Carbon Offset Mechanisms in Decentralized Physical Networks (DePIN)
Massive regulation and the necessity of a response to the phenomenon of global warming are promoting the development of carbon savings. One of the means of making a company or a product “carbon neutral” is applying mechanisms called carbon offset. People buy carbon offset on a market in order to counterbalance their own greenhouse gas emissions by the same quantity in tonnes of carbon equivalent. There are currently seven atmospheric pollutants considered to be responsible for global warming: Carbon Dioxide (CO2), Methane (CH4), Nitrous oxide (N2O), Hydrofluorocarbons (HFCs), Perfluorocarbons (PFCs), Sulfur hexafluoride (SF6), and Nitrogen trifluoride (NF3).
In terms of the carbon price per tonne, the carbon price is extremely low and does not present an attractive economic incentive for clean development. But in 71 countries, accounting for 90% of the global Gross Domestic Product (GDP), carbon offset is the only legally recognized mechanism for nonprofit distribution of proposed carbon reductions, according to the signatory countries of the Kyoto Protocol. The DNS list shows that 29 countries in September 2009 had such projects online and representing 50 or more proposals of carbon cheap development. This work investigates how Carbon Offset Mechanisms (COMs), and among them CDM and JI, can help improve the business environment in the setting up of Value Networks (VNs) and their governance with increased centralized or decentralized decision-making power. In former research, we have highlighted the relations between the setting up of Value Networks and Carbon Offset Mechanisms. This DEMO system is available online. It employs PETRI and Markov analysis to answer management and engineering questions.
Background and Rationale
The role of carbon offset mechanisms in mitigating the harmful effects of anthropogenic climate change is to price and hence ration carbon emissions, promote energy-efficient technologies, and incentivize the adoption of cleaner energy sources. In essence, such mechanisms can help steer economic behavior away from the carbon path. This paper deals with a much under-researched topic: the integration of a decentralized network of energy-generating houses with carbon offset markets. Unregulated energy market supply curves ignore the external costs of energy extraction and use. These stem from pollution from the fossil fuels used in the mix, and especially from greenhouse gases (GHGs) which have global environmental externalities. Market prices may reflect internal costs but are distorted away from reflecting social costs.
The potential to create and demand Clean Development Mechanism (CDM) credits is typically one of the major sustainability selection criteria for companies in consolidated development projects, albeit often invisible, as CDM can significantly finance investment costs. This drives the need for mechanisms that promote the creation of CDM projects in the long tail of other project segments, where no incentives may otherwise exist. In addition, the sudden drop of prices on the carbon market in 2008 highlighted the need to reduce the explicit exposure of CDM investors to price risk in order to enhance the resilience of the CDM as an investment mechanism. This issue turns out to be of special interest under the post-Kyoto protocol, as volatility and price risk exposure are usually regarded as major concerns of stakeholders, either in connected or separated markets. Finally, the regional distribution of CDM-related investments is usually biased in favor of large projects, and particularly large projects based in Asia.
Concepts and Principles
Urban infrastructures are characterized by a unique — and highly decentralized — structure of production. Not only are the extraction of natural resources and the use of their materials, but also the production and delivery of aggregated services highly segmented; in a sense, they are produced in real time and to the order of the particular end-users that make up the multitude of the network. These networks form the basis of all urban infrastructures as well as for transportation and spatial growth. Current solutions for sustainability focus on the dimensions of planet and profit. Centralized and relatively large fossil power plants can optimize certain specific functions (e.g. efficient use of coal in steam turbine, pollution control systems in each complex, capacities to go to the required fuel, reduced market risks, etc.), however their use also inherently violates the principles of social sustainability.
Carbon Offset Mechanisms in Decentralized Physical Networks is a framework or general approach to enable cost-effective greenhouse gas reduction of anthropogenic sources, which cannot be curbed or the equivalent carbon emissions offset. There exist barriers which impair the realization of cost-effective greenhouse gas emission reduction in smaller and decentralized sources. The main barriers are transaction costs associated with the participation of these sources in an emission reduction scheme, visibility constraints of these sources in the current regulatory framework and — as a consequence of the previous two — barriers put up by financial institutions and market players. The aim of the CDMiDPN framework is to practically tackle these problems head-on, enabling owners of decentralized sources to participate in cost effective emission reduction and to subsequent capitalization of benefits.
Types of Carbon Offset Mechanisms
It should be noted that the term ‘carbon offset’ is used here to refer only to physical offset mechanisms, where CO2 is removed in the atmosphere, not the use of emissions trading in schemes such as the EU Emissions Trading Scheme (abbreviation ETS) where the reduction of CO2 takes place at the location of the emitter. It has often been a matter of contention in regulatory discussions of these mechanisms that they are thought to detract from best efforts at reducing input emissions of CO2. It is not, however, without significance that these mechanisms can often remove CO2 from active and distributed sources, freeing up economies associated with the operation of fossil carbon sources. Physical offset mechanisms also have the characteristic of delivering a physical output of new CO2, in other words, one that is in addition to ‘business as usual’.
It is common to divide such mechanisms into two types. Firstly, there are biological mechanisms that take place in the biosphere, more notably the land use, land use change and forestry (‘LULUCF’) projects. For these activities to be recognized as eligible in climate change regulations, co-benefits must be achieved alongside GHG removals. Commonly cited co-benefits include biodiversity enhancement, poverty reduction and erosion control. In general, LULUCF represents separate activities that a developing country can implement to offset non-domestic emissions. The main barrier to the implementation of such activities is the significant transaction costs associated with estimation, monitoring and verification, as well as the lack of local acceptance. In the academic literature, it has been concluded that project participants often receive non-innovative technology, while project implementers often receive the most valuable patents.
