The market for carbon credits has absolutely exploded over the past few years. In theory, that is a great thing. There are plenty of renewable energy or carbon abatement projects that may not stack up economically. Their ability to generate and sell carbon credits may be the difference between the project getting off the ground or not. On the other hand, companies may have hard to abate emissions. Carbon credits are a great option for them to offset emissions they cannot otherwise reduce.
That is the theory. In practice, carbon credits have been a forum for greenwashing. Plenty of projects with marginal climate benefits have received credits. And a growing list of companies have ‘achieved’ net zero by buying carbon credits rather than changing their operations to reduce their emissions.
This article from Vox has tracked a carbon credit as it moves around the world as a way to explain many of the pitfalls in today’s carbon market.
“The market for these offsets, which is largely unregulated, could hit $50 billion as soon as 2030 and grow 100-fold by 2050, according to McKinsey.”
Investors have sensed their is money to be made in global carbon markets and have piled in. Everyday investors have been able to invest via ETFs. In Australia, VanEck and GlobalX have launched carbon credit ETFs. In the United States, there are 7 carbon credit ETFs managing just shy of $1 billion according to ETF.com.
But investors should be wary, because there is increasing scrutiny on the carbon market. Earlier this year, German newspaper Die Zeit and the Guardian reported that over 90% of the rainforest carbon credits issued by the world’s largest carbon credit certifier, Verra, had claimed reductions in deforestation that didn’t actually exist. Similarly, the gold standard in carbon credits require “additionallity” – i.e. the project would not have happened but for the money from the carbon credits. As prices for renewable energy falls so sharply, many are questioning whether renewable energy projects continue to meet this standard of “additionallity”
“The ease and affordability with which carbon credits can now be bought can feel out of step with the urgency of climate change, and in the last couple years, concerns have been mounting that offsetting is little more than a sugar hit for the conscience.”
All of this is to say, change is likely coming to the carbon credit market. And for those of us wanting to see more urgent action on climate and interested in the investing opportunities that may arise from a fast-decarbonising world, the changes in the carbon credit market are worth paying attention to.
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