Companies Buy Trade Carbon Credits
As governments around the world adopt policies to curb greenhouse gas emissions, many businesses are turning to trade carbon credits as a way to reduce their pollution and offset any emissions they can’t eliminate. These credits are a form of market-based climate change finance, which is expected to grow rapidly.
They can be issued for a wide variety of activities that claim to benefit the climate, including low-carbon energy generation or planting or conserving trees. Intermediaries (verifiers and brokers) sell them to companies that want to “offset” their emissions. The voluntary carbon market is fragmented and complex, with a large number of credit providers offering different attributes to buyers. This makes it difficult for both buyers and sellers to match them, as well as for suppliers to manage their risks effectively.
This is especially true for companies looking to offset their trade carbon credits emissions – the goal of many organizations that pledge to cut their carbon footprints in order to help slow global warming. These organisations must meet carbon emission targets in line with national policy, or they can trade their allowances in a carbon compliance market. These cap-and-trade markets operate at a state, regional, or national level, and they have become the most common method of offsetting GHGs.
Why Do Companies Buy Trade Carbon Credits?
In addition to the primary purpose of reducing or removing CO2 emissions, carbon credits can also generate additional ‘co-benefits’ that contribute to meeting the UN’s Sustainable Development Goals. For example, they may improve the welfare of local people or their water quality, or they may reduce economic inequality.
Currently, trade carbon credits are traded on exchanges that aim to simplify the process by establishing common characteristics that define them and ensure they comply with a range of quality criteria. These features can include an underlying project type, a fairly recent vintage, and a certification from a limited group of standards.
These characteristics are referred to as “core carbon principles,” and they provide a basis for verifying that the credits are genuine. In a market that is growing rapidly, these qualities are crucial. They also give a sense of quality and accountability, said Robin Pomeroy, director of the Carbon Markets Program at Climate Focus. The market is evolving into a more robust and credible system, he added.
As climate policy changes and more companies commit to a net-zero emissions approach, the need for a robust, transparent, and credible carbon market will only increase. This will be essential to ensuring that the market operates efficiently and effectively, said Mark Carney, the former Bank of England governor and UN special envoy on climate finance.
It is also important for regulators to establish a clear and consistent framework for assessing the quality of credits so they can be properly priced. This will help prevent fraud and ensure that only legitimate, high-quality projects are funded.
Some exchanges have already started to address this issue, such as Xpansiv CBL and ACX, which have set up standard products for nature-based credits that are guaranteed to adhere to certain basic characteristics. The products are known as N-GEO and GNAT, respectively, and they guarantee that credits trade with a standardized set of attributes.