As the world works to meet ambitious goals to reduce greenhouse-gas emissions, companies and individuals are looking for ways to minimize their environmental footprint. One important tool is the carbon credit market, which offers an exchange value for emissions reductions. The market has two significant segments: a regulated market set by cap-and-trade regulations at the state and federal level, and a voluntary market in which companies buy credits to offset their own emissions.
A carbon.credit, also known as a greenhouse gas emission reduction credit (GSERC), is a financial instrument that represents the reduction or removal of a ton of carbon dioxide-equivalent (CO2-e) from the atmosphere. It is certified by a government agency or independent carbon-credit verifier to be genuine, valid, and verifiable.
The credits are sold in the voluntary market to individuals and businesses that want to fight climate change. They can be earned through projects that reduce, avoid, sequester or capture carbon. These projects can be anything from a forestry practice to an energy project to a transportation program. They can be made by a middleman or directly by those that do the work, such as a forester planting trees or a company installing wind turbines.
Voluntary carbon markets are important because they direct private financing to projects that would not otherwise get off the ground, such as forest restoration, biodiversity protection and pollution prevention. They also support innovation to lower the cost of emerging climate technologies, and they offer an alternative to the costly compliance market, which can put companies at a disadvantage when it comes to reducing their emissions.
Limiting global warming to 1.5 degrees Celsius will require a drastic reduction in greenhouse-gas emissions. Many companies, governments and organizations, including the University of California education system, can achieve much of this through new technology, energy sources and operations. But they cannot eliminate all their emissions, especially those from older infrastructure or from activities that can’t be eliminated soon. To address this gap, many are committing to purchase carbon credits as a way to “offset” their remaining emissions.
The key is to make sure that companies purchasing carbon credits are using them in a complementary fashion, rather than as a license to pollute. A robust, effective, and transparent carbon-credit market would provide an incentive for buyers to seek high-quality carbon reductions that are vetted to ensure quality and authenticity. It could also help match buyers and sellers of carbon credits through a registry of project information that is shared globally to allow for transparent, informed choices.
Carbon markets are not a long-term solution to climate change, but they can help bridge the gap while the world transforms away from fossil fuels. To be effective, however, the underlying system will need to be overhauled and made more stable. We should create an international carbon-credit program that is consistent with the Paris Agreement and offers credible, long-term commitments from emitters, which can be matched with strong enforcement.
By reducing carbon emissions and helping companies, individuals and governments meet their climate goals, these projects can have the potential to transform the global economy. We need to build a robust and scalable carbon market with rules that ensure its integrity and success, so the world can make the transformation needed to prevent catastrophic climate change.
