Net-Zero and Carbon-Credit Finance

Overview of Carbon Credits

Carbon credits are allowances for companies to emit carbon emissions or greenhouse gases, with one credit equaling one ton of carbon dioxide or its equivalent. Companies can purchase credits to balance out their emissions, and carbon markets enable the trade of credits and offsets. This helps mitigate the environmental crisis while creating new market opportunities.

Carbon Markets

Carbon markets have been around since the 1997 Kyoto Protocols, but new regional markets have prompted a surge in investment. In the US, multiple states operate carbon pricing initiatives, although no federal carbon market exists yet. Carbon markets can be categorized into compliance and voluntary markets. Compliance markets are mandatory, government-regulated systems, while voluntary markets allow companies to purchase and sell credits to fulfill their climate commitments.

Role of Verification Bodies

Verification bodies like Verra and Gold Standard play a crucial role in ensuring the integrity of carbon credits. They set rigorous international standards for carbon projects, such as the Verified Carbon Standard (VCS) and the Gold Standard (GS). These standards ensure that carbon credits represent a measurable and verifiable reduction, avoidance, or removal of one ton of carbon dioxide equivalent (CO2e) from the atmosphere.

Carbon Credits and Net-Zero Emissions

Carbon credits can contribute to climate action by financing CO2 and GHG removal projects, as well as avoidance and reduction projects. Companies aiming for net-zero emissions can use carbon credits as a supplementary tool to support their climate goals. The Science Based Targets initiative (SBTi) provides a framework for companies to set science-based targets for reducing emissions and achieving net-zero.

Examples of Companies Using Carbon Credits

Several companies, such as IKEA, Patagonia, and Natura & Co, are using carbon credits as part of their sustainability strategies. IKEA aims to become climate-positive by 2030 through renewable energy investments and sustainable material sourcing. Patagonia champions regenerative organic cotton and invests in environmental causes, while Natura & Co emphasizes carbon neutrality, sustainable sourcing, and waste reduction.

Still Open

• The sources do not provide a clear understanding of the current market price of carbon credits or how it is determined.
• There is limited information on the effectiveness of carbon credits in reducing emissions and achieving net-zero goals.
• The relationship between compliance and voluntary carbon markets is not fully explored, and the implications of their convergence are not clear.
• Further research is needed to understand the role of carbon credits in supporting climate action and achieving net-zero emissions.