Trade Carbon Credits
Fair trade carbon credits are a new way for buyers to offset their climate emissions, by supporting projects that reduce greenhouse gas emissions. The credits are generated through the implementation of projects that meet a standard set by Fairtrade International, with a focus on sustainable development and climate adaptation for producers.
Projects include reducing the carbon footprint of household consumers (such as through clean cookstoves), renewable energy generation and reforestation. Each credit represents one tonne of CO2 prevented from entering the atmosphere, and can be sold to businesses wishing to offset their emissions.
The standard aims to make the trade carbon credits more transparent and fair, by introducing minimum prices for carbon credits that are developed through an assessment process. This is to ensure that the prices are based on the actual costs of producing a credit, rather than being determined by market forces. Buyers also have the opportunity to pay a premium on top of the minimum price that can be invested in a Fairtrade Climate Standard-approved development plan.
Fair Trade Carbon Credits
In addition, the carbon markets used to sell these credits should be more open and efficient, and buyers need better tools to assess the quality of their purchases. These tools would include a system for verifying that carbon credits represent genuine emissions reductions, and a common taxonomy of additional attributes to enable easy matching of buyers and sellers. Lastly, a liquid reference contract for carbon should be available, and this could be used to provide daily prices signals, facilitate risk management and enable supplier financing.
A key feature of the Fairtrade Climate Standard is that it requires that participating carbon credits are owned by participants in a project. This ensures that the first owner of a credit is the individual or community who is carrying out the project, and is therefore the first to receive income from the sale of the carbon credits. Participating individuals and communities also need to be involved in decision-making, management and financial discussions around a carbon project.
Fairtrade International is working with Gold Standard and farmer organisations to develop the Fairtrade Climate Standard, which will be launched in 2016. Businesses will need to have a credible commitment to reducing their own emissions in order to qualify for purchasing carbon credits under the new standard. They will need to demonstrate this through a robust carbon reduction plan and an annual disclosure of their carbon footprint.
The development of the Fairtrade Climate Standard has highlighted some of the differences in understanding of what is fair in carbon trading amongst the fair trade movement. There are disagreements about whether benefit-sharing is primarily about mitigation impact, technology dissemination or development in the global South, and how those different dimensions should be weighted. Those involved in developing the standard have been exploring how to develop a methodology that can address these differences. Ultimately, this will help to shape the future of fair trade in carbon markets.