Carbon credits are just one of the many tools companies can use to demonstrate their environmental achievements. There are two main kinds of credits: “voluntary” ones and those that have to go through the official system. The latter will require some effort on your part. In fact, the voluntary market has become so popular that it could well be worth its weight in gold by 2030.
The international carbon credit exchange market is operated under the umbrella of the United Nations Framework Convention on Climate Change. Among the various mechanisms for mitigating emissions, the Clean Development Mechanism (CDM) is perhaps the most notable. As of 2021, it is estimated that the carbon market will be worth $6.7 billion. This number is expected to increase to $67 per metric ton by 2030. While the price of carbon hasn’t reached this level yet, it is set to get there, and the government is putting the squeeze on greenhouse gas emitters.
The best way to measure a company’s commitment to the environment is to look at the amount of CO2 it can reduce. Companies that do not meet their cap are required to come up with ways to offset the excess. In some cases, they may even need to close down operations. However, they can still bank the allowances for future use. This has the potential to be a boon for the carbon-conscious, but can also have the opposite effect.
It is difficult to quantify the carbon offset effect, but some estimates indicate that the value of these credits is quite high. For example, one investment company pays farmers to convert fields to forests. In turn, the farmers plant trees in return. The company then sells these credits to corporations. Some of these companies may be years away from reducing their emissions sufficiently, but they are rewarded for their efforts by the cash infusion.
Nevertheless, the carbon offset market is not for the faint of heart. Companies with huge carbon footprints will need to restructure their businesses to reduce emissions or pay big bucks for carbon neutral solutions. Buying carbon offsets is not the most efficient way to go about this, but the technology is not a bad starting point. Similarly, the government has introduced new policies to limit carbon dioxide emissions. This will likely be a long and costly process, but it will be necessary if we want to keep global warming below two degrees Celsius.
The carbon credit industry is set to expand, with new projects underway in Australia, Canada and China. In addition, the California Cap and Trade initiative is poised to establish a stable regional emissions market. Several western states are already taking advantage of the system. If it succeeds, the world could be on the cusp of a cleaner energy future.
Despite the challenges, the market is still on track to reach its peak in just under a year. The CDM is just one of many mechanisms for preventing global warming, and the government is working to ensure that these systems function as intended.