Despite decades of carbon trading, CO₂ emissions continue to rise, and it seems little can improve the carbon markets. The impact of CO₂ emissions remains incontrovertibly a market externality in the free market capitalist economy. Yet this could be changed through state intervention without abandoning the original goals: economic efficiency, promoting the lowest cost solutions, incentivising reductions, supporting developing countries.

The EcoCore Carbon Accounts framework is an upgrade for the carbon markets. It creates a carbon currency based on carbon allowances that everyone and every organisation uses to pay and account for carbon emissions. The carbon markets have mobilised billions of dollars for climate-related projects, and they can do a lot more, but they have become too complicated, too opaque and too questionable.

This upgrade would go a long way towards sorting out the main issues, and without this type of incisive change, the carbon markets are unlikely to overcome their limitations. These are the top four key obstacles:

carbon credits have differing quality or credibility dependent on their origin, based on factors such as permanence or additionality, which directly affect their financial value
multiple carbon exchanges and registries use varying standards and methodologies. This fragments the market massively
carbon offsetting, e.g. from the sale of EVs which replace ICE vehicles and gain credits for the emissions avoided, lack a direct relationship to the CO₂ emissions the credits represent
a large proportion of the market is still entirely voluntary

EcoCore’s Carbon Accounts framework sets up a system of guardrails to tackle these issues. For a full explanation, see this page, but suffice to say, all organisations would pay their suppliers in carbon tokens for all goods and services at a carbon price that is determined by the suppliers, as the suppliers seek to recoup the carbon tokens they spent in the course of their business.

This is how the carbon price of any item or service is incrementally built up as the supply chain progresses. So all organisations have a carbon token expenditure, and they would seek to minimise it, for their only sources of carbon tokens are their own customers, or the carbon token cash market. Citizens though receive an allowance of carbon tokens on a regular basis from the state.

An old cash register, to be recycled for use with carbon credits, or to improve the carbon markets, photo thanks to Rob Brown on Pixabay — The Carbon Accounts framework is essentially a move back to basics. Image credit Rob Brown Pixabay

Carbon projects which currently produce carbon credits would no longer directly supply credits to the carbon-emitting organisations under the Carbon Accounts framework. They would be paid for their climate-restoring services by a central carbon bank, which would pay a discounted or premium amount of carbon tokens, dependent on all the factors which currently define the quality of a carbon credit.

A project which guaranteed the drawdown and sequestration in perpetuity of a tonne of CO₂, at no harm to the environment or community, with no ambiguity over ownership or jurisdiction, would receive the full carbon token price: 1,000 carbon tokens.

A project with risks inherent in any of those areas would only expect to receive a lesser amount of carbon tokens.

Improve the Carbon Markets to gain a Distinct Set of Advantages

This framework offers several direct improvements over the current carbon markets system for business and industry and the energy transition:

the framework blocks the Jevons Paradox / Rebound Effect: efficiency measures normally only free up resources that are then spent on consuming more. With Carbon Accounts, the amount of carbon tokens available is limited and declining, so greater demand does not lead to greater supply, it is diverted to renewables, or halted.
real-time carbon labelling – something’s carbon price is the initial carbon cost of energy production at the beginning of the supply chain, with incremental additions at each step in the supply chain, as each business in the chain adds their carbon costs. It will always be right up-to-date, including packaging, freight, and storage. It is dynamic, responsive, and unique, and under control of the seller just as the cash price is.
the carbon price of any product is independent of the cash price, so the price signal is not masked and always plays a role
the extensive influence of the Carbon Accounts framework across on society, as a parallel to money, would stimulate innovation in parts of the economy that other policies can’t reach
each business’s carbon account concentrates the business’s attention on one thing – carbon tokens, without multiple pieces of legislation to adhere to, carbon taxes, or emissions trading schemes
how to price items, goods and services becomes as basic as establishing how to put a cash price on something. This straight-forward approach makes it simpler to estimate the carbon prices of imports, in turn making carbon border adjustment mechanisms easier to implement, apply and navigate. The border customs office can either accept declarations of imported goods’ emissions, or it can estimate them. Trading partners both operating the Carbon Accounts framework can do away with the adjustments.
the Carbon Accounts framework can cover methane and other greenhouse gases via licensing, where the licence to pollute is paid for in carbon tokens equivalent to the quantity of emissions.

To upgrade the carbon markets, it’s difficult to imagine a more comprehensive approach than the Carbon Accounts framework. National governments and regional blocs adopting the framework would gain transparency and leverage, and could integrate existing carbon market authorities and registries.

It would align with and simplify Scope 1, 2, and 3 emissions reporting. It would serve corporations and financial institutions with ESG and net-zero targets. It would integrate into international frameworks like the Paris Agreement (Article 6 reforms).

Undoubtedly, this would meet institutional inertia and vested interests in current markets. It would also become the target of ‘deep state’ conspiracy theories on social media. This could be countered not only by enthusiasm for the business advantages of the framework, but also by pressure from the public, who have a similar set of reasons to support the framework.

Carbon markets struggle to deliver real climate impact, but adopting the Carbon Accounts framework offers a viable step-change in process transparency, accountability, and emissions reduction.

More in this Series

Carbon Credits, Carbon Tokens, Carbon Offsets

Carbon Pricing vs Regulation

Corporate Scope 3 Emissions

Carbon Price Formation

Improve the Carbon Markets to gain a Distinct Set of Advantages

More in this Series

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