Carbon credits – a viable building block to zero emissions?

While athletes went for gold, the Tokyo Olympics organising committee eyed a carbon neutral games. A cocktail of energy-saving measures, renewable energy, as well as carbon credits were used to compensate for the CO2 produced from the infrastructure built, electricity consumed and the travel of more than 11,000 athletes.

As climate change climbs up the world agenda, more businesses and organisations are committing to net-zero emissions. Carbon credits, a mechanism used to compensate for an organisation’s emissions, will be one of the building blocks to help companies decarbonise. In the transition to net-zero, companies must prioritise emission reductions, but they should also go further and take action to mitigate emissions outside their value chain.

Carbon credits 101  

Carbon credits are produced by projects that reduce, avoid or remove greenhouse gases from the atmosphere. They do this by showing that emissions have fallen below a projected business-as-usual path of increasing emissions ― typically referred to as a baseline. Any reduction below that future path earns carbon credits which can be sold to emitters in hard to abate sectors such as transportation or heavy industry. The groups who sell them use the proceeds to fund activities that clean up the atmosphere such as tree-planting, energy efficiency projects and new low-carbon technology.

A basic example is the scheme that airlines provide for passengers. Travellers can pay for carbon credits that will fund a project that will reduce emissions elsewhere.

In the case of the Tokyo Olympics, the organising committee bought carbon credits with proceeds going to projects in Japan that will more than offset the emissions from the games. Brisbane, the host of the 2032 Olympics, is aiming for the first climate positive Olympics – one that absorbs or removes more greenhouse gas than produced.

Although the concept surfaced more than 20 years ago, carbon credits are yet to come of age. With users not required to disclose information, the current unregulated system is impacting the integrity of carbon credits as an effective tool to combat climate change.

A turning point

A new chapter is unfolding with the creation of the Taskforce on Scaling Voluntary Carbon Markets (TSCVM). Initiated by Mark Carney, UN Special Envoy for Climate Action and Finance, and chaired by Bill Winters, Standard Chartered’s Group Chief Executive, the taskforce’s role was to mobilise civil society, the financial sector, market infrastructure providers and buyers and suppliers of carbon offsets to scale an effective, efficient and functioning voluntary carbon market to help meet the goals of the Paris Climate Agreement. The goal is to ensure the development of a high quality, high integrity market that funds carbon emission reduction and removal projects.

In September 2021, the Taskforce introduced a new governance body missioned to both boost the integrity of carbon credits and promote transparency. Comprised of experts with skills ranging from forestry management to emissions reduction technologies, representatives of NGOs and civil society organisations, and market participants, the governance body will take the leadership of the taskforce’s mission.

The governance body is already working on its first deliverable - the Core Carbon Principles (CCPs), a global standard for high-quality carbon credits. Under the CCP, projects will need to demonstrate a clear, measurable and direct impact in reducing carbon emissions, as well as full environment and social integrity. To ensure the consistency of threshold standards and instill confidence for all market participants, the governance body will create an assessment framework and the governance to oversee it. Projects who meet the standards will receive CCP accreditation via standard setters approved by the governance body.

Once the CCPs are launched in 2022, firms using carbon credits will be able to opt for accredited projects and report their use. This increased transparency should provide a clearer picture on how carbon credits are being used by organisations, and their impact in capturing or reducing emissions to combat climate change - hopefully sooner rather than later.