It’s an undeniable fact that the Earth is warming up at a faster rate than before. Given the status quo, scientists project that the current window of opportunity to avoid catastrophic outcomes is closing. In fact, a recent report from the United Nations’ Intergovernmental Panel on Climate Change announced that the world has alarmingly warmed 1.1 degrees Celsius higher than pre-industrial levels. Evidence of this rise in global temperature floods the news, in some ways more apparent than others. Chaotic weather patterns, rising sea levels, and ever-shrinking biodiversity due to natural habitats being inhospitable – the list goes on and on.
As we border on the critical threshold increase of 1.5 degrees Celsius, world leaders have come together to make a concerted effort to mitigate carbon footprints and greenhouse gas emissions. International efforts and policy make for great ideals, but what can we do on the ground to combat our carbon footprints? How can businesses take practical steps to fight the oncoming climate catastrophe?
Working With Carbon Credits
If the goal is to avoid reaching the 1.5 degree Celsius target, experts agree that necessitates global greenhouse-gas emission be cut by 50% of current levels by 2030 and reduced to a net-zero by 2050. Although that sounds like a big ask, there are systems in place by prevailing governments and international agencies to support this endeavour. One of these systems comes in the form of carbon credits. Designated as a way for companies to address emissions they cannot eliminate, these certificates represent quantities of greenhouse gasses kept out of the air and provide a proxy for inevitable carbon footprints.
Carbon credits are largely targeted at industrial companies, who make up the majority of carbon emissions, by assigning an arbitrary monetary value to the cost of polluting air. More recently, there has been a spike in the voluntary market for carbon credits, with large organisations and individuals alike utilising Voluntary Emission Reductions (VER) in exchange for carbon credits.
The importance of carbon credits is directly related to the goal of reducing emissions to net zero in 2050. According to a survey by the TSVCM, the adjusted volume of negative emissions resulting from carbon credits are in line with the 1.5-degree warming goal. Due to the supply and demand effect of the free market, companies are forced to think twice about environmental repercussions in a dollars and cents paradigm.
The Blueprint for Carbon Credits
Defining and verifying carbon credits
The solution of carbon credits is, however, far from perfect. Due to inconsistencies among carbon credits, matching individual buyers with corresponding supplies on the aforementioned free market is a time-consuming and inefficient process. The analogy here would be similar to a barter and trade system, where each credit is valued differently. Imagine going to a supermarket and trying to buy a whole chicken with a bushel of apples, and having to argue the relative worth of both commodities. The lack of a universal set of common features makes quantifying the quality of carbon credits tricky. In a perfect world, all carbon credits would be described via these sets of common features or “core carbon principles”. In doing so, there would be a consistent measuring stick for exchanging carbon credits, founded on a sound basis of verification.
Although all carbon credits are irrefutable proof of carbon emissions reduction, the extent or type of carbon emissions being left unanswered is what makes this inconsistency extremely tricky.
Developing contracts with standardised terms
In the event that carbon credits were made more uniform, this would also consolidate trading activity around a few key credits, promoting liquidity on exchange platforms. A combination of reference contracts, coupled with a core contract based on the core carbon principles, would serve to promote uniformity. Defining carbon contracts via a standard taxonomy and pricing them via these attributes would, in effect, allow for easier trade of carbon credits. On a practical economic front, large companies could also decide the type of carbon credit they require most and purchase them in bulk by matching credits through their core contracts. With volume comes a clear daily market price – ultimately diminishing price volatility in the marketplace.
Creating consensus about the proper use of carbon credits
Never losing sight of the main goal of reducing carbon footprints and greenhouse gas emissions, this shift would provide companies clear guidance on their respective carbon offsetting programs. Insight into matching their operational carbon footprint with proper carbon credits is clearly key in an overall push towards net-zero emissions.
Such principles for using carbon credits also set precedence to ensure that carbon offsetting does not preclude other efforts to mitigate emissions. By first establishing a clear need for carbon credits and disclosing greenhouse-gas emissions from all operations, companies would have to be transparent with their environmental goals and plans for reducing emissions over time.