Carbon Credit is Important

As the world strives to meet ambitious climate goals and reduce its greenhouse gas emissions, there will be an increasing demand for carbon credits. The demand for these credits comes from businesses, government agencies and individuals that are trying to offset their carbon footprints or reach net-zero emissions.

In the regulatory market, companies and other organizations can participate in a cap-and-trade program, where they can buy and sell carbon credits to help them stay within emissions limits set by regulators. These limits vary by jurisdiction, but often include a maximum amount of carbon.credit that can be emitted per unit of output.

For example, California, the only state that operates a cap-and-trade program, aims to limit its emissions to 40 percent below 1990 levels by 2030. Under this program, companies can purchase carbon credits to help them avoid the penalty of emitting too much carbon and having to pay fines or pay higher taxes.

Why Carbon Credit is Important

Many cap-and-trade programs have strict requirements for the projects that create carbon credits. These projects have to be verified by independent third-party entities. These standards are critical for making sure the credits represent real, measurable and verifiable emissions reductions.

The voluntary market, on the other hand, is a much more flexible system where credits are bought and sold based on individual interests and preferences. In this marketplace, buyers and sellers can match their needs with a variety of carbon projects that can generate credits.

These projects can be small and local, such as community-based clean cookstoves programs in Asia that have saved millions of lives. Or they can be large-scale, such as projects that use carbon capture and storage technology to remove CO2 from the air.

There is also a growing supply of carbon credits from forestry projects, particularly in developing nations that have committed to cutting their emissions under the United Nations Framework Convention on Climate Change (UNFCCC). These projects include initiatives that pay farmers and other forest-dependent communities to avoid clearing forests or using up land for farming in exchange for carbon credit units.

Despite the many advantages of the voluntary carbon market, there are challenges to its growth and sustainability. One major challenge is that the market is fragmented and complicated, with a lack of transparency, quality standards and standardized pricing data.

A strong, sustainable voluntary carbon market would need to establish core carbon principles and attribute taxonomy that reflect the economic value of emission reductions as well as other factors. This would give buyers and suppliers confidence that they are paying a fair price for genuine emissions reductions that have an impact on the environment.

The quality of these credits is a crucial factor in the success of a voluntary carbon market, which has to be strong enough to support the global climate action needed to prevent dangerous temperatures from rising. A standard quality threshold for the market, set by a reputable third-party organization and hosted on an independent site, is vital to protect the integrity of the market.