What are Carbon Markets?

Carbon markets were created to reduce Greenhouse Gas (GHG) emissions in a cost-effective way by limiting emissions and enabling the trading of carbon offsets.  

According to Wikipedia, a carbon offset is a “reduction in emissions of carbon dioxide or other greenhouse gases (GHG) made in order to compensate for emissions made elsewhere.”

When carbon offsets, or credits, are sold, they provide revenue for developers to create positive climate action emission-reduction projects. While these projects are often found in developing countries, there are also several projects in the US.  

The carbon credits from these types of projects are referred to as non-regulated ‘voluntary’ offsets, and must meets certain standards in order to be validated.  This is critical and a key component in avoiding ‘greenwashing.’

Carbon offsetting projects are generally nature-based carbon sequestration projects or renewable energy projects.  The nature-based carbon projects are where plants and trees absorb and store carbon emissions through planting of vegetation and trees, or preserving validated forests. Renewable energy projects produce energy from natural resources and include solar, wind and hydro.  Some newer projects include the capturing and purifying of methane.

Do Carbon Offsets Really Do Any Good?

Because many companies and organizations say they’re being sustainable, but they’re not, greenwashing has become a serious issue.  Unfortunately, many people feel that carbon offsets aren’t honest or trustworthy, are a license to pollute, and aren’t directly addressing the GHG problem.  Let’s look at each of these to dispel the misconceptions.

Carbon Offsets are Trustworthy

Carbon offsets were put in the spotlight with the Kyoto Protocol in 2005.  There was little oversight at the time, which allowed for problems with validation to start.  Since then, however, a set of significant global frameworks have been developed and approved, whereby recognized certification organizations validate that each ton of carbon offsets is accurately measured, monitored on a regular basis, and verified.

There are now several certification entities worldwide, such as Gold Standard, American Carbon Registry, Climate Action Reserve and the Verified Carbon Standard that validate that the offsets are inspected by an independent third party, have a unique identifier, can only be used once, and are auditable and certifiable.  

As we saw above, verified Carbon Offsets represent the actual removal of CO2.  The carbon certification entities insist that project developers show how the emissions reductions would not have happened without the project.  This is referred to as Additionality. 

Carbon Offsets are Not Permits to Pollute

The first step in creating an offset is measuring the emissions currently expended.  Then analysis is conducted to determine the best way to attack the problem, as well as measure the emissions from the new project.  This is done in order to gather data on a regular basis to assure that the projects are really lowering emissions, as well as to make the offsets certifiable. 

“Companies are engaging in carbon markets as one part of larger emissions reduction strategies that include energy efficiency measures among other improvements” according to Ecosystem Marketplace.  That’s to say, they are using offsets to balance the emissions they are not able to eliminate immediately as they retool their plants and processes.  

The report also states that in 2016, roughly 88% of voluntary offset buyers and 92% of compliance buyers have formally adopted emissions reduction targets.  Source  

In addition, key findings from the State of the Voluntary Carbon Markets 2020 include:

  • Corporate carbon-neutral pledges fueled a record transaction volume of at least 104 MtCO2e in 2019, which is an increase of 6 percent over 2018. Figures may be adjusted with data from new respondents.
  • Volume has been surprisingly strong in 2020. Anecdotal evidence based on interviews with market participants indicates it may even exceed that of 2019, despite the COVID-19 pandemic. Broader pledges have compensated for the loss of volume from the aviation and tourism sectors.