The use of carbon markets is very important for getting money for climate needs, but changes are needed to make them work better.
Businesses are very important for reaching global climate goals. But they need rewards to get and use climate money on a very large scale. This money should help with both near-term net-zero emissions and complete removal of carbon in the long term.
Despite recent checking on project effectiveness, carbon credits and the voluntary carbon market (VCM) are still a strong tool. The VCM made about $1.2 billion in 2022 and could get up to $40 billion by 2030.
But this is only a small part of what is possible. Business leaders have said that changes in carbon markets and the net-zero plan are needed. These changes would get more companies involved and make existing companies invest more in important areas like natural solutions.
It’s very important to say that VCMs should not be a reason for the oil and gas industry to keep making fossil fuels. These companies need to start changing their business to match the rules for stopping fossil fuels.
For other industries, putting money into carbon credits is helpful for the work they are already doing to get rid of fossil fuels, grow renewable energy, and use energy better. Studies show that carbon credits are helping companies go faster in getting rid of carbon and lowering emissions. Companies say VCMs helped them do more for the climate than they could without them.
The good parts of VCMs are not just about reducing emissions. Good VCMs also send money to countries hurt the most by climate change, which helps those places grow while new ways to remove carbon are made.
So, governments, law-makers, and businesses need to use this chance to change carbon markets. This change will make carbon credits and natural solutions work very well for getting global climate action and removing carbon.
A big step is making people recognize how important carbon credits are for helping companies go big with climate action and doing more for the climate in general.
Right now, important groups that make rules for greenhouse gas emissions and business goals don't see the value in putting money into voluntary carbon markets. This stops companies from putting more money into the climate and needs to change so that good climate investments are rewarded.
Business leaders think that if groups like the Science Based Targets initiative (SBTi) accepted carbon credits, companies would spend about 10% more on them each year.
Besides getting recognized, companies also need to know that carbon credits are honest, clear, and real to put money into them. More than a third of companies don't want to buy carbon credits because they worry that they aren't good enough.
Dealing with these worries will not just encourage more investment in nature-based solutions but also cause a positive chain reaction throughout corporate climate action.
Studies show that companies involved in VCMs reduce their carbon emissions twice as quick as those not involved. Also, a recent study discovered that over 60% of business leaders at VCM-involved companies think that high-quality carbon credits motivate further investment in decarbonization. VCM participants are also almost twice as likely to set an internal carbon price, promoting reduced use of fossil fuels.
Investing in carbon credits and VCMs leads to more ambitious corporate climate goals being set and achieved by leading companies.
Carbon markets are therefore an important mechanism for increasing ambition among climate-conscious companies, supporting decarbonization within and beyond their supply chains.
However, time is crucial. Carbon credits and VCMs represent a 'use it or lose it' opportunity, especially with rising economic pressures. Without significant reforms in the corporate net-zero ecosystem, the world risks losing a critical source of climate finance when companies are most likely to cut spending due to inflation and potential recessions.
For example, half of companies already buying credits said that their carbon credit budget would be absorbed as savings if not used, forfeiting valuable climate finance that would be difficult to replace under current conditions.
The business community has made their thoughts known. They are prepared and willing to take part in high-quality carbon markets to ensure companies, and the world, stay on track to meet shared sustainability goals.
The world urgently needs stronger, more effective carbon markets to leverage the private sector and mobilize the necessary climate finance. This untapped potential is an opportunity that humanity cannot afford to waste.
