By Ana Haurie, Respira founder and CEO
The Voluntary Carbon Market (VCM) is at an inflection point. The sector has seen rapid growth in recent years, but this has been driven by a relatively small cohort of large corporates. If you’re close to the market you know that it is the same players, time and again, who are investing in credits. If the market is to grow at the rate it needs to make a significant impact on the climate crisis – it needs to attract new entrants.
The typical business that invests in the VCM has thought long and hard about its impact on the climate, and carbon credits are one aspect of a carbon reduction programme: there to compensate for emissions while they transition to net zero carbon. Yet a myth persists that carbon credits provide businesses with ‘a license to pollute’ and that those investing in credits are doing so as an alternative to cutting emissions. Certainly, relying exclusively on carbon credits is not going to solve our climate crisis, and we shouldn’t view them as the sole answer to the complex challenges that we face. But at the same time, it is unproductive to dismiss this market altogether – a harmful stance that overlooks, and even potentially thwarts, the important role that credits will need to play in reducing residual emissions on the pathway to net zero.
These negative narratives deter new entrants to the market, undermining a sector that has a critical role to play in the climate crisis. Thankfully, new research provides a direct rebuttal to these claims.
Carbon credits supplement and enhance decarbonisation efforts
A recent report from Trove Research directly contradicts the argument that businesses purchase carbon credits in place of cutting their own emissions. It instead uncovers that companies that use carbon credits decarbonise twice as quickly as those that do not. The study looked at companies’ median annual reduction in emissions over a period of 6 years (2017-2022) and found that material users of credits reduced their emissions by 6% per annum, while those that did not use credits reduced emissions by only 3% per annum. As Guy Turner, founder and CEO of Trove Research, stated – “these findings refute the assertion that companies voluntarily buying carbon credits are creating a ‘license to pollute’”. The research debunks the assumption that those investing in carbon credits are merely compensating for their emissions rather than actively reducing them, with evidence strongly suggesting that the voluntary carbon market is in fact successfully incentivising companies to reduce their emissions.
The effectiveness of the VCM is in part due to the major role that financial incentives play in encouraging corporations to take significant action. Companies that voluntarily attach a price to their emissions through credit purchase create a motive to reduce costs and therefore reduce emissions. It is not merely about compensating for their pollution – or ‘offsetting’ – but about developing a long-term plan to reduce their overall greenhouse gas emissions.
Identifying the right investments
One of the barriers to companies entering the VCM is understanding and assessing the range of carbon credits available, and potential investors should be aware of their varying effectiveness.
One tonne from Project A does always not equal one tonne from Project B. As the Trove report found, those that purchase higher-integrity and higher-priced credits are, on average, reducing their emissions more quickly than those using lower-integrity and lower-priced credits.
An important factor here is to consider what kind of carbon project to invest in. Nature-based solutions, particularly high-quality REDD+ projects, are one of the most effective ways to reduce emissions. Not only are they accessible and readily-available now – allowing for immediate action against climate change – but they can provide up to one third of the emission reductions required by 2030. Although we will also need technological solutions to mitigate global warming, many of these solutions are either still in development or not yet ready for widespread use – making nature-based solutions even more valuable as tools we can utilise now.
The power of forest conservation
The IPCC (Intergovernmental Panel on Climate Change) found that preventing deforestation ranks just after solar energy in terms of its potential to reduce emissions. But forest conservation carbon projects do much more than just cut emissions, they have the added benefit of driving investment from the Global North to the Global South, protecting ecosystems, and promoting biodiversity.
The Gola Rainforest Conservation Project in Sierra Leone, for instance, not only protects 70,000 hectares of tropical forest, reducing emissions by around 500,000 tonnes of CO2 per year, it protects 60 threatened species and benefits 24,000 people across 122 different communities by creating jobs and funding education and training.
Our environment and climate are in a state of crisis, and supporting our forests – nature’s own carbon sink – is one of the most effective and steps that companies can take to make a difference on emissions now.
The global business community needs to look again at the evidence for investment in carbon credits and shake-off preconceptions about a market that can make immediate and significant inroads on emissions.
Respira is an impact-driven carbon finance business that buys high-quality carbon credits from first-rate projects, allowing corporations and financial institutions to reduce their environmental impact. With 30 years of finance experience, CEO Ana Haurie built the Respira team as part of her ambition to help the voluntary carbon market scale and better fund nature-based solutions, while ensuring this is done with transparency and credibility.