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Businesses in all industries are taking drastic measures to minimize their impact on the environment – from cutting carbon emissions to using recycled materials to minimizing business travel. Carbon offsets have become an important tactic for forward-thinking companies looking to meaningfully reduce their impact on the climate.
The voluntary carbon market is expected to grow from $2 billion in 2020 to approx $250 billion by 2050, indicating its huge viability in providing meaningful climate solutions.
However, for the industry to reach its full potential, companies need clarity and transparency when selecting carbon credits. For companies looking to meaningfully reduce their carbon footprint, there can be concern and confusion about choosing the “right” credits – those that actually deliver the impact that is being paid for. Voluntary carbon markets lack clear standards, which can make it challenging for companies that want to do the right thing to navigate.
Related: The Carbon Credit Market Could Grow 50x: How a Pioneering Platform Meets Demand
What are carbon credits?
It is critical that companies take big steps to reduce the carbon they produce. However, there will inevitably come a time when organizations have reduced their total emissions as much as possible. To bridge that carbon gap, companies rely on carbon credits, which represent the removal or protection of carbon by others.
Companies buy carbon credits from projects that take old carbon out of the atmosphere and protect existing carbon stocks from being released – both of which are needed to reverse the climate crisis.
For example, the crops of the world’s two billion smallholder farmers naturally extract carbon from the atmosphere and store it back in the soil. Using sensors, satellite imagery, AI and regular monitoring, this stored carbon can be tracked and quantified and then sold as a carbon credit.
Most companies buy carbon credits through the voluntary carbon markets, which are rapidly emerging as an essential tool to help companies meet their climate goals. While these carbon credits are a proven tool to offset emissions, there are plenty of options that vary in quality and impact.
Why carbon credits?
Risk is the biggest driver in business and – with trillions of dollars in annual climate-related costs and damages – the climate crisis is fast becoming a business crisis. Companies must act now to minimize losses, illustrate meaningful climate action to shareholders and comply with rapidly approaching climate regulations.
Carbon credits are an important approach to scaling climate action globally and represent a fast-growing strategy for meeting corporate ESG goals. While these offsets are part of almost every scenario that keeps global warming to 1.5 degrees Celsius, the old carbon markets lack broad public trust: impactful carbon solutions require clear guidelines and proven, verifiable data.
Providing transparency through data
Consider the data when selecting carbon credits:
- What kind of data is provided – Is it clear WHO is responsible for carbon sequestration (i.e. small farmers), and How they do it (i.e. through the crops from their regenerative farms?
- How is carbon removal calculated?
- Who verifies the data — Is it a third party?
- Is the carbon data auditable (this is especially important for publicly traded companies in light of fast-approaching SEC climate disclosure rules)?
Companies need verifiable, transparent climate and social impact data to communicate their actions to key stakeholders.
Without transparency about where carbon comes from, the positive and negative effects of how it is captured and stored, and how it is calculated, there is a huge business risk to erroneous carbon credits.
Investors should turn to carbon credits that allow them to track the origin of their credits back to the specific farm and community they come from, and robustly quantify how those communities benefit from the carbon markets.
Climate justice: merging social and environmental impacts
While traditional carbon markets have rarely focused on socio-economic impacts, the fast-growing generation of carbon markets will prioritize both social and environmental impacts in their models. In action, these carbon credits will benefit the environment while equitably offsetting those responsible for carbon sequestration. These carbon managers are often among the most vulnerable populations, including small farmers, women and indigenous communities.
When buying carbon credits, make sure that carbon stewards are compensated fairly by asking some basic questions of those selling carbon credits:
- What language do they use to discuss working with carbon stewards?
- Is their data verifiable?
- Will the financial model of carbon credits be disclosed? Are carbon stewards paid fairly and on time?
- Is socio-economic improvement data shared with investors according to accepted third-party standards?
Including social and environmental impacts in the next generation of carbon markets can further increase their value, potentially benefiting vulnerable communities that play a key role in carbon sequestration. A well-designed carbon credit protocol can financially incentivize carbon managers to strengthen their future work – increasing positive socio-economic and environmental impacts for future generations.
Other carbon removal tactics
Mechanical carbon capture comes in the form of large machines that effectively suck carbon dioxide out of the air for storage, placing it underground or reusing it in some other way. Although mechanical carbon capture shows promise, this technology is largely still in its infancy, is extremely expensive and is still proving its scalability.
Related: Blockchain Can Help Us Fight Climate Change – Here’s How.
Now is the time
Forecasts now show that the planet will reach a threshold of 1.5C in global temperature change by 2027, which is much faster than ever expected and could bring massive damage, loss of life and trillions of dollars in damage to the global economy.
This is an all hands on deck moment. We must use proven, reliable and fair methods to confront what is perhaps the greatest threat to the future of humanity and the planet on which we live. Carbon credits, if implemented responsibly and on a large scale, can be a very effective tool for humanity to use in the fight to limit the damage caused by climate change. However, the growth of the sector depends on increasing transparency and standardization to ensure that carbon credits really deliver the promised impact.