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Carbon Credits: the power of the Market to achieve net zero and climate justice

Carbon credits use the power of markets to protect the planet and fight climate change. They reduce global emissions, improve people’s livelihoods, and protect the planet.

Carbon credits are a mechanism aimed at mitigating the impact of greenhouse gas emissions on the environment. A carbon credit represents a permit to emit one tonne of carbon dioxide (CO2) or equivalent greenhouse gases. They are a tool to offset greenhouse gas emissions and are traded in global carbon markets.

How are carbon credits generated?

Various activities can generate Carbon credits, such as renewable energy production, reforestation, and energy efficiency projects. The process starts with creating a project that reduces or removes carbon emissions.

An external verifier evaluates the project. This evaluation guarantees that the project meets specific criteria. Credits generated must be verifiable, permanent, and additional.

Energy efficiency projects can help reach net zero targets. These projects reduce energy consumption and can verify the carbon footprint reduction. As a result, energy efficiency projects can generate carbon credits.

Once approved, the project can generate carbon offsets, which can be sold in the Market.

What is the Market for carbon credits?

The price of carbon credits varies depending on the supply and demand in the Market. Demand for carbon credits has grown in recent years.

Governments and organizations worldwide have set goals to reduce their carbon emissions. They aim to reach net zero by 2050. Carbon credits can assist them in achieving these goals.

There are two distinct types of carbon markets.

  1. The first is a regulated market that operates under cap and trade programs and regulations at the regional and state levels.
  2. The second is the voluntary carbon market, where businesses and individuals can purchase credits to compensate for their carbon emissions.

McKinsey estimates that demand for carbon credits could increase significantly by 2030. By 2050, the need may grow to 100 times the current amount.

Overall, the Market for carbon offsets could be worth upward of $50 billion in 2030.

Carbon credits can help companies and people to meet their climate-change goals.

Companies and organizations aiming to reach Net Zero emissions have multiple options. They can reduce and remove emissions and offset some of their emissions.

Examples of emissions reduction include the detection and repair of gas leaks, energy saving, and optimizing transportation routes. Carbon capture technology falls into the removal category.

They can do this by buying credits from projects which reduce or remove carbon dioxide from the atmosphere.

Reaching net zero is a collective effort. People can reduce their carbon footprint at an individual level, speeding up the collective journey to net zero.

The United Nations recommends reducing carbon emissions to 2.5 tons of CO2e per person per year by 2030. This carbon footprint reduction is needed to control global temperatures and preserve a livable climate. In the USA, the annual emissions of CO2e per person are 14.6 tons, more than twice the global average of 6.3.

By improving energy efficiency, global emissions could decrease by 2 billion tons by 2030. This reduction represents one-fifth of the total needed to reach net zero. These Improvements would also save consumers $440 billion in annual energy bills.

What are the pitfalls of carbon credits?

First of all, we should not rely solely on credits to reduce carbon emissions to address climate change. Certainly, they are one of the  tools available, but not the single cure for the problem.

Also, because of the lack of measurable verification can lead to questionable climate science and greenwashing. Some projects may need to be more sustainable and effective.

For this reason, nature-based Carbon credits, such as those from trees and agriculture, have been criticized. Their effectiveness in reducing emissions is hard to measure, thus making them questionable.

Finally, double counting can lead to overstating emission reductions, which can occur by selling a credit multiple times.

How to realize the potential of carbon credits?

For carbon credits to be effective, it is essential to have robust monitoring systems in place. Consequently, measurements can guarantee emissions reduction through the projects and avoid double-counting of credits.

Additionally, carbon credits are a crucial enabler of sustainable development and climate justice. So projects must bring benefits to local communities not only in developing countries but all around the world.

Inclusive, measured-based verification of environmental attributes enables trust, transparency, and effectiveness in producing high-quality carbon credits.

In conclusion, the markets are crucial in enabling financial incentives to encourage companies and individuals to take climate action. Carbon credit projects can promote a sustainable future for the planet and everyone.

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