Companies across the globe are racing to meet climate change targets. Their solution? Carbon credits, which have topped $748 million this year. If demand continues, carbon credits may even reach $1 billion by the year’s end.
If you aren’t familiar with the carbon credit industry, here’s how it works:
Credits are purchased through the carbon marketplace. One credit equals one ton of carbon offset through an environmental project.
The most active offset buyers are within the energy, consumer goods, finance, and insurance. Investors have increased speculative buying from those looking to profit from trading offsets as well.
Right now, offsets from forestry and land use are the most popular. Renewable energy is at a close second.
Carbon credits are a win for companies, and individuals, who can use these credits to offset their emissions. They also benefit those completing these projects, such as farmers in underdeveloped regions.
Some skeptics feel the carbon market doesn’t deliver what it promises. They are concerned about the lack of regulation and oversight. The former Governor of the Bank of England, Mark Carney, recognizes this and is working on designing new rules that can improve the system.
Other critics say that some offset projects, such as those focused on renewable energy, are unnecessary. Governments and companies worldwide are switching to cleaner forms of power even without the credit industry, which is why two market programs have stopped offering them.
While it is fair to say that some reforms to the system are necessary, renewable energy is still an integral part. The more investments being made into it, the better. Plus, the verification process is not a free-for-all. Procedures are in place to ensure that the market is accurate. And, with interest booming, operations will only get better.
The call to meet ESG demands is loud and clear. With the world seeking to reach carbon neutrality and net-zero emissions, it’s no wonder that interest in carbon offsets continues to grow.