3 questions – 3 answers – from theory to practice with Prof. Dr. Frank Kramer


1) Despite of the current focus on the Corona-Pandemic, climate change remains one of the main challenges for humanity in this century. More and more companies promise to become “carbon neutral”. What does this mean?

Prof. Dr. Frank Kramer You’re right. In recent years we have seen a trend in which more and more companies promise to become climate neutral by year x – e.g. 2025 or 2030: Bosch, Siemens, Amazon are just a few prominent examples. Microsoft has even promised „negative emissions“, i.e. to extract more greenhouse gases from the atmosphere than the company causes. Of course, climate neutrality does not mean that the company will no longer produce greenhouse gas emissions at all. This could probably only be achieved if the company were to cease operations, which is of course not what is meant. Being climate-neutral means that the company would first reduce its emissions as far as technically and economically possible and then compensate the remaining emissions by investing in so-called compensation projects. These projects, often far away from the emission sources, absorb greenhouse gases from the atmosphere (e.g. reforestation projects) or contribute to the avoidance of greenhouse gases (e.g. wind energy park instead of coal-fired power plant).

2) Why do companies make this promise? Surely it isn’t just out of the goodness of their hearts?

Prof. Dr. Frank Kramer I think we should not rule out the possibility that decision-makers in companies may well include moral/ethical principles when they are making decisions. The CEO of company XY may have a 16-year-old daughter at home who has participated in the „Fridays for Future“ demonstrations and passionately argues for sustainable economic growth at the dinner table. However, it is certainly true that such decisions are usually not made out of altruistic motives alone – changing consumer attitudes, an increasingly critical public and the anticipation of possible legal regulations play an important role as well. In my opinion, however, the increasing pressure from the capital markets is crucial. More and more investors, often the large institutional investors such as pension funds or insurance companies, are measuring the „carbon intensity“ of their investment portfolios and orienting their investment decisions accordingly. For example, companies that earn more than a certain percentage of their sales from „dirty“ energy are excluded from potential investment targets.

3) Let’s get back to the compensation projects. The described mechanism „paying money to compensate for pollution“ sounds like a modern „indulgence trade“?

Prof. Dr. Frank Kramer This is what detractors of the compensation idea claim as well. They criticise that compensation projects are not unlike the trade in indulgences practiced by the Catholic Church centuries ago: anyone who committed a sin, and had the money to do so, could buy salvation by paying a fixed amount of money and continue to sin in good conscience until the next payment. The criticism is not entirely unjustified, so the overall approach and selection of compensation projects is very important. It should be kept in mind that offsetting is only the „second-best solution“ compared to avoiding greenhouse gas emissions. Of course, it is better not to „sin“ in the first place, to use the words of the critics. In addition, compensation projects should comply with certain standards, e.g. it must be ensured that pure windfall effects – the compensation project would have been carried out anyway because it was financially worthwhile – are excluded as far as possible. The project must be considered „additional“. The criticisms notwithstanding, it is also clear that, due to the global dimension of the problem of „climate change“, it is of course irrelevant to the greenhouse effect where on earth greenhouse gas emissions are saved – it is the overall effect that counts.

 

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