Many organizations, including governments and large companies, want to reduce greenhouse gas emissions in order to avoid catastrophic climate change. However, many are not able to do so completely or quickly enough. In these cases, they may need to purchase carbon offsets, which are certificates that convey a net climate benefit from one entity to another.
The voluntary market for carbon.credit is growing rapidly in recent years. This is partly due to the fact that a number of countries have enacted cap-and-trade programs that require businesses to offset their greenhouse-gas emissions. Nonetheless, some critics claim that carbon credits are often used as an excuse to continue polluting. They also incentivise the commodification of nature and harm vulnerable communities.
They have also been accused of ineffectively supporting countries in need of financing through a climate adaptation program. Some environmental activists, such as Doreen Stabinsky of the College of the Atlantic in Maine, argue that cap-and-trade schemes often fail to drive action because companies are rewarded for their status quo behavior rather than acting in a way that would make a significant contribution to climate change.
While carbon credit trading is an important part of the global response to climate change, it needs to be strengthened in order to achieve its full potential. Currently, voluntary markets lack the liquidity necessary for efficient trading. The heterogeneity of credits makes it difficult to match buyers with suppliers in a timely and cost-effective manner, and the absence of price transparency can cause money laundering.
A robust, effective voluntary market for carbon credits could lower issuance costs and shorten payment terms, accelerate the issuance of credits, improve the credibility of corporate claims related to their use, and help ensure that verified projects are actually reducing GHG emissions. It could also transmit signals of buyers’ demand to sellers, encouraging them to scale up supply and increase the volume of credits they offer.
The voluntary market for carbon credits has been driven by a handful of respected standards organisations that validate and oversee the quality of credits. These standards are designed to account for differences in the characteristics of different sectors and jurisdictions, as well as the complexities associated with determining whether emissions can be reduced or avoided through certain projects.
Some of these organisations are developing a global framework for the voluntary market that will provide a uniform set of guidelines for carbon-offset transactions, and this is the basis of the new international agreement called the Voluntary Carbon Market Initiative (VCMI). The VCMI is meant to encourage companies to meet science-based targets and not just claim a net-zero climate impact by using offsets.
In contrast, some companies, such as a leading fast food chain in Germany, Leon, and EasyJet, have moved away from buying carbon offsets to focus on projects that deliver a net-zero climate impact. This is because these organizations believe that they can deliver more significant environmental benefits by focusing on projects that directly generate emissions reductions.