market can be a valuable mechanism for directing investment to developing nations that need help in the fight against climate change. <\/p>\n
\u201cThe market will get big because we need it to get big,\u201d Austin Whitman, the chief executive of the nonprofit Climate Neutral, told me. \u201cWe will not hit net zero without large and well-functioning carbon markets.\u201d<\/p>\n
Here\u2019s the Gresham\u2019s Law problem, though: According to the Barclays report, the price of carbon credits has fallen to around $2 per metric ton of carbon dioxide removed from the atmosphere, down from around $9 early last year.<\/p>\n
That\u2019s not because the cost of reducing emissions is really just $2 a ton. It\u2019s because buyers don\u2019t trust the quality of the credits. They worry that the sellers of credits aren\u2019t doing what they promise. For example, a seller might claim credit for stopping a forest from being cut down when there was no plan to cut it down in the first place. This is an old but vexing issue that I wrote about two years ago.<\/p>\n
The price of carbon credits is much higher in the official, intergovernmental markets, which have stricter standards. In the European Union Emissions Trading System, the world\u2019s liquid carbon market, the price of credits is around 94 euros a ton, or more than $100. Those official markets are how countries will comply with the Paris Agreement, a global climate treaty adopted in 2015.<\/p>\n
Another problem with the voluntary market is double counting, in which a project that reduces emissions is claimed both by the corporation that paid for it and by the country where the work was done.<\/p>\n
The Barclays report said that the voluntary carbon market \u2014 with its inconsistency and lack of regulation \u2014 is \u201cundermining the Paris Agreement process by casting doubt on the legitimacy of country-level emission reductions since these are also being claimed by corporates in other countries.\u201d<\/p>\n
The Barclays authors expressed pessimism that the problem could be fixed through negotiations between the rich countries that need credits and the poor countries that tend to sell them. They described as \u201crelatively unlikely\u201d the possibility that an official market for trading carbon credits could be \u201coperationalized\u201d under Article 6.4 of the Paris Agreement, which covers international trading of credits.<\/p>\n
What might happen instead, the Barclays authors wrote, is that the voluntary, unofficial market could expand spectacularly, from $500 million now to $250 billion in 2030 and as much as $1.5 trillion in 2050. That is frankly hard to imagine. To put it in perspective, it would make the market 500 times as big as it is now in just seven years and 3,000 times as big by 2050.<\/p>\n
For the Barclays forecast to come true, confidence in the voluntary market would have to be restored. That would require some form of regulation to combat Gresham\u2019s Law, either by governments or by the participants themselves. But why would participants in the voluntary market be able to build a well-functioning international market if governments can\u2019t?<\/p>\n
\u201cThis is the bombshell that no one understands,\u201d Joseph Romm, a physicist who works on climate-change policy, told me. Romm is a senior research fellow at the University of Pennsylvania Center for Science, Sustainability, and the Media, where he recently wrote a paper asking whether carbon offsets are \u201cunscalable, unjust and unfixable.\u201d<\/p>\n
Rather than growing, as Barclays envisions, the voluntary carbon market ought to be folded into the official market and disappear. There should be a single, unified global market with a single price. That\u2019s the only way to keep Gresham\u2019s Law from doing damage. \u201cIt should be reasonably clear that you can\u2019t have two different markets in a world that\u2019s seriously trying to go to zero,\u201d Romm said. \u201cSomebody has to do the official accounting.\u201d<\/p>\n
A separate carbon market for voluntary projects made sense in the early years of fighting climate change at the corporate level, when any kind of effort was better than nothing. But it should be a second-best solution now that all countries have ostensibly committed to reducing their carbon emissions, Mark Kenber, the executive director of the Voluntary Carbon Markets Integrity Initiative, told me.<\/p>\n
\u201cThe fact that we are in 2023, some 35 years after international negotiations started, still talking about voluntary action is a sign that we have collectively failed,\u201d Kenber said. He said \u201cthe voluntary carbon market is filling a gap that shouldn\u2019t exist\u201d \u2014 but added that in the interim, it can play a role in \u201ccutting emissions and channeling finance where it\u2019s needed most.\u201d<\/p>\n
There are about 23 million fewer barrels of crude oil in the Strategic Petroleum Reserve now than there were in January, when I wrote that the drawdown, which was aimed at holding down prices of gasoline and other refined products, \u201clooks scary.\u201d Energy Secretary Jennifer Granholm told CNN in July, \u201cThe bottom line is we are going to replenish.\u201d But the replenishment is likely to take years and may never restore the S.P.R. to its 2010 peak, when it held twice as much crude as it does now. Congress, concerned about deficits, will be loath to spend a lot of money buying oil, especially if the price seems high.<\/p>\n
On the bright side, a big strategic reserve isn\u2019t as important to the United States as it once was because the United States is less dependent on imports. Also, oil rigs in the Gulf of Mexico, which are vulnerable to hurricanes, account for a smaller share of production. \u201cDon\u2019t worry about refilling the caverns too quickly,\u201d Julian Lee, an oil strategist for Bloomberg, wrote last month.<\/p>\n
\u201cAt the end of 2022, less than 1 percent of all deposit accounts had balances above the deposit insurance limit of $250,000 but accounted for over 40 percent of banking industry deposits.\u201d<\/p>\n
\u2014 Martin Gruenberg, chairman of the F.D.I.C., in a speech on Aug. 14, 2023<\/p>\n