How can Carbon Markets help companies reach carbon neutrality?
To become carbon neutral, companies need to identify their emissions, invest in projects to reduce them, and also invest in external projects that offset any emissions a company can’t eliminate.
The Carbon Markets can help. Carbon markets exist under both compliance (mandatory) systems and as voluntary programs.
Compliance systems
-
The size of the compliance market in 2019 was $44 billion, according to the World Bank.
-
The most famous examples of compliance offset initiatives are cap-and-trade programs.
-
The EU’s emissions trading system (ETS) is the largest cap and trade program in the world, It covers about 45% of the EUs greenhouse gas pollution coming from approximately 12 000 installations, across power generation, industry and aviation.
-
A cap is set on the total amount of certain greenhouse gases that can be emitted by installations covered by the system. The cap is reduced over time so that total emissions fall.
-
Within the cap, companies receive or buy emission allowances, which they can trade with one another as needed. They can also buy limited amounts of international credits from emission-saving projects around the world. The limit on the total number of allowances available ensures that they have a value.
-
After each year a company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company that is short of allowances.
-
The EU ETS has proved that putting a price on carbon and trading in it can work.
-
In 2020, emissions from sectors covered by the system will be 21% lower than in 2005.
-
In 2030, emissions from sectors covered by the EU ETS will be cut by 43% from 2005 levels, as part of the EU’s current 2030 climate and energy framework.
Voluntary programs
-
Voluntary carbon markets enable businesses, governments, nonprofit organizations, universities, municipalities, and individuals to offset their emissions outside a regulatory regime.
-
Because voluntary offset credits cannot be used in compliance markets, they tend to be cheaper.
-
Pricing in voluntary offset markets reflect the reality that businesses/buyers have varied objectives when purchasing carbon offset credits depending on how they would like the purchase to be perceived by others/by potential investors. i.e. prices my differ based on project charisma and the potential for marketing, project type, location, and co-benefits beyond climate impact that match with buyers’ preferences.
-
Voluntary markets also serve as a niche for micro-scale projects that are too small to warrant the administrative burden of compliance offset programs or for projects currently not covered under compliance schemes.
-
In the past, the lack of standardized quality criteria, in the early stages of the voluntary market, generated concern from the wider offset market.
-
In response, carbon market actors launched several efforts to create standards and protocols to improve the quality and credibility of voluntary offsets.
-
Complete offset programs have been developed with standards, that include rules, requirements, and administrative systems for accounting, quantifying, monitoring, reporting, verifying, certifying and registering offset projects and credits. These programs are designed to furnish offset credit sellers with quality assurance certification and offset consumers with greater transparency and confidence in the credibility and integrity of certified offsets.
At net0twenty50 we focus primarily on supporting the Middle East’s decarbonatization efforts and thus focus primarily on Middle Eastern carbon reduction projects that co-benefit communities within the region.
As the region does does not have a fully fledged ETS yet, we offer carbon credits emanating from the regions voluntary carbon market (VERs) and we can also offer advisory support for companies looking to purchase certified emissions reductions (CERs) on the Global Carbon Market.
