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Carbon credits, explained

Are carbon credits the right move for your company?

Canopy Team
June 4, 2024

Over the last several years, countries from all over the world have come together and forged commitments to reach net zero emissions and stay under 1.5 degrees warming. Following their lead, major corporations have also committed to reducing their emissions, often releasing with great fanfare their commitments to reach net zero. 

But ambitious as these agreements are, they’re not enough. To actually solve the carbon problem, we not only need to stop all future GHG emissions–we also need to “drain the bathtub.” In layman’s terms: we need to get rid of existing carbon in the atmosphere to the tune of 10-20% of global emissions annually. This requires getting past net zero and all the way to negative emissions. 

Corporations who want to do right by their commitments are working to reduce their current emissions, but many are also seeking to offset past and current emissions through something called the Voluntary Carbon Market, or VCB. This has caused the market to spike. At face value this seems like a good thing. But the truth is more complicated. The market is dogged with a lack of transparency, mixed vetting protocols, and a dearth of projects that actually remove—rather than just offset—carbon emissions.

We broke down the Voluntary Carbon Market–its promises and its pitfalls, so you don’t have to. (Admittedly, this stuff is our jam, anyway!) 

What is the Voluntary Carbon Market?

  • To get to net zero, corporations first need to add up their total emissions and create a reduction plan. 
  • To do this, they look at three streams of emissions: first, the direct emissions from their operations; second, their indirect emissions from things like electricity and cooling; and third, the up- and downstream emissions from all their business activities. 
  • Businesses can directly intervene to reduce their direct and indirect emissions, but very few can get to zero on their own. 
  • Enter offsets: a way to avoid, reduce, or remove GHG emissions by purchasing credits from activities that compensate in some way for emissions. 
  • The Voluntary Carbon Market is a place to buy any or all of the available credits representing all the available offset activities.

If a corporation were planning to emit one ton of carbon dioxide into the atmosphere, they might purchase an offset from a vendor promising to reforest an equivalent area of land through a registry. Alternatively, they could invest in direct carbon removal technologies that remove – rather than avoid – carbon. Both of these activities fall under the umbrella of carbon credits, and are significant in forging a path for companies looking to hit their net zero emissions commitments.

Pros of Carbon Credits

Currently, there is no way for most companies to achieve net zero without carbon offsets or removal, let alone reach the mandatory carbon negative status required to stay within 1.5 degrees warming. Carbon credits are a fluid, customizable way that each company can reach their carbon goals while ostensibly supporting positive projects around the world and accounting for existing carbon in the atmosphere.

Cons of Carbon Credits

Currently, the carbon credit landscape smacks of the Wild West. There is no central way for vetting, valuing or distributing carbon credits, creating an uneven system that struggles to gain the public’s trust – or worse, reduces emissions in name only. Only 3% of current carbon credit projects actually remove carbon from the atmosphere. The rest often only move the problem elsewhere, or support projects that would have occurred regardless, leaving the same amount of carbon (or more) in the atmosphere.

Additionally, many companies commit to buying the cheapest credit options, which often represent poor-quality projects. Others may or may not represent quality projects, but the vetting is so complicated and unregulated that it’s hard to say one way or another. Carbon offsets often distract a company from real cuts they could make to their daily operations, punting real emissions problems laterally or down the road. 

Positive Steps Forward

As the fight against climate change becomes more urgent and public pressure mounts, there is a growing need for organizations and strategies that help companies prevent emissions. The good news is that a spate of nonprofits and market-based strategies are stepping in to fill the gap. New registries and technologies are cropping up to vet, evaluate and track credits—and others exist to improve their quality.

Corporations like Microsoft and Stripe have committed real dollars to buying quality – rather than quantity – offsets. Product managers and brokers are helping to differentiate good projects from bad investments. And in a historic win for the climate, a recent SEC ruling promises to make corporations incorporate their climate impacts into their financial worth.

In the meantime, companies committed to climate investment should be looking to proactively reduce as many of their carbon-emitting activities as possible, and then supplement with large investments in smartly-sourced, high-quality credits that seek to remove, rather than merely offset, carbon emissions. But that’s just the beginning. The most effective and carbon-friendly companies will be the ones that work from both the top down and the bottom up, reducing their emissions while inspiring – and helping – their employees to do the same. Combining individual action with an overarching strategy doubles a company’s impact – a true win-win for climate. 

Our model at Canopy was created to help companies do just that: prevent carbon emissions, rather than merely offset them. This is a crucial, but neglected, aspect of battling climate change that makes partners out of individual energy consumers and their employers. The voluntary carbon market shows some promise. But in order to meet the need for urgent change, we need more than offsetting. The Canopy model is a creative, actionable way to supplement offsets and actually reduce emissions.

Who Are We

At Canopy, we help people and companies move from inaction to climate action through simple but sizable collective shifts. Instead of leaving you or your company to your own devices, we help you and your employees calculate your emissions and create simple, effective, sustainable, and affordable ways to draw down emissions…at home and at work. In short, we’re here to help you level-up your goals to bring down your bills and CO2. We’re here to help you win.

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