How does carbon offsetting fit into the wider context of climate change?
What are carbon markets?
Trial runs of similar schemes that fall under the compliance side of the carbon offsetting market have already been implemented in specific regions or for particular industries. For example, in the United States, California has instigated a cap and trade program to help meet state targets for greenhouse gas emissions. In July last year, China launched its scheme to reduce the carbon footprint of over 2000 power plants responsible for 40% of the national carbon dioxide emissions.However, the most established carbon trading network is the European Union emissions trading system. The EU-ETS scheme was established in 2005 to mandate that factories, power plants, and airlines flying within Europe purchase carbon credits for their operations. Designed to incentivize organizations to reduce their emissions, the European Union plans to expand the ETS coverage by 2026 and install carbon taxes at borders.But how are the prices of carbon credits determined?
How does carbon pricing work?
Carbon pricing in the voluntary carbon market
- The Climate, Community, and Biodiversity Standard (CCB)
- The Sustainable Development Verified Impact Standard (SD VISTA)
- The Gold Standard for the Global Goals (GS4GG)
Carbon pricing in the compliance carbon market
What forms of carbon pricing are there?
Carbon taxes
Emissions trading scheme
RBCF
What factors influence the price of a carbon credit?
Methodology
Vintage
Project issuance volume
Verification Standard
Does carbon trading work?
There are still many details to thrash out before the ideas outlined in Article 6 can become a widespread reality. For example, policymakers are yet to decide whether credits earned under an early pilot scheme should carry over into new initiatives or whether regulations were too weak for them to be valid going forward.Participants also need to tackle the potential pitfall of double counting. If both the seller and receiver of carbon credits register these against their emissions targets, it could undermine the entire market. Many of these sticking points will take time to iron out due to their technical nature and the political nuances involved.Customers are becoming increasingly savvy to businesses who are not walking the walk to establish a more eco-friendly future for their enterprise. If carbon markets are not backed by comprehensive reporting and transparency, they will do little to assuage fears that they enable countries and companies to greenwash problematic practices and avoid making real changes to reduce their carbon footprint.Some organizations are leading the fore and shaping a more sustainable path. Thanks to their environmentally friendly focus, these companies are winning lifelong customers by re-evaluating production chains and ditching fossil fuels for green energy sources. After doing this tough work, carbon offsetting can help remediate those last unavoidable emissions, and clients can feel assured that businesses are putting the planet before profits.Despite the possible problems, the Organization for Economic Cooperation and Development has backed carbon pricing as an effective tool for reducing global emissions. According to the OECD, for every $12 increase in the cost of a ton of carbon dioxide, emissions fall by 7%.The main issue is that most carbon pricing is currently too low, and companies and governments are not incentivized to buy the higher-priced carbon credits. While prices are increasing, there is still a way to go till we can hit key climate goals and avoid the worst outcomes of global warming.