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 Carbon Removal?
Carbon removal involves strategies and methods that actively extract carbon dioxide (CO2) and other greenhouse gases (GHGs) from the atmosphere. This process is crucial in the fight against climate change and has been recognised by scientific bodies and frameworks like the IPCC and SBTi as essential for meeting Net Zero goals.
Benefits of Carbon Removal:
Direct Impact by physically removing CO2 from the atmosphere.
Supported by scientific bodies as essential for achieving net zero emissions.
Provides a sustainable, long term solution for atmospheric CO2 reduction.
Downsides to Carbon Removal:
Tech-based removal projects don’t offer many co-benefits
Scaling these solutions to a meaningful level is a significant challenge.
Carbon removal projects can be quite expensive when using new technological solutions.
CommonTypes of Removal Projects:
Direct Air Capture and Storage
Reforestation and Afforestation
Enhanced Rock Weathering
What is Carbon Avoidance?
Carbon avoidance involves actions that prevent the release of Carbon Dioxide (CO2) and Greenhouse Gases (GHGs) into the atmosphere, reducing future emissions.
Benefits of Carbon Avoidance
Immediate impact by reducing or preventing further emissions.
Diverse Solutions ranging from renewable energy projects to sustainable forestry.
Downsides to Carbon Avoidance
Critics have raised concerns around whether avoidance projects provide additional environmental benefits.
Avoidance projects cannot neutralise existing emissions, making them limited in achieving Net Zero targets.
CommonTypes of Avoidance Projects:
Renewable Energy (Wind, Solar, Hydro)
Sustainable Forestry Practices
Methane Capture Technologies
Conservation & Biodiversity
What is the Difference Between Carbon Removal and Avoidance?
There are some key differences between carbon removal and carbon avoidance that give each type of project distinct advantages and disadvantages.
Carbon removal directly removes existing CO2, which is essential for counteracting human impact on global emissions in the short run. On the other hand, carbon avoidance prevents future emissions, which helps to mitigate future impact.
Since carbon removal projects actively take CO2 and GHGs out of the atmosphere, they can be counted towards Net Zero goals. Contrastingly, avoidance projects cannot be counted towards Net Zero goals, since they don’t actively contribute towards removing excess CO2 and GHGs.
Considerations for Net Zero
Importance of Removals: Removals are essential for achieving Net Zero, as recognised by the SBTi, IPCC, and the Oxford Principles.
Balancing Strategies: A combination of both avoidance and removal strategies is crucial for a comprehensive approach to climate change.
Quality and Verification: Ensuring the integrity of both avoidance and removal projects is essential, focusing on the additionality and long-term effectiveness of these projects.
Support for Innovation: Continued investment in innovative removal technologies is key to advancing climate solutions.