Reaching net zero is a road paved with good intentions.
Across the world, organisations are battling to reduce their greenhouse-gas emissions as fast as they can to stabilise the climate. Many are turning to the voluntary carbon markets to offset outstanding emissions. But the voluntary market comes with its own set of problems. With no overarching standards body, credits can vary dramatically in price, quality and reliability. It’s a fraught process to even the most diligent environmentalist and sadly it’s undermining all the good work that’s going on.
Last year Bloomberg highlighted how several leading US corporations, who aimed to cut their emissions, were mis-sold credits in a Pennsylvanian forest. According to the project’s documents, the forest was threatened with destruction and carbon credits were a means to save it from this fate. The Bloomberg exposé revealed that the forest was never in danger of being logged, as it had been protected by a non-profit foundation since 1938.
In this case, the project suffered from a lack of “additionality” meaning that credits were issued against carbon reductions that would have happened anyway, in which case there would be no additional benefit to the planet.
Another criticism of voluntary carbon markets is that projects behind the carbon credits lack “permanence’’. If we are to change the future of the planet we cannot simply look to the immediate future. Carbon credits must be issued against long lasting emission reduction initiatives that will protect the planet for generations to come. Many companies looking for good quality projects will pay a premium for those with a development timeline projected to be 100 years or more.
In addition voluntary markets have also come under intense criticism, because millions of credits are decades old, or involve double counting.
Taken altogether, these collective struggles have left the average price for a credit languishing at around $5 a tonne. This means that for the price of a hamburger and fries it is possible to offset the emissions of a flight from London to New York, which is no disincentive to limit harm to the planet!
Having a high volume of low-quality carbon credits enables companies to make net zero claims that do little or nothing for the environment. Plugging this leaky system is proving challenging; greater integrity is urgently needed on both the supply and demand side. We must clean up the carbon credits market for it to be truly successful.
Carbon credits are a £1 billion market
Despite its problems the voluntary carbon market is about to enter a rapid growth phase. Due to mounting pressure on companies to tackle the climate crisis and to “do the right thing’’, the value of voluntary carbon markets doubled in 2021 to hit US$1 billion. Further estimates put the market for carbon credits at $100 billion by 2050.
Fit for purpose initiatives are needed fast and blockchain may provide a way forward.
Full steam ahead
The global explosion of blockchain technologies offers a new frontier for carbon markets. Blockchain’s advantage is in decentralisation and transparency, holding out the hope of developing a system with a wider degree of trust.
Likvidi, is a new platform for the trade of carbon credits verified to Verra’s internationally agreed standards. Launched in March 2022 it aims to clean up the voluntary carbon markets with credits of the highest quality and help engineer an overhaul of the voluntary carbon market by introducing clearer pricing and ownership data.
Likvidi will launch its green finance platform Summer 2022 for the trade of liquid carbon credits LCO2, its carbon currency issued on the low-impact Avalanche blockchain. Each token will be equivalent to one metric tonne of carbon sequestered in the real world. LCO2s are also Web3 enabled for wider DeFi and Metaverse functionality,
LCO2 has the benefit of real-time pricing and the ability to track trades as well as contain data on the identity of the project origin. This means that anyone can check on a carbon credit’s history and authenticity without being a client or a member of a registry.
Everyone will come to rely on carbon credits for at least partial offset
Investors are curious. Digital currencies have a reputation as globally high emitters of carbon, with Bitcoin’s emissions predicted to soon exceed those of Beijing or New Delhi (www.citycarbonfootprints.info)
However, a move towards alternative Proof of Stake systems which use just 1% of the energy that’s used by Bitcoin and Ethereum, are helping to create a low impact future technology.
More than anything else, establishing trust will be essential for all parties, as Christiana Figueres, the key architect of the Paris Agreement has explained.
“On the long road to 2050, almost every company will rely on carbon credits to support their transition to zero emissions.”
After a 20-year history of controversy, it’s clear that voluntary markets will need to evolve quickly to play their part.
Author: Ben Jackson
