Carbon Credits are hitting all-time highs in volume and on track to be worth $95 billion in 2023, according to the World Bank’s annual “State and Trends of Carbon Pricing” report. According to the U.N. Environment Programme report, carbon markets could “help slash emissions” with clearly defined rules and transparency. Find out how carbon credits help fight climate change.
To limit global warming to 1.5oC, in line with the Paris Agreement, we need to cut current greenhouse-gas-emission levels in half by 2030 and reduce them to “net zero” by 2050. More and more companies are pledging to help stop climate change by reducing their own greenhouse-gas emissions as much as they can. Carbon credits are an essential tool in the pursuit of net-zero goals, providing a mechanism to reduce emissions and support sustainable practices.
According to Asad Sultan, CEO of EcoConsortium, the first digital carbon registry in the Asia-Pacific, there are over 50 billion tonnes of carbon emissions that are being processed in the marketplace.
“Although the emissions are going down gradually, the number of players in the market are increasing exponentially”, he adds.
Many businesses find it difficult to fully eliminate their emissions, or even lessen them as quickly as they might like. The challenge is especially tough for organisations that aim to achieve net-zero emissions, which means removing as much greenhouse gas from the air as they put into it. For many, it will be necessary to use carbon credits to offset emissions they can’t get rid of by other means.
For instance, ZERO 13, an initiative by GMEX Group, is digitally interconnecting ESG markets to achieve Net Zero targets. This is helping to achieve Net Zero by combining AI and blockchain to restore trust in carbon credit markets, addressing greenwashing, double counting, price transparency, vertical silos and market fragmentation.
Carbon credits, also known as carbon offsets, represent a unit of measurement used to mitigate greenhouse gas emissions. They are typically expressed as metric tons of carbon dioxide equivalent (CO2e) and are generated through projects that reduce or remove emissions from the atmosphere. These projects can include renewable energy installations, forest conservation initiatives, energy efficiency improvements, or sustainable agricultural practices.
Carbon credits to reduce net emissions
Carbon credits play a vital role in reducing greenhouse gas emissions. By investing in carbon offset projects, individuals, organisations, and governments can support initiatives that directly counterbalance their own emissions.
In other words, a company emitting a certain amount of CO2 can purchase carbon credits equivalent to that amount, effectively neutralising its emissions. Companies can meet their climate targets by purchasing credits for their current emissions although some, like Microsoft, have committed to going further and using credits to compensate for all their historic emissions. In Microsoft’s case, it’s like going back 45 years.
REDD+ (Reducing Emissions from Deforestation and Degradation) aims to provide forest owners with an alternative to logging and exploitation, by allowing them to raise money for protecting forests based on the carbon value of keeping forests standing or restoring them to health. REDD+ schemes help forest owners calculate the carbon value of their forests, according to agreed criteria, and sets out a system of rules by which carbon credits can be issued when forest owners avoid deforestation or restore damaged forests.
This approach enables entities to take responsibility for their carbon footprint while simultaneously supporting projects that promote sustainable development.
Climate Finance: Incentivising Sustainable Practices
Carbon credits provide a financial incentive for adopting sustainable practices. Through the sale of carbon credits, emission reduction projects receive funding, which allows them to continue their operations and expand their impact.
Over the past two decades, the World Bank has allocated $2 billion in emission reduction payments across 200+ Emission Reduction Payment Agreements (ERPAs) in 65 countries. Through the Climate Change Fund Management Unit (SCCFM), ERPAs are utilised to back programs that conserve forests, reduce reliance on polluting fuels, and promote renewable energy adoption.
SCCFM oversees several climate-focused trust funds supported by donor countries and the private sector, including the Forest Carbon Partnership Facility for sustainable forests and land use, Carbon Initiative for Development (Ci-Dev) for clean energy access, and Carbon Partnership Facility (CPF) for clean energy generation, low-carbon transport, and sustainable waste management.
The financial support, thus, encourages the development of renewable energy infrastructure, reforestation efforts, and other sustainable initiatives. As more organisations participate in carbon credit programs, the demand for sustainable projects increases, resulting in a positive feedback loop that accelerates the transition to a low-carbon economy.
Catalysing technological innovation
The pursuit of net-zero goals requires the deployment of innovative technologies and practices. Carbon credits can play a crucial role in catalysing such innovation. By providing financial resources, carbon credit programs incentivise research and development in clean energy, carbon capture and storage, and other climate-friendly technologies.
According to Hirander Misra, CEO of ZERO13 which is a marketplace aggregation solution for carbon credits as well as ESG real-world assets, digital interconnection offers transformative advancements in ESG markets, delivering significant benefits across multiple dimensions.
“Digital interconnection enables accurate and comprehensive impact measurement and reporting. By amalgamating data from diverse sources such as environmental sensors, supply chain records, and social impact indicators, stakeholders gain a holistic understanding of the true impact of their sustainability efforts. This empowers organisations to track progress, identify improvement areas, and demonstrate their contributions towards achieving ambitious Net Zero targets”, he says.
This enables the advancement and implementation of breakthrough solutions that contribute to emissions reduction and ultimately help achieve global climate targets.
Carbon Credits: Empowering Change in the Global Fight Against Climate Change
Carbon credits have emerged as a powerful tool in the global fight against climate change and the pursuit of net-zero goals. As the demand for sustainable practices and emission reduction increases, carbon credit programs provide a financial incentive for adopting cleaner technologies, protecting forests, and supporting renewable energy projects.
Together, let us embrace the potential of carbon credits to create a more sustainable and resilient future for generations to come.
With a driving passion to create a relatable content, Pallavi progressed from writing as a freelancer to full-time professional. Science, innovation, technology, economics are very few (but not limiting) fields she zealous about. Reading, writing, and teaching are the other activities she loves to get involved beyond content writing for intelligenthq.com, citiesabc.com, and openbusinesscouncil.org