At the Conference of Parties (COP) 28, world leaders from all corners of the globe met to discuss solutions related to combatting the climate crisis. These negotiations came at a critical time, with the impacts of global warming becoming increasingly evident across our planet – in many cases much sooner than expected. Moreover, while previous pledges like the 2015 Paris Agreement signaled ambitious, multi-national cooperation, recent studies have shown that we are on the wrong side of progress.
Consumers Enter the Equation
Carbon credit and carbon offset trading are emerging as popular solutions at these talks and in boardrooms throughout business hubs. As leaders debate the integration of carbon credit and offset trading into their sustainability agendas, consumer appetite for such options is growing. As a result, corporates are finding ways to tap into the rising sentiment of those eager to join the fight against climate change with their purchasing power.
In fact, a 2022 study from Shopify found that 40% of consumers will pay more for climate-conscious products. And homing in on a specific industry, travel is perhaps one of the largest hotbeds for carbon offsetting opportunities for consumers. Certainly, travel can be a carbon emissions glutton. To combat this, major global airlines, hotel chains and rideshare firms increasingly offer carbon offsets at checkout for flights, hospitality bookings, transportation, and more, with some even tying in loyalty programs to encourage this purchasing behavior.
Before we dive further into the consumer behavior implications, let’s examine how carbon credit and carbon offset trading differ, are similar, and the potential pros and cons to each.
Carbon Credit Trading
In case you wanted a brief refresher, we explored the carbon credit trading landscape in depth in a recent blog. A carbon credit is defined as being equal to one metric ton of greenhouse gas (GHG) that is reduced, sequestered, or avoided by an entity. These credits are traded in marketplaces that broadly come in two varieties: compliance and voluntary.
In compliance carbon credit markets, transactions are pursued so that entities may be in accordance with regulations from governments or stakeholder demands. Many times, a company may need to explore a compliance carbon market to stay in the good graces of their state of incorporation’s environmental laws.
For voluntary markets, the entity is not necessarily trading credits in order to satisfy laws or regulations. That raises an important difference between compliance and voluntary trading: credibility.
A major criticism of voluntary markets is that they often aren’t held to the same standards as compliance markets, and the credits being traded have been found to be far from the environmental promises being touted. Some bodies that certify carbon credits have erred on the side of leniency when issuing certifications, for they know that if they don’t satisfy the entity making the purchase, that entity can simply approach another issuer for a better return.
While carbon credits and their markets hold massive potential for businesses and governments alike to lower their carbon emissions loads, the lack of a unified standards body proves to be a major roadblock to widespread adoption. At present, compliance carbon credit marketplaces are perhaps better equipped to deliver on tangible climate progress.
Carbon Offsets
Carbon offsets are similar to carbon credits, in that they both seek to reduce, sequester or avoid carbon emissions through relevant environmental projects. However, they do differ in a few key areas.
First, carbon offsets, unlike carbon credits, are far more accessible to consumers. While carbon credits are traded by governments and corporations, carbon offsets are available to be directly purchased by consumers. You may have recently seen the option to offset some of the carbon emissions as you checked out during your holiday shopping or flight bookings. While these options are only in their infancy, more companies are seeking to bring the option of climate conscious buying directly to their customers.
Where These Solutions Fit in the COP 28 Talks
Returning now to Dubai, carbon credits and carbon offsets have been top of mind as world leaders grappled with competing climate interests at home and abroad. A centerpiece of these talks were Article 6 of the Paris Climate Agreement, which was ratified in 2015 at COP 21.
Article 6 is especially relevant for emissions-based solutions, given that it includes provisions for nations to collaborate within the carbon marketplace. For example, Article 6.4 established a new United Nations Framework Convention on Climate Change (UNFCCC) mechanism “for the validation, verification and issuance of high-quality carbon credits.”
This, alongside other subsections of Article 6, appear to hold the keys to a more aligned and effective effort for standardizing carbon credit and offsets. At COP 28, nations have sought ways to bring this crucial section to life.
However, much remains unsolved in the wake of the conference. Sticking points included whether reduction should remain a category to achieve carbon credits, and the degree to which countries can implement their own rule-making regarding these transactions.
Looking Ahead Post-COP 28
With the game clock reading triple zeroes at COP 28, the state of affairs in 2024 regarding carbon credits and offsets will persist. Talks are formally earmarked to begin anew next year at COP 29 in Baku, Azerbaijan. However, with an increased consumer drive to join the climate fight, the need for unified standards remains more important than ever.
Corporates will need to remain vigilant with their carbon offset plays, ensuring that the third parties they’ve joined with to facilitate these efforts are vetted and will fulfill stated climate promises. We cannot afford a blunder similar to the voluntary carbon credit space, as a prime period of consumer engagement and passion will be eroded and wasted.
The ingredients for success are within reach. The international community embraces these mechanisms to achieve climate goals, and corporations and their consumers are equally on board. Now comes the time to tie these strings together into meaningful climate progress. Until a unified standards board can bring unilateral, ironclad credibility to carbon credits and offsets, that day will continue to be just out of reach.
