The increase in emissions of greenhouse gasses has resulted in the depletion of the ozone layer to a great extent. This has led the government to pressurize the private sector to limit the emission of greenhouse gasses. Companies are therefore turning towards a financial product to balance their environmental footprints. This product is known as carbon credits.
Though we have curated this comprehensive guide for people who are not clear about the concept, today, we will understand what carbon credit is and how it matters to businesses.
What is Carbon Credit?
A carbon credit is a permit representing 1 ton of carbon dioxide being removed from the atmosphere. An individual or a company can either purchase such credits. Usually, companies purchase them to make up for the carbon dioxide they have been releasing into the air. Carbon dioxide comes from vehicles, industrial productions, and traveling as well.
Such credits are usually developed using forestry or agricultural practices. Though, any project can make a credit if it destroys, reduces, avoids, or captures emissions. If you are looking to offset the carbon emission of your end to the environment, you can buy those credits either from an intermediary or the ones who are directly capturing the carbon. You can contact a carbon project advisory to understand how you can manage and offset your carbon emission.
When we talk about a farmer who plants trees, the landowners get money for lending their land to the farmer, and the company pays to offset their carbon emission, and if there is a middleman involved, they earn profit along the way. However, it only goes for a market known as the voluntary market.
Let us now dive into the meaning of the voluntary carbon market.
What is the Voluntary Carbon Market?
The voluntary carbon market is a market that allows governments, private investors, businesses, and non-governmental organizations to buy carbon credits voluntarily. As stated above, they buy carbon credits to offset their footprint on the environment that is otherwise caused due to carbon emissions.
The largest category of carbon credit buyers is the private firms that buy such credits either for resale or as an investment. It often happens that a company cannot restrict its carbon emission. In such a scenario, they can buy carbon offsets from some verified buyers so that their carbon footprint gets reduced.
The revenue collected from the sale of such credits is further used to finance the carbon reduction project.
The Participants of The Voluntary Carbon Market
When it comes to the voluntary carbon market, you will be amazed to know that it has numerous participants. The major participants of this market are those who buy credits from offset providers. Such providers are both international and domestic. Different suppliers are into supplying different suppliers, like colleges, universities, government and non-government organizations, and the verifiers and developers of the quality assurance programs. A Carbon consultant helps such organizations achieve their goals of offsetting carbon emissions.
What is Carbon Offset?
We have been talking about carbon offset for some time now. If you are not sure about this concept, you must be confused about what it is. Let us go over the concept in detail for you to have an idea of what it is and how companies can be a part of the same.
Carbon offset refers to the units that a firm earns and that have projects implemented to reduce greenhouse gasses. Government authority or a board issues them, and one offset credit is given to reduce one ton of greenhouse gas. They can either store it, reduce it or avoid it, as per their preferences. The offset can then be further sold to an NGO, the government, or an investor to offset their emission. They can also use it for investment purposes.
Generally, carbon offsets are being measured in tons. Greenhouse gasses released by companies or individuals are the carbon emission done. Such gasses are harmful to humans and nature. It contains several toxic gasses, including nitrous oxide, carbon dioxide, hydrofluorocarbons, methane, perfluorocarbons, etc.
There are several different kinds of carbon offsetting available in the market. Some of them are listed below to have an idea of how it is being done.
- Capturing the greenhouse gasses emitted. They then either destroy it or use it.
- Capturing and storing the gasses emitted for future use.
- Reducing the number of greenhouse gasses emitted reduces the amount of fuel used or the electricity employed to perform various tasks.
- Reduction of carbon emissions while shifting from fossil fuels to renewable sources of energy. This energy can either be wind or solar energy.
Now that we know what carbon offset is and what the voluntary carbon market does, it is critical to have one. With the increase in emission of greenhouse gasses, protecting the environment is critical to make sure we preserve it for our future generations.
Why Are Voluntary Carbon Offset Markets Important?
Now that we know what a voluntary carbon market is and what it does for our environment, it’s time to know its importance. Such markets are known to be the best solutions to environmental problems. We all know that there is a huge impact of climate change worldwide, and voluntary carbon markets effectively help protect the environment.
Besides just protecting the environment, carbon offset markets offer several other benefits. They include;
- Functions Harmoniously With The Compliance Market
One of the benefits of the voluntary carbon market is that it operates in harmony with the compliance market. The carbon market also complements the regulatory market by offering avenues for projects not achieved in the domestic regulatory market. Furthermore, it enables other entities like the NGOs, government, and private companies to integrate projects which require traveling that extra mile to achieve what is not otherwise achieved in the compliance market.
- Acts as a Source of Innovation and Experimentation
Carbon markets are a source of experiments done with new technologies and other similar systems. It is because they lack the oversight, regulation, and bureaucracy present in the regulated market. This provides project developers with the freedom to feasibly implement either not viable or small projects for the compliance market.
While doing so, the developers also have the freedom to design some prototype technologies that are otherwise implemented in regulated markets.
- Enables The Number of Participants To Expand
The voluntary carbon market enables individuals, private firms, NGOs, and governments to freely gain experience with avoidance, carbon inventories, storage, reductions, and carbon markets. This exposure enables all growing companies to obtain experience with the carbon market even as they get ready to enter the regulated compliance markets.
- Enables A Platform To Engage Corporate Goodwill
Communities and society obtain benefits as a result of the CSR activities of larger companies that are into storage, voluntary reduction, and avoidance of harmful greenhouse gasses. This enables them to have some robust policies on climate change in place. Furthermore, it helps them address the inequalities that the rich and the poor section of society face.
- Allows Significant Reduction in Greenhouse Gas Emission Without Compromising Equity
The voluntary carbon market enables businesses and individuals to offset carbon emissions while addressing the needs of developing countries. Involving some of the poor nations to protect the climate enables them to achieve the goals of reducing carbon emissions. Furthermore, it helps them earn revenues by selling their offsets to the government or NGOs. The revenue is then used to finance the development projects in the communities of poor countries.
All such aspects of the voluntary carbon market have enabled it to soar high. Companies have started to realize that they need to cut off the emission of greenhouse gasses for a habitable, stable, and prosperous world.
There are a few key things that you should know about the voluntary carbon market.
i. Carbon credits are one of the best ways for companies to take action on climate changes now. Though, they cannot substitute the reduction of carbon emissions that companies can do themselves.
ii. Not all carbon credits are good. Some can be dodgy and do more harm than good to the environment.
iii. The voluntary carbon market is slowly gaining clarity in the world. People understand its importance and its benefits to humankind and the environment.
It is the right time to take full advantage of the voluntary carbon markets and the credits. We will lose a critical opportunity to drive a full-scale economic transformation if we miss doing so. We must also protect the communities from the dire impacts that no slow action can guarantee.
The Bottom Line
Voluntary carbon markets are changing for the good of society as a whole. The voluntary carbon markets and carbon credits enable every person to offset their carbon emissions. The rise of emission of greenhouse gasses is impacting majorly, so we need to watch out for the emissions. Contact carbon project advisory to better understand your impact on the environment and get tips on reducing the same.
