Charting a Clear Path Forward on Corporate Use of Carbon Credits
Last month at SB’24 San
Diego,
ACR organized an interactive
workshop
with a panel of carbon market experts. 40 corporate leaders participated, 55
percent of whom were focused on climate and sustainability, with sales and
executive leaders making up most of the remainder. Through a real-time survey,
one thing became clear: Confusion about carbon markets was hindering action.
This post is a response to requests by workshop participants to promote “some
direction forward.”
First, a bit of context: Climate change is a time-sensitive issue — one that
requires action now, rather than later. Confusion that perpetuates inaction is
harmful, as a ton of carbon kept out of the atmosphere today will be more
impactful than the same ton reduced next year.
Yet, with so much focus on scope 3 emissions measurement and
reporting,
insetting, beyond-value-chain
mitigation,
contribution and compensation
claims,
and much more, it is understandable that many companies are confused about the
path forward.
It may seem safer to sit on the sidelines, but this bias towards inaction is why
we are failing to achieve our climate
goals.
Companies must be biased towards action on all fronts, if only to build a
business
case
and future-proof their
operations.
At the same time, action is voluntary for many companies — this means there must
be pragmatic pathways forward.
One simple way to think about carbon credits is through a “both/and” lens. We
need direct decarbonization of supply
chains,
as well as continued investment in carbon
credits
to take responsibility for residual emissions. Once a company has done what’s
possible to reduce its scope 1, 2 and 3 emissions in a given year, carbon
credits offer a way to take responsibility for remaining emissions. Carbon
credits finance climate
action
that would not otherwise happen.
Now, to the three main questions submitted during the workshop:
How can companies evaluate carbon credits and determine which are high quality?
Elements of high-quality carbon
credits
are widely shared across the market — including additionality, permanence, no
double counting and more — all characteristics that align with the US
government’s recently published Voluntary Carbon Markets Joint Policy Statement
and
Principles.
There is little debate remaining about what constitutes high-quality
credits.
Yet, identifying such credits can be challenging — so, here are a few
strategies:
-
Look for credits from trusted registries that provide information online
about the carbon projects, that use science-based methodologies (ideally,
peer reviewed) and that have a track record of positive impact. -
Look for eligibility in the Carbon Offsetting and Reduction Scheme for
International Aviation
(CORSIA)
— a global, market-based measure that aims to reduce emissions from
international aviation. -
Get to know the projects and the project
leaders.
Ask questions, visit project sites and understand the work being conducted. -
Look to market leaders with mature strategies and experience buying carbon
credits and communicating publicly about them. While there are many
companies buying credits, companies including
Meta,
Microsoft,
Salesforce
and
Workday
have published useful information about their approaches. -
Especially for new market entrants, work with a seasoned credit buyer (such
as an advisory services company) or join a buyers’ collaborative to learn
from experts. 1T.org, We Mean Business
Coalition and
Nature4Climate offer useful guidance.
What is working for companies now, with respect to carbon credits?
A few principles rise to the surface:
Following the mitigation
hierarchy, the
first priority should be to avoid and reduce emissions to the atmosphere — which
means emphasizing direct decarbonization. Using carbon credits to take
responsibility for residual emissions should happen after a company sets its
climate strategy and reduces its direct emissions to the extent possible on an
annual basis — not as a substitute for doing
so.
When buying credits, projects that reduce emissions should be prioritized over
those that remove
emissions
— although companies may reasonably decide to invest in both, given the long
development times associated with many removals projects and technologies.
Just like investing in stocks and bonds, building a diverse portfolio of carbon
credits can help mitigate risk and balance benefits. Some carbon projects keep
potent greenhouse gases — such as refrigerants and
methane
— out of the atmosphere immediately, while others — such as afforestation and
reforestation — may take longer to reduce and remove emissions. A diverse
portfolio avoids putting all your eggs in one basket.
When it comes to communicating about carbon credit use, companies may decide
less is more. Yet across the market, this approach has a chilling effect — as it
gives a false impression about actual market dynamics. Instead, companies should
lean on transparency regarding their climate strategy and targets, emissions
reductions and credits used. More and more companies are communicating about
their use of carbon credits to achieve their climate goals — including
REI,
the Monterey Bay
Aquarium,
Duke University
and A-Basin.
One size does not fit all. What’s important is to get started, see what works
and learn from experience.
What needs to be done to scale the carbon market?
Underneath this question is likely an assumption that we are focused on the
voluntary carbon
market.
Compliance markets continue to grow as countries,
states
and other jurisdictions implement new policies. But currently, only
approximately 25 percent of global emissions are covered by compliance markets.
The majority of emissions rely on voluntary markets for action, as there is
currently no legal requirement to reduce them.
For the voluntary market to scale, we need confidence in the quality of
credits
and increased demand from credit buyers. Confidence is increasing now, as many important initiatives are converging on a
shared definition of “quality.” Across civil society, governmental bodies and
private organizations, definitions of “high integrity” are now widely shared and
integrated into carbon markets.
On the demand side, the most impactful action is putting a price on carbon
emissions. Nothing incentivizes action as efficiently or effectively. But since
such an action is likely to require substantial internal deliberation, the
second most important action to scale markets is for companies to continue
buying carbon credits.
Using the suggestions above, buy and retire credits. Learn from the experience
and evaluate your next steps. Even buying a small number of credits effectively
puts a shadow price on your emissions, stoking an internal conversation and
turning your organization toward action. By buying and retiring credits, you can
support meaningful impact today and prepare your company for the future.
We must act today to improve measurement, reporting, verification and claims. We
cannot let uncertainty be an excuse for inaction where it counts most — reducing
carbon emissions into the atmosphere.
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