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How rethinking carbon markets can forge a path to the green transition

Jun 4, 2024 | Public | 0 comments

It’s quite a thing to find yourself, unexpectedly, in the eye of the storm. One day, I was a CEO in a niche industry — the next, I found myself at the center of a heated public debate.

My sector, the voluntary carbon market (VCM), and my former organization work with carbon credits, setting standards for their generation. Over 25 years working with carbon credits, I witnessed the evolution of perceptions about this once small but innovative climate solution grow increasingly polarized — with market stakeholders making the case that carbon finance channels critical funding to important mitigation efforts and detractors arguing that carbon markets are a distraction from real action.

So, are carbon credits good or bad?

The carbon credit debate is often oversimplified, reduced to a “yes or no” and “good or bad” dichotomy. We need a more nuanced discussion to decide the future of carbon credits.

The crucial question is: Can carbon markets facilitate the green transition in the long term? Carbon markets have the potential to fund the necessary transition to a low-carbon economy. Before discussing the way forward, let me explain how we arrived at this point.

Carbon as a commodity

Calls for a carbon price through taxes or cap-and-trade programs have often lacked political support. To fill this void, leading companies started to take action on their own — the genesis of the voluntary carbon market we know today, an entire ecosystem of standard-setting bodies, auditors, project developers and investors that enables companies to offset emissions and support climate action. The VCM has provided additional funding to critical actions on the ground and, by putting a price on carbon, albeit informally, helped companies limit emissions. Companies buying carbon credits tend to be climate leaders, reporting higher year-on-year emission reductions and greater supplier engagement. These companies are also more likely to have ambitious science-based targets and are leaders in emissions transparency and accountability.

The carbon credit debate is often oversimplified, reduced to a ‘yes or no’ and ‘good or bad’ dichotomy. We need a more nuanced discussion to decide the future of carbon credits.

The VCM is evolving. Critics have rightly pointed out flaws and areas for improvement, and there are now several important initiatives designed to improve integrity, including the Integrity Council for the Voluntary Carbon Market (ICVCM) and the Voluntary Carbon Markets Integrity Initiative (VCMI). There is also significant support for the VCM; last week the U.S. federal government published guidelines designed to support this nascent market.

However, the VCM could have a greater impact. Reducing or avoiding carbon emissions need not be the sole goal. What if we viewed carbon as a means to an end rather than the end itself?

Beyond accounting

Carbon crediting is built on two foundational concepts:

  • Additionality, which is the idea that the project would not have been implemented without the extra finance provided through the sale of carbon credits; and
  • Rigorous accounting for emission reductions or removals.

Both assessing additionality and measuring carbon are complex, requiring scientists, policy analysts, auditors and advanced technology, to name a few. In addition to ensuring accuracy and credibility, we need to reframe carbon markets to capture their full potential, ideally so that they become a linchpin in the transition of entire sectors of the global economy toward environmental sustainability.

Redefining carbon markets: Catalysts for a green economy

What would “better” look like? Carbon markets are already a crucial tool in our climate toolbox, but designed properly, they can act as a catalyst for the urgently needed global transition to a low-carbon, green economy. The market should still trade on a ton-for-ton basis, but with a broader, more ambitious and enduring objective.

We must stop treating the removal or avoidance of a ton of carbon as the market’s main goal. Instead, the market should channel money to sustainable, future-focused businesses and support governments tackling climate change.

We need to design carbon markets so that the finance they generate introduces new technologies and practices, lowers costs and builds the capacity to scale up climate solutions. This can be achieved through market forces, government regulation and other innovative support mechanisms.

We must stop treating the removal or avoidance of a ton of carbon as the market’s main goal. Instead, the market should channel money to sustainable, future-focused businesses and support governments tackling climate change. If we do that, carbon credits could catalyze climate action that continues on its own, without the need for carbon finance.

Building on existing frameworks

To use carbon as a proper transition tool, we must build on the requirements that govern the market. In my report, I recommend methodologies designed with the green transition in mind, which means establishing when carbon crediting is no longer necessary for those sectors that can achieve long-term sustainability. I also recommend embracing government participation, especially as a way to bring down the costs of future regulation, which will be needed for those activities that are not economically viable in the long term.

Reframing carbon markets for the future

The climate crisis requires a long view. Carbon markets can play an important role, especially if they are designed with a greater impact in mind, not just for companies to compensate for emissions but to support the green transition.

Starting today, we can reframe our climate solutions to better prepare for the future. The carbon market, fitting our dominant economic model, needs to be reoriented to serve a more enduring purpose. By doing so, we can channel finance to key sectors of the global economy, enhancing our ability to support the ambitious targets of the Paris Agreement and creating a foundation for long-term sustainability. Future articles in this series will provide concrete examples of how we can do this; the next article will explore an alternative way of assessing additionality that both considers the green transition and builds on many of the innovations that are already operational in the market.

David Antonioli is a net-zero transition consultant and was the founding CEO of Verra. He released the first of six installments of his report about the carbon markets, Financing the Transitions the World Needs; Towards a New Paradigm for Carbon Markets, today, June 4.

The post "How rethinking carbon markets can forge a path to the green transition" appeared first on Green Biz

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