Carbon Credit is Important
One of the best ways to reduce greenhouse gas emissions is by trading them with other companies. Known as carbon credits, they allow companies to offset their emissions from other sources by paying to eliminate those emissions elsewhere in the world. This allows businesses to meet their emissions reduction goals while still remaining profitable and competitive. But for this system to work, it must be based on high-quality carbon credits that are independently verified.
Regulators, businesses and environmentalists are working toward a global cap-and-trade system for carbon credits. The goal is to put a price on carbon, which will encourage companies to invest in production processes that are more energy-efficient and less polluting. It will also help to capture what are called “externalities,” the damage that is caused to society as a result of carbon emissions, such as health care costs for climate-related diseases and losses to agriculture from heat waves and droughts, or property damage from flooding and sea level rise.
A carbon.credit is a permit that allows the holder to emit, over a specified time period, carbon dioxide or other greenhouse gases, such as methane, nitrous oxide and hydrofluorocarbons. It can be traded, sold or retired (claimed back and removed from the marketplace so that no other company can claim the same reductions). In a cap-and-trade market, companies would first determine their need for carbon credits by disclosing all of their greenhouse-gas emissions and their plans for eliminating them over time. They would then purchase and retire carbon credits to offset the emissions that they can’t completely eliminate.
Why Carbon Credit is Important
The voluntary carbon-credits market is growing rapidly. It’s on track to reach a value of more than $1 billion in 2021, up from less than $6.7 billion last year, according to Ecosystem Marketplace, a publication produced by the environmental research nonprofit Forest Trends. But that market can only function properly if buyers and suppliers can locate each other easily, communicate needs effectively and transact efficiently.
Many of the issues that are hindering that process revolve around credit quality. A lack of consistent accounting and verification methodologies makes it difficult for traders to distinguish among the many different types of carbon-credit projects. And a lack of standards for quantifying beyond-carbon benefits, such as local economic development or biodiversity protection, makes it difficult for buyers to evaluate whether these benefits justify the costs of buying credits.
A well-functioning carbon credit market would simplify this process. It could be governed by common principles that establish a set of quality criteria, including basic accounting and verification procedures and minimum requirements for project locations, scale, transparency and other characteristics. It would also establish a common taxonomy of attributes that can be used to describe credit quality and help match buyers and suppliers.
A well-functioning carbon credit market can support the world’s most ambitious climate goals. By purchasing carbon credits that are generated by projects around the globe, businesses can help to slow climate change without sacrificing their bottom lines.
