Decoding Carbon: Your Guide To The Carbon Credit Market

If you’re an environmentally-conscious traveler with the means to do so, chances are you’ve at least considered a carbon-neutral (or at least reduced emissions) plane ticket through the purchase of carbon credits. Intrigued by the promise of offsetting emissions, you might envision your journey contributing to renewable energy projects and reforestation efforts around the world. 

Whether or not you’ve actually booked that emissions-offset flight, chances are you were momentarily swayed by the promise of an option that eases your environmental conscience. However, the effectiveness of these credits in achieving true carbon neutrality remains complicated and uncertain. 

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What Are Carbon Credits, Anyway?

In the past few decades, the multibillion-dollar voluntary carbon trading industry has been adopted by governments, corporations and nonprofits worldwide as a means of claiming to reduce their environmental footprint and GHGs. But if you’ve ever wondered what that “carbon-neutral” label purchased products mean, well, you’re not alone.

A carbon credit is a metric used to quantify the reduction, removal, or avoidance of one metric ton of carbon dioxide (CO2) emissions—an amount equivalent to a compact SUV. Picture a bustling marketplace where companies engage in the buying and selling of the right to emit a certain amount of CO2. This forms the basis of cap-and-trade systems, where an overarching cap limits total GHG emissions. When businesses surpass their allocated allowances, they can purchase carbon credits generated by external projects. Thus, contributing to a market mechanism that promotes cost-effective, market-driven approach to emission reduction and collective environmental responsibility.

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Quantifying Carbon: The Issues Of The Carbon Market

One of the primary critiques facing carbon credits revolves around the concept of additionality. Essentially, the projects funded by carbon credit purchases—often things like the construction of wind farms or trees planted to offset emissions—must result in emission reductions that would not have occurred without that specific financial incentive. The challenge lies in determining whether an offset project is a direct outcome of the credit or merely a coincidental occurrence. 

This discrepancy has often been called into question by experts,¹ as critics warn of a growing carbon marketplace filled with outdated credits that offer no new carbon benefits to the planet, as the projects in question have long been in operation without the ongoing sales. According to U.K.-based carbon market analyst Trove Research, the market “contains hundreds of millions of tons of poor-quality credits.”

Carbon credit initiatives grapple with challenges such as "leakage," where emissions are only shifted rather than reduced. Like a game of environmental chess, a move to reduce emissions in one sector may inadvertently cause them to rise in another—and on a global scale, this is understandably difficult to keep tabs on. Additionally, there are concerns about the permanence of carbon sequestration projects, as carbon stored in terrestrial forests or kelp may find its way back into the atmosphere over time.

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Carbon Offsetting—With Impact?

Questionable carbon credit quality isn’t just a scam affecting smaller companies or notoriously shady businesses—earlier this year it was revealed that the world’s largest carbon-offsetting firm, the climate strategy unicorn company South Pole—had embroiled high-profile carbon-credit clients in a decade-long reforestry project in Zimbabwe. The Kariba project, which had sold hundreds of million dollars of credits to the likes of Volkswagen, Nestle, and Delta Airlines, was far from achieving the expected outcomes of the project, with much of the funding for the project entirely mismanaged and far less reforested acreage than promised.

Not coincidentally, Kariba was one of the projects included in a recent investigation conducted by The Guardian and researchers from watchdog organization Corporate Accountability. Analyzing the top 50 global emissions offset projects, researchers discovered abysmal results—78% of the projects investigated were categorized as ineffectual in their promised emission cuts, while another 16% looked problematic. Overall, $1.16 billion dollars of carbon credits traded historically from these projects have been classified as likely worthless, while a further $400 million of credits bought and sold had the potential to be junk. 

Although identifying the impact of the carbon market is a monumental task, not every carbon credit sold is entirely bogus. Companies like Pachama, for instance, are introducing new levels of legitimacy into the carbon offsetting realm through technology—leveraging satellite data and artificial intelligence to help companies invest in verified, high-quality carbon credits. 

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Improving The Carbon Market 

With an estimated worth of $2 billion, the carbon market shows engagement and promise—even if it’s fragmented, complex, and quite-often poorly monitored. Despite its problems, there’s no doubt that it’s cultivated a strong public interest given lack of global progress in reducing fossil fuel production and emissions.

But to have any chance of being effective, carbon credits must be tied to new and permanent projects and activities, all of which must lead to emissions cuts that would not have happened otherwise—and don’t cause damage to other parts of our environment.

While technological advances can help the carbon credit market become more verifiable, ultimately, the voluntary market would ultimately benefit from the implementation of an international standardization and guidelines. Although there are numerous international standards available—from Verified Carbon Standard (VCS) to Gold Standard to the Kyoto Protocol’s Clean Development Mechanism—a more unified global approach to carbon credits would yield more accurate results.

To have any chance at creating a genuine dent in our emissions, rigorous monitoring and reporting mechanisms must verify that the emission reductions promised by carbon credit projects are not only genuine but also sustained over time. 

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Charting The Future Of Carbon Credits

While the carbon credit system does have potential for positive impact, the very idea of minimizing emissions in one place making up for emissions elsewhere is still flawed. If implemented correctly, carbon credit systems can be a valuable tool in greater company accountability and sustainable development, but they aren’t directly aiding the real answer to our climate problems—transitioning away from fossil fuels. 

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Check out how you can track your own carbon footprint, and begin the shift away from carbon.