Where Does Carbon Credit
As companies try to reduce their carbon emissions, one way they do so is by purchasing carbon credits. The money goes into climate-change projects that can’t get off the ground otherwise, which can also have additional benefits such as biodiversity protection or pollution prevention.
The voluntary market for carbon offsets has been growing rapidly in recent years. McKinsey estimates that buyers retired some 95 million tons of carbon.credit in 2020, up from less than 40 million tons in 2017. This market is fueled by corporate net-zero goals and interest in meeting international greenhouse gas limits.
While the market for carbon offsets is gaining momentum, some concerns remain about the quality and integrity of the credit supply. This can impact the issuance costs, cash flow and tradability of credits. Moreover, the market’s heterogeneous and often illiquid nature can make it difficult to trace credits and ensure that they are being used properly.
Where Does Carbon Credit Money Go?
To address these concerns, the Verified Carbon Standard (VCS), a nonprofit group founded in 2007 by environmental and business leaders, has set a quality threshold for credits to adhere to. The VCS also provides a registry system to verify credits and ensure that they are legitimate.
The VCS’s quality criteria are designed to help businesses avoid fraud and ensure that the credits they purchase actually represent a reduction in emissions. This is important, especially when companies are trying to achieve net-zero goals, which means eliminating as much carbon as they produce.
According to a September report from Ecosystem Marketplace, the voluntary carbon market is on track to hit $6.7 billion in 2021. This is a significant amount of money that could go to environmental projects and help reduce the world’s warming temperatures. Nevertheless, the market is still largely immature and inefficient. Several key challenges have yet to be addressed, including price transparency and risk management.
If we want to scale up the voluntary carbon market, it is critical to address these issues to ensure that the market serves its intended purpose. This includes creating a more resilient infrastructure that supports trade, post-trade, financing and data. It also requires a deeper consensus on offset legitimacy and market integrity assurance.
1. Core carbon principles and attribute taxonomy: These standards will ensure that the supply of quality credits is matched with demand, while establishing a standardized and measurable process for their validation and registries. These measures will enhance the reliability of registries and strengthen the credibility of corporate claims related to the use of offsets.
2. Digital processes: Establishing a more efficient and transparent process for the registration and verification of projects should lower issuance costs, shorten payment terms, accelerate credit issuance and cash flow for project developers and enable credits to be tracked and traced. This would also facilitate the development of a standardized and liquid reference contract that can be traded on an exchange or over the counter and provide price signals.
3. Market infrastructure: A market-infrastructure framework to support the growth of a voluntary carbon market should be developed with resilient and scalable components. This will include trade, post-trade, financing and data components that are flexible enough to accommodate emerging innovations.