The transition to a low carbon economy is on every CEO's agenda nowadays. The impacts of climate change and responses to it will transform every business sector in the coming decades. Although Climate change will affect a majority of companies, all will be expected to contribute to its solution.
Nevertheless, it is challenging for most companies to devise and implement a credible decarbonisation strategy. The transition requires new ways of doing business, including new ways of displaying capabilities and resources and new ways of thinking. But despite the challenges, companies around the world are scaling up their decarbonisation commitments.
We can see this trend with the number of companies committing to reducing emissions. More than 2000 companies have confirmed emissions reduction targets under the Science Based Target initiative (SBTi). Additionally, more than 370 have committed to The Climate Pledge, pledging to achieve net zero emissions by mid-century or sooner.
For most companies and investors, carbon credits play a crucial role in their Net-Zero strategy. They allow companies to make earlier and more ambitious commitments. Credits allow companies to reduce their current emissions through offsets, while taking cost-effective steps to reduce future emissions through asset rotation and business model development. In the long term, credits can play an essential role in offsetting difficult-to-avoid emissions from products for which no low- or zero-emission options exist.
The growing interest in recent years is also reflected in the Voluntary Carbon Market (VCM), which organises the pledging and trading of carbon credits. In 2022, the demand for carbon credits is at its peak. Prices have increased by more than 140% since 2021 and forecasts assume that demand for credits will increase 15-fold by 2030, to $50 billion per year.
But the voluntary carbon market has a problem. It cannot cope with demand. Access, which plays a crucial role in the global effort to combat climate change, is often limited to large organisations and is characterised by opaque pricing and market inefficiencies. Furthermore, due to a lack of transparency and credibility, it has faced a number of problems in recent years.
This report examines the key role for on-chain carbon credits as part of net zero strategies and the VCM. It was prepared by senken to help business decision makers identify and understand the best use of credits for their business.
What is Biodiversity?
Biodiversity refers to the variety and density of life in a region, encompassing the diversity of species, ecosystems, and genetic variations. It's a crucial component of Earth's life support systems, integral to ecosystem functioning and resilience.
What are Biodiversity Credits?
Biodiversity credits are market-based instruments designed to incentivise the conservation and restoration of biodiversity. Similar to carbon credits, which target carbon removal and and carbon avoidance/reduction, biodiversity credits focus on improving or maintaining biodiversity levels by funding restoration and conservation efforts.
Creation and Measurement
These credits are created through projects that deliver verifiable conservation outcomes, such as habitat restoration, species protection, or the enhancement of ecosystem services. The impact of these projects is quantified, allowing for the creation of credits representing a specific improvement in biodiversity.
Benefits and Challenges
The system offers a novel way to fund biodiversity projects, encouraging private sector investment in conservation. However, measuring and verifying biodiversity gains presents challenges, especially given the vast differences between different ecosystems. This means that robust methodologies are needed to ensure the credits represent real, additional, and lasting benefits to biodiversity, making biodiversity credits quite complex to implement.
Integration with Carbon Markets
Biodiversity credits can complement carbon credits as a co-benefit by ensuring projects address both climate change and biodiversity loss, promoting a holistic approach to environmental conservation. This integration enhances the ecological value of nature-based carbon credit projects, making them more appealing for companies looking to promote biodiversity as part of their sustainability strategy.
As biodiversity loss continues at an alarming rate, biodiversity credits offer a promising tool to promote and finance conservation efforts worldwide. By valuing the conservation of nature, these credits help bridge the funding gap in biodiversity conservation, aligning economic activities with ecological sustainability.