Finance & Investment

Charting a Clear Path Forward on Corporate Use of Carbon Credits

It may seem safer to sit on the sidelines, but this bias towards inaction is why we are failing to achieve our climate goals. We cannot let uncertainty prevent action where it counts most — reducing carbon emissions into the atmosphere.

Brand Provided | By Brad Kahn | Published 2 hours ago | About a 6 minute read

Image: Scott Webb

Last month at SB’24 San Diego, ACR organized an interactive workshop with a panel of carbon market experts. 40 corporate leaders participated, 55 percent of whom were focused on climate and sustainability, with sales and executive leaders making up most of the remainder. Through a real-time survey, one thing became clear: Confusion about carbon markets was hindering action.

This post is a response to requests by workshop participants to promote “some direction forward.”

First, a bit of context: Climate change is a time-sensitive issue — one that requires action now, rather than later. Confusion that perpetuates inaction is harmful, as a ton of carbon kept out of the atmosphere today will be more impactful than the same ton reduced next year.

Yet, with so much focus on scope 3 emissions measurement and reporting, insetting, beyond-value-chain mitigation, contribution and compensation claims, and much more, it is understandable that many companies are confused about the path forward.

It may seem safer to sit on the sidelines, but this bias towards inaction is why we are failing to achieve our climate goals. Companies must be biased towards action on all fronts, if only to build a business case and future-proof their operations. At the same time, action is voluntary for many companies — this means there must be pragmatic pathways forward.

One simple way to think about carbon credits is through a “both/and” lens. We need direct decarbonization of supply chains, as well as continued investment in carbon credits to take responsibility for residual emissions. Once a company has done what’s possible to reduce its scope 1, 2 and 3 emissions in a given year, carbon credits offer a way to take responsibility for remaining emissions. Carbon credits finance climate action that would not otherwise happen.

Now, to the three main questions submitted during the workshop:

How can companies evaluate carbon credits and determine which are high quality?

Elements of high-quality carbon credits are widely shared across the market — including additionality, permanence, no double counting and more — all characteristics that align with the US government’s recently published Voluntary Carbon Markets Joint Policy Statement and Principles. There is little debate remaining about what constitutes high-quality credits.

Yet, identifying such credits can be challenging — so, here are a few strategies:

Look for credits from trusted registries that provide information online about the carbon projects, that use science-based methodologies (ideally, peer reviewed) and that have a track record of positive impact.
Look for eligibility in the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) — a global, market-based measure that aims to reduce emissions from international aviation.
Get to know the projects and the project leaders. Ask questions, visit project sites and understand the work being conducted.
Look to market leaders with mature strategies and experience buying carbon credits and communicating publicly about them. While there are many companies buying credits, companies including Meta, Microsoft, Salesforce and Workday have published useful information about their approaches.
Especially for new market entrants, work with a seasoned credit buyer (such as an advisory services company) or join a buyers’ collaborative to learn from experts. 1T.org, We Mean Business Coalition and Nature4Climate offer useful guidance.

What is working for companies now, with respect to carbon credits?

A few principles rise to the surface:

Prioritize direct decarbonization before buying credits
Apply a portfolio approach
Communicate transparently

Following the mitigation hierarchy, the first priority should be to avoid and reduce emissions to the atmosphere — which means emphasizing direct decarbonization. Using carbon credits to take responsibility for residual emissions should happen after a company sets its climate strategy and reduces its direct emissions to the extent possible on an annual basis — not as a substitute for doing so. When buying credits, projects that reduce emissions should be prioritized over those that remove emissions — although companies may reasonably decide to invest in both, given the long development times associated with many removals projects and technologies.

Just like investing in stocks and bonds, building a diverse portfolio of carbon credits can help mitigate risk and balance benefits. Some carbon projects keep potent greenhouse gases — such as refrigerants and methane — out of the atmosphere immediately, while others — such as afforestation and reforestation — may take longer to reduce and remove emissions. A diverse portfolio avoids putting all your eggs in one basket.

When it comes to communicating about carbon credit use, companies may decide less is more. Yet across the market, this approach has a chilling effect — as it gives a false impression about actual market dynamics. Instead, companies should lean on transparency regarding their climate strategy and targets, emissions reductions and credits used. More and more companies are communicating about their use of carbon credits to achieve their climate goals — including REI, the Monterey Bay Aquarium, Duke University and A-Basin.

One size does not fit all. What’s important is to get started, see what works and learn from experience.

What needs to be done to scale the carbon market?

Underneath this question is likely an assumption that we are focused on the voluntary carbon market. Compliance markets continue to grow as countries, states and other jurisdictions implement new policies. But currently, only approximately 25 percent of global emissions are covered by compliance markets. The majority of emissions rely on voluntary markets for action, as there is currently no legal requirement to reduce them.

For the voluntary market to scale, we need confidence in the quality of credits and increased demand from credit buyers. Confidence is increasing now, as many important initiatives are converging on a shared definition of “quality.” Across civil society, governmental bodies and private organizations, definitions of “high integrity” are now widely shared and integrated into carbon markets.

On the demand side, the most impactful action is putting a price on carbon emissions. Nothing incentivizes action as efficiently or effectively. But since such an action is likely to require substantial internal deliberation, the second most important action to scale markets is for companies to continue buying carbon credits.

Using the suggestions above, buy and retire credits. Learn from the experience and evaluate your next steps. Even buying a small number of credits effectively puts a shadow price on your emissions, stoking an internal conversation and turning your organization toward action. By buying and retiring credits, you can support meaningful impact today and prepare your company for the future.

We must act today to improve measurement, reporting, verification and claims. We cannot let uncertainty be an excuse for inaction where it counts most — reducing carbon emissions into the atmosphere.

Brad Kahn

Director of Communications
ACR at Winrock International

Brad Kahn is communications director of ACR — a carbon crediting program that was the world’s first private greenhouse gas registry when it was founded in 1996.

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