How Carbon Credits Could Actually Help Fight Climate Change

TThe market for carbon offsets has been growing rapidly and many efforts have been made to establish rules and standards that can address their sometimes ambiguous reputation. A global agreement is essential in order to achieve a net-zero world and to help avert the coming climate catastrophe.

Carbon markets should be a fire hose for directing money where it’s genuinely needed in the climate crisis. However, this will not happen unless we change the way we use carbon credits. Instead of seeing them as a way to wash away climate “sins,” we should focus on the outcomes we are trying to achieve. That’s because different outcomes need different incentives.

The carbon markets can address three major outcomes to allow meaningful climate action.

  • Emissions reduction as fast as possible
  • Natural carbon sinks protected
  • Carbon dioxide removal from the atmosphere

This gives rise to three forms of carbon credits. Let’s call them Protection and reductionPlease see the following: Removal. Many people still think of these interchangeably, as a generic “offset.” But only by differentiating them based on their distinct outcomes can we effectively steer carbon-market money in the right direction. It’s useful to consider them one by one.

By 2030, reduce emissions by 50%

First of all, we need to drastically reduce the emissions of fossil fuels across the entire world. We must do this by 2030. That’s where “reduction credits” can help.

Reduced CO2 credits are used to calculate how much carbon dioxide is being emitted from someone using fossil fuels and then pay them to not do so. This is the world of many traditional offsets—converting cookstoves from coal to solar or developing a wind power plant to replace one burning coal. These are cheap ways for a company or organization to to claim “carbon neutrality,” by essentially funding the reduction of someone else’s greenhouse gas emissions.

However, this only has a partial impact on climate change. If I release a metric ton CO2 and then pay another person to not emit my ton, that ton will still be in the atmosphere. What’s more, because these are typically cheap (less than $20 dollars a metric ton), they can be a license to keep polluting—a company can be tempted to just buy a load of credits rather than investing in reducing its own emissions.

Reduction credits, however, can be used to reduce total fossil-fuel-related emission by financing clean infrastructure in particular the Global South. The most vulnerable countries are those that contributed least to climate change. They also have less resources for developing resilient infrastructure with low carbon emissions. These countries must develop. The creation of the right incentives for reduction credits can help to direct money to where it’s most needed, to support global infrastructure transformation from fossil fuel to clean.

Natural Carbon Sinks Protected

The second outcome is to protect natural carbon sinks while supporting biodiversity and wildlife as well support communities who live within and around those areas.

For this we need “protection credits.” They would give credit for preventing the release of one metric ton of carbon from an existing natural sink. As with reduction credits, it doesn’t make sense to use these as “offsets,” as they don’t neutralize existing emissions. But it is still essential to put money into protecting natural carbon stores such as forests, as well as peatlands—which make up just 3% of earth’s surface but currently store twice as much carbon as all the world’s forests combined.

Although these credits exist on the carbon markets, they are often combined with reduction credits. It allows us to evaluate the credit quality based on what we want to accomplish by separating them. The highest-rated credits can be awarded to those who have the largest natural carbon reserves and the most biodiversity if we concentrate on protecting them. This approach makes it easier to reward good behavior—the people already protecting their forests, rather than only the ones who are otherwise threatening to cut them down. This could make it simpler to channel the funds towards communities that live and manage environments rich in natural carbon.

Eliminate CO2 from the Atmosphere

The third valuable climate outcome that carbon markets can help achieve: neutralizing the emissions that we don’t yet have solutions for—or that will ultimately be impossible to prevent. For this we need “removals credits.”

Although they are only a fraction of the total carbon market, these already exist. These involve the payment of someone to take CO2 out of the atmosphere and keep it safe for a long time.

The removal credits actually neutralize the emissions, unlike reduction credits or protection credits. If I emit a metric ton and pay you to remove a ton, that gets you to zero—because what goes up comes down. And with many high-quality removals currently costing north of $300 a metric ton, they are not a cheap way out—meaning, unlike with reduction credits, removal credits cannot be transformed into a license to pollute.

Problem is, the industry for carbon removal isn’t large enough to allow us to transition to a zero-carbon world. The IPCC says the use of carbon removal technologies is already “unavoidable” if we want to meet our climate goals, and that by 2050 we’ll need to remove and store 5-16 billion tons per year. We barely manage 100,000 tons per year of high-quality carbon removals. In other words, we need to scale a massive industry out of almost nowhere, and fast—and in the process reduce the costs just as happened for solar and wind. That’s where removal credits can help. If we set the right criteria and rules, they can drive capital towards high-quality carbon removals projects—those that store carbon safely and durably—helping to reduce costs and scale up rapidly.

Making Net-Zero Meaningful

This framework is only a guideline. Each of these categories will require its own clear set of rules, metrics, incentives, targets, and definitions of how they count against a company’s net-zero math. That’s especially important for the protection and reduction categories as even calling them credits means that many people are using them now as part of a claim to be “net zero”—even though they don’t neutralize emissions. Instead, removal credits, which genuinely can neutralize emissions, could count against an individual or company’s net-zero target, with protection/reduction counting as a contribution towards net-zero for the world.

Another implication of the categorization we propose here—reduction, protection, and removal—is that different kinds of nature-based solutions would fall under different types of credit instead of being lumped into one unhelpfully catch-all category. Protecting the vulnerable and preserving intact forests while restoring them would count as removals.

Credits aren’t the only way to direct money where it needs to go: other financial mechanisms are available to support climate solutions. And let’s not forget that the ultimate goal is to re-balance the flows of carbon, and that requires first and foremost serious, aggressive decarbonization. But it’s hard to see how we can have a fighting chance of averting climate catastrophe without also creating a working, credible global carbon market—one that focuses on the desired outcomes and builds incentives to steer the money in the right direction. It would make sense to organize carbon credits into categories such as reduction, protection and removal with distinct incentives.

Gabrielle Walker founded the Climate Consulting. Valence Solutionsis the non-profit entity Moving? Rethinking.

Bruno Giussani, Global Curator for TEDCo-founder and co-founder of the climate initiative. TED Countdown.


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