Carbon credits are an important way to reduce your carbon footprint, but they can be confusing. Here’s what you need to know.
In various sectors, businesses are aggressively striving to minimize their environmental footprint, employing tactics like carbon emission reduction, recycled material usage, and corporate travel minimization. Among these strategies, carbon offsets have emerged as a key approach for progressive companies committed to significant climate action.
The voluntary carbon market is poised for substantial growth, projected to surge from $2 billion in 2020 to an estimated $250 billion by 2050, underscoring its potential to offer impactful climate solutions.
However, to fully harness its potential, the industry requires clarity and transparency in selecting carbon credits. Companies seeking to genuinely reduce their carbon footprint often grapple with the challenge of identifying the most effective credits that deliver the intended impact. The voluntary carbon market lacks clear standards, posing a hurdle for conscientious businesses striving to navigate the landscape effectively.
What are carbon credits?
As organizations push to minimize carbon emissions, they inevitably reach a limit in reducing their own emissions. To bridge this gap, companies turn to carbon credits, representing the removal or protection of carbon by third parties. These credits are procured from projects that sequester legacy carbon from the atmosphere or safeguard existing carbon stores — crucial steps in combating the climate crisis.
For instance, millions of smallholder farmers worldwide naturally sequester carbon by cultivating regenerative crops, which can be quantified and sold as carbon credits using advanced technologies like sensors, satellite imagery, and AI.
Most companies access carbon credits through the voluntary carbon markets, offering a vital mechanism to meet climate goals. While these credits effectively offset emissions, the market presents a myriad of options varying in quality and impact.
Why carbon credits?
With trillions of dollars at stake due to climate-related costs and damages, the climate crisis is rapidly evolving into a business crisis. Corporations face mounting pressure to mitigate losses, demonstrate meaningful climate action to shareholders, and comply with impending climate regulations. Carbon credits offer a strategic pathway to scale climate action globally and align with corporate ESG goals. Despite their pivotal role in limiting global warming to 1.5 degrees Celsius, legacy carbon markets lack broad public trust, necessitating clear guidelines and verifiable data to ensure impactful solutions.
Delivering transparency via data
When selecting carbon credits, data transparency is paramount:
Evaluate the type of data provided, including the responsible party for carbon sequestration and the methodology employed.
Assess how carbon removal is calculated and verify third-party verification of data.
Ensure auditability of carbon data, particularly critical for public companies amidst impending SEC climate disclosure rules.
Businesses require transparent climate and social impact data to communicate their efforts effectively to key stakeholders. Lack of transparency poses significant risks associated with faulty carbon credits.
Furthermore, it’s crucial to prioritize carbon credits that trace their origins back to specific farms and communities, quantifying both the environmental and social benefits. This ensures equitable compensation for carbon stewards, including vulnerable populations such as smallholder farmers, women, and indigenous communities.
Climate justice: Merging social and environmental impact
The next generation of carbon markets must prioritize both environmental and social impact, benefitting carbon stewards while promoting environmental sustainability. Businesses can gauge the credibility of carbon credits by considering factors such as:
- Language used to describe partnerships with carbon stewards.
- Auditability of data and financial models.
- Equitable compensation and timely payments to carbon stewards.
- Disclosure of socioeconomic improvement data according to accepted third-party standards.
- Incorporating social and environmental impacts into carbon markets enhances their value, supporting vulnerable communities integral to carbon sequestration efforts.
The time is now
With forecasts indicating a critical 1.5-degree Celsius threshold in global temperature change by 2027, immediate action is imperative. Carbon credits, when implemented responsibly and at scale, offer a powerful tool to mitigate climate change impacts. However, industry growth hinges on enhanced transparency and standardization to ensure credits deliver the promised impact.
Tran Dung/ATES GLOBAL
Source: Entrepreneur
