Less superficial than almost anything we've seen addressed to a general audience.
After many, many years of looking at this stuff, our preferred approach to pricing carbon dioxide in the U.S. is a tax on emitting sources, (to raise the price of carbon intensive activities) combined with a 100% rebate of the funds raised on a per capita basis. This would have the big-picture effect of transferring some income from the private-jet-set to people who don't use as many carbon intensive resources and the smaller-picture effect of pushing economy-wide substitutions for various industries. One example is the steel industry where at some price-point on carbon so-called "green steel" produced using hydrogen becomes viable.
As Senator Obama said:
—Presidential candidate, Senator Barack Obama,
The issue that must be kept in mind is that the entire exercise of the energy transition is to raise the cost of things deemed "bad" to change behavior toward things which are deemed as "good."
And cushion the blow of higher prices on those least able to afford them.
The per capita rebate helps to ameliorate some of the cost impacts on people who use fewer carbon-emitting resources.
Perhaps just as importantly the rebate would keep the money out of the hands of politicians who have never met a potential revenue stream—except perhaps taxing Harvard's endowment income—that they didn't love and couldn't co-opt to fund pet projects and pay off their cronies and voters.
The other approaches, mandating winners and losers by executive fiat and trading virtual carbon are much less efficient and lend themselves to much more corruption and fraud.
Here, the HBR looks at the latter approach, December 15:
Summary.
Many companies have begun to look into credits to offset their emissions as a way to support their net zero goals as their target years get closer and closer. As it stands, the carbon credit market is too small to bear the brunt of reducing companies’ impacts on the environment. However, the voluntary carbon market has the potential to drive billions of dollars over the coming decade into climate solutions. Here, the authors offer a primer for leaders to learn about the carbon credit market. What’s the best way to participate in the market? Which types of credits are considered to be the highest quality, and thus carry the least reputational risk? Who are the players when it comes to standards and regulation? The authors answer these questions and outline the characteristics of high-quality carbon creditsIn the absence of government regulations requiring dramatic reductions of greenhouse gas (GHG) emissions that are causing climate change, a growing number of companies are adopting “net zero” targets. More than one third of the world’s 2,000 largest publicly held companies have declared net zero targets according to Net Zero Tracker, a database compiled by a collaboration of academics and nonprofits. These targets typically entail public commitments to reduce GHG emissions through measures such as process modification, product reformulation, fuel switching, shifting to renewable power, investing in carbon removal projects — and a pledge to zero-out their remaining emissions by purchasing carbon offsets, also known as carbon credits. Carbon credits are financial instruments where the buyer pays another company to take some action to reduce its greenhouse gas emissions, and the buyer gets credit for the reduction.
As companies creep closer to their net zero target years, many have already begun purchasing carbon credits. The market for carbon credits is projected to grow 50-fold within a decade, from nearly $2 billion in 2022 to nearly $100 billion by 2030, and as much as $250 billion by 2050, according to Morgan Stanley. But navigating the world of carbon credits creates brand risk because the market remains immature and complex, with wide variation in project types, developers, location, and cost, resulting in unclear quality, transparency, and credibility.
Companies routinely choose to purchase rather than produce goods and services that other companies can create more inexpensively, and this decision doesn’t often attract the attention of activists or the media. Not so for carbon mitigation: Activists are vocal about how companies choose to meet their net-zero goals. Corporate carbon mitigation plans viewed as overly reliant on buying carbon credits rather than making carbon reductions to their own operations and supply chains risk being accused of not being sufficiently serious about decarbonization and seeking to “buy their way out” of meaningfully achieving their goals. In part, this is because the carbon credit market is far too small to accommodate the dramatic carbon reductions necessary to meet companies’ net-zero goals or for the world to reduce GHG emissions by 45% by 2030 and reach net zero by 2050 that the UN claims is necessary to avoid the worst effects of climate change by limiting the global average increase to 1.5 degrees Celsius. Questions about credits’ credibility abound, including whether they deliver on their promise to reduce GHGs, whether any such reductions will endure, and whether the project would have occurred even without the sale of carbon credits. From John Oliver’s claim that “offsets are bullshit” to the Guardian calling some carbon credits purchased by Disney, Gucci, and Shell “largely worthless,” some offsets receive charges of “greenwashing” — environmental performance claims that outstrip reality. That’s hardly the reputation boost firms seek.
Yet, the voluntary carbon market has the potential to drive billions of dollars over the coming decade into climate solutions, creating along the way an estimate of cost-of-carbon in goods and services. What’s the best way to participate in the market when carbon credits claiming to avoid or remove one metric ton of GHG range in price from nearly $2 per ton to $1,800 per ton? Which types of credits are considered to be the highest quality, and thus least likely to lead your company to be named and shamed? Despite the emergence of standards and registries meant to inject confidence in the market, many quality concerns remain. Leaders need guidance to apply due diligence to decisions regarding the carbon credit market.
What projects create carbon credits?
Carbon credits are created from projects that avoid the generation of GHG emissions or that remove GHGs from the atmosphere. These projects include “nature-based solutions,” such as reforestation and regenerative agriculture efforts, and “engineered solutions,” such as combusting methane emitted from landfills to generate electricity and direct air capture.Examples of Carbon Credit Projects
This table illustrates the differences between nature-based and engineered solutions for both carbon emissions avoidance and carbon removal.
Carbon emissions avoidance Carbon removal Nature-Based Solutions
Preservation of forest land to avoid its conversion into farmland
Regenerative agriculture practices that sequester (embed) atmospheric carbon into soils and vegetation
Engineered Solutions
- Carbon capture and storage of GHGs from smokestacks at coal- and natural-gas-fueled power plants and other types of factories
- New solar-and wind-power plants that substitute for fossil fuel electricity
- Combustion of stockpiles of ozone-depleting substances that would otherwise leak into the atmosphere
- Combustion of methane emissions from landfills
Direct air capture of GHGs from the atmosphere with deep-well storage
Some companies focus only on some of these types. Microsoft, for example, invests only in carbon removals. Others create a portfolio across the spectrum, such as Delta’s $137 million investment in carbon credits that include REDD+ (reducing emissions from deforestation and forest degradation) avoidance credits, avoidance credits from solar and wind-power projects, and removal credits including afforestation and carbon capture and storage.
Who are the players?
Unlike with stock exchanges, carbon credits lack widely adopted standards and large centralized marketplaces. This makes it difficult to find, understand, and compare carbon credit projects.Instead, leaders have to navigate a maze of various standards and players with frustratingly overlapping roles. There are numerous carbon credit registries and standards bodies that provide minimum requirements for various project attributes and in some cases list projects that meet their own standards.
- Carbon credit verifiers, also known as validation/verification bodies (VVBs), assess whether projects meet certain standards. They range from global companies to niche players that focus on just one type of project.
- Carbon credit brokers and marketplaces connect buyers with project developers. Some list projects they helped finance and develop, raising the potential for conflicts of interest.
- Carbon credit ratings agencies assess carbon credit projects along various dimensions, including but not limited to the attributes featured in standards. They tend to sell their ratings via a subscription model to prospective credit buyers. These ratings agencies provide much-needed transparency and convey key attributes of the projects they rate.
With so many players and many standards, it’s no wonder companies find it difficult to navigate the landscape. The Voluntary Carbon Markets Integrity Initiative or Oxford Net-Zero Aligned Offsetting Principles provide holistic carbon credit and offsetting principles and are a great place for leaders to start, but even these are updated periodically to keep pace with the changing landscape.
Examples of players in the carbon credit marketplace....
....MUCH MORE
