A novel approach to making money has emerged – plant a small forest in your backyard, term it “afforestation” and “carbon sequestration,” and calculate the amount of carbon dioxide it will sequester over its lifespan. Then, sell these carbon credits to entities still emitting CO2 into the atmosphere. Congratulations, you’ve just entered the world of marketing carbon offsets!
However, delving into the realm of carbon offsets is not as simple as it sounds. Companies are increasingly recognizing the unregulated nature of the carbon offset market in their quest to reduce their carbon footprint. Unlike regulated markets, the voluntary carbon offset market lacks a standard emission reduction requirement or established criteria for viable projects.
A quick survey of the voluntary carbon markets reveals a wide array of projects on offer, ranging from renewable energy and carbon sequestration to forest management, biogas, and water quality initiatives. Some projects appear to be increasingly disconnected from actual greenhouse gas emission reductions, creating a Wild West of Carbon Credits.
In technical terms, carbon credits are government-issued allowances that can be traded under specific conditions. However, participation is limited to entities in regions with Emissions Trading Schemes (ETS). With only California having a state-administered carbon trading program in the US, there is a growing demand for companies to address their greenhouse gas emissions without a formal market to meet this demand. This is where carbon offsets come into play.
Carbon offsets are essentially carbon credits traded in the voluntary market, allowing companies to offset the carbon they produce by investing in carbon reduction projects. These offsets operate outside government regulation, representing a market-driven response to a new demand. The lack of a government regulator raises questions about who verifies carbon credits and determines carbon prices in this evolving market.
Verification in the carbon offset market is crucial to ensure consumers receive value for their investments. Third-party verification plays a significant role in guaranteeing the legitimacy of carbon credits through a rigorous process that involves project developers, monitoring data, and relevant documentation. Once verified, these carbon credits can be traded on the market.
When it comes to purchasing carbon offsets, consumers have the option to buy individual offsets or opt for a portfolio approach from companies like Native, which bundle offsets from various projects. This diversification strategy aims to balance the effectiveness of different projects in reducing CO2 emissions.
The carbon offset market presents an opportunity for companies to establish themselves as leading verification providers, positioning themselves for long-term success. Demonstrating clear GHG emission reductions and sustainable development benefits will attract investors and drive sales of carbon offsets. Companies like Verra are focusing on providing reliable carbon standards and internal verification services to stand out in this competitive market.
