The Role of Voluntary Carbon Markets

Welcome back to TCT’s Scorcher series. We took a break for the summer, but we’re back with a weekly update on carbon markets and climate finance.

The Bottom Line: Voluntary carbon markets are playing an important role in mitigating the climate crisis.

Much of the recent debates around the integrity of carbon offsets has me asking the question, “What are carbon markets for?” Is the purpose of carbon markets to track GHG flows with 100% certainty and accuracy? Or are they intended to help society avoid the most dramatic impacts of climate change and ease the transition to a zero-carbon economy? While these goals might appear to go hand in hand, a myopic focus on super-precise measurement and modeling is threatening the significant climate gains accomplished through carbon markets and imperiling a growing flow of conservation and climate mitigation funding.

Market experts acknowledge the challenges in this evolving space but contend that, “the urgency for large-scale climate action outweighs the risk of VCM flaws which can be corrected on an ad-hoc basis […] VCMs are a necessary sandbox for innovation as well as a mechanism to bridge the divide between current challenges and a GHG conscious economy of the future.” [1]

According to the World Bank, “Carbon markets help mobilize resources and reduce costs to give countries and companies the space to smooth the low-carbon transition. It is estimated that trading in carbon credits could reduce the cost of implementing countries Nationally Determined Contributions (NDCs) by more than half—as much as $250 billion/year by 2030.” [2]

By August of 2021, annual transactions on the voluntary carbon market (VCM) had exceeded $748 million USD, bringing the estimated total of all VCM transactions to $6.7 billion for 1,728 MtCO2e sequestered. That is billions of dollars of private, voluntary finance invested in projects ranging from cook stoves, to landfill methane capture, to renewable energy, to forest and grassland conservation. [3] The climate impact of these projects is the equivalent of taking 372,330,834 gas powered cars off the road for a year, or 28,572,628,572 tree seedlings growing for 10 years.[4]

Of course, no one knows what would have happened in the absence of this market, but it is hard to see how this is not a big win for the climate. Much of the criticism of carbon markets has focused on how additionality is calculated and who gets to claim it. However, we need to recognize that the largely negative portrayal of carbon markets in the media often ignores recent market improvements and the enormous overall impact these markets have had on climate mitigation. Some critics claim that markets have been a distraction from needed regulation, but it is very unclear that such regulation would have been enacted in the absence of existing markets. Passing sweeping energy regulation, which would likely drive up the cost of energy and living, seems incredibly unlikely in our current political climate and could well lead to the kind of political backlash we have seen undo climate progress in the not-too-distant past.[5]

Journalists and the ever-increasing world of carbon offset rating agencies should take care walking the fine line between flagging the shortcomings of individual projects and jeopardizing a system that promises to deliver billions of additional dollars toward climate mitigation at a crucial moment. If criticism continues to be unbalanced, companies may feel they are exposing themselves to undue reputational risk by investing in offset projects and pull back to wait for the dust to settle. The world simply doesn’t have time to wait on a perfect system.

At TCT, we are focused on developing quality, nature-based carbon offset projects that deliver significant social and environmental co-benefits to their communities. The carbon benefits of these projects are always calculated according to conservative, scientific, peer-reviewed protocols that reflect the best current understanding of carbon flows and ensure that most projects will over-deliver on climate impacts. TCT also fully supports and advocates for a reduction first strategy for entities purchasing offsets. Offsets are our best strategy to augment emission reduction efforts, provide price control, and direct innovation towards the GHG conscious economy of the future.

Resources

1. Miltenberger et al., 2021. https://www.frontiersin.org/articles/10.3389/fclim.2021.686516/full
2. www.ieta.org/resources/International_WG/Article6/CLPC_A6%20report_no%20crops.pdf
3. Ecosystem Marketplace State of the Voluntary Carbon Market 2021: https://app.hubspot.com/documents/3298623/view/251152947?accessId=fd91dd
4. https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator#results
5. https://www.brookings.edu/blog/up-front/2020/12/15/the-trump-administrations-major-environmental-deregulations/#:~:text=The%20Trump%20administration%20has%20replaced,name%20a%20few%5B1%5D