In the UK and other countries, there are mandatory carbon markets covering specific industry sectors and gases. One carbon credit can offset one tonne of carbon. But the government permits the buying and selling of carbon credits so as to allow more flexibility. These credits are then traded in voluntary carbon markets (VCMs).
Organisations voluntarily participate in the scheme because their shareholders, employees or customers want them to do so. This is opposed to mandatory schemes like carbon taxes or cap and trade systems.
Compensate for unavoidable emissions by investing in so-called carbon projects, which typically remove carbon from the atmosphere. Carbon projects issue credits. They need to sell credits to finance their operations. Supply and demand is then regulated by brokers and traders in the VCM.
The Debate: Are voluntary carbon markets beneficial for business?
Yes: It’s something, and that can’t be sniffed at in this climate
Let’s start with the indisputable facts. The climate is in a state of crisis. The biggest emitters are businesses, not all of which are mandated to reduce their footprint, and most of which aren’t doing anything at all.
We also know that corporates are some of the most powerful drivers of change and that they face mounting pressure to address environmental concerns. And we know that there is no pathway to global net zero without the voluntary carbon market.
Investing in projects which remove or prevent carbon emissions allows businesses to offset residual emissions in the transition to net zero. As we work to develop new tools to eliminate carbon emissions, it is an effective and readily available way to compensate for the inevitable environmental impact of doing business today. Several studies have found that companies which invest in credits decarbonise twice as quickly as those that don’t. By voluntarily attaching a price to their emissions, they create a financial incentive to develop a long-term plan to reduce their overall footprint.
New regulations from the VCMI, and the latest guidelines from the US, mean that the claims businesses can make around credits is much clearer. On top of this, new technology allows us to measure and monitor carbon much better, not only promoting – but necessitating – market integrity.
It’s time to get louder about the leaders making a difference. Carbon projects are cutting emissions, stopping deforestation, protecting biodiversity and supporting local communities in the global south.
If you want to argue that businesses aren’t doing enough for the climate, why not turn your attention to the 81 per cent of companies taking no action on their emissions – rather than those taking tangible steps?
Ana Haurie, CEO and co-founder of carbon finance business Respira International
No: There are better ways to reduce emissions
VCMs are an unregulated (hence ‘voluntary’) market which is home to a complex web of competing standards that define “quality”.
As always too many standards means no standard at all. Last year a study found more than 90 per cent of rainforest offset credits from the leading VCM certifier Verra were “phantom”, that is to say they had no real climate impact. The study found evidence of double-counted credits, overestimated carbon savings and forcible evictions of local residents. This was disputed by the industry, but the reputational damage has stuck.
For the record I’m not completely anti-VCMs and offsets. I really want them to work. They have potential for incentivising much-needed protection of forests, and supporting hard-to-abate industries to hit emissions targets. Good work is being done by companies like Respira to restore trust.
But they haven’t exactly been a festival of integrity, and businesses should proceed with caution.
Many carbon credits have been sold on the promise of being an easy way to “cut” emissions without changing your operations. But the costs are hidden: you end up paying with reputational risk. It’s like compensating for an affair by donating to a marriage charity.
For businesses who want to reduce their emissions, here’s a radical idea: why not… actually reduce your emissions?
Instead of buying offsets, start with integrating emissions-monitoring technology, and working with your suppliers to calculate where the emissions lie in your supply chain. Consider changing the energy sources for your buildings and operations. These projects require expert input and good planning but carry less risk in the long term. And they reduce your need to buy offsets.
If you absolutely must buy them, buy quality ones with durable carbon removal. VCMs are full of businesses who have bought credits as an excuse to keep emitting, and got burnt.
Nick Valenzia – co-founder of sustainability consultancy Leafr
The Verdict
Voluntary carbon markets (VCMs to those in the know) are an imperfect solution. Neither candidate denies this. Optional, most firms join under shareholder, employee or customer pressure. But as Haurie points out, this shouldn’t be sniffed at. Businesses have the potential to deliver powerful change. Voluntary participation in pro-environmental schemes should be applauded. But not if they don’t work. As Valenzia conjures up, buying credits can have the air of “compensating for an affair by donating to a marriage charity”. He is right that it would be preferable to actually reduce emissions, rather than offset them.
As Valenzia conjures up, buying credits can have the air of “compensating for an affair by donating to a marriage charity”. He is right: companies should first aim to reduce emissions, not offset them. Long term change should be the starting point; a VCM should be a temporary tool to deal with the reality which is that most firms cannot stop emitting carbon this instant. If VCMs were better regulated, to remove pirate actors like Verra, and used as a last resort in conjunction with, for example, carbon taxes, even Valenzia might find them acceptable.
However, he is right to warn that credits are being bought by firms as a way to swerve actually reducing the environmental impact of their operations. That is indeed a worry.