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 Sequestration?
Carbon sequestration refers to the process of capturing and storing atmospheric carbon dioxide (CO2) in a different form. This process is essential in mitigating global greenhouse gas levels and thus plays a critical role in combating climate change. Carbon sequestration can occur both naturally and through artificial means.
Types of Carbon Sequestration:
- Natural Carbon Sequestration: This process happens through biological activities, such as photosynthesis in forests, where trees and plants absorb CO2 and store it as biomass. Oceans also play a significant role in natural sequestration, absorbing CO2 from the atmosphere.
- Artificial or Technological Carbon Sequestration: This involves human-engineered solutions to capture and store carbon. Techniques include carbon capture and storage (CCS), where CO2 emissions from industrial processes are captured and stored underground, and direct air capture (DAC), a technology that extracts CO2 directly from the atmosphere.
Importance of Carbon Sequestration:
- Carbon sequestration acts as a fundamental mechanism in efforts to mitigate the effects of climate change by reducing the amount of CO2 in the atmosphere and storing it for a number of years.
- Natural methods of carbon sequestration support biodiversity and provide valuable ecosystem services like clean air and water.
- In artificial sequestration, technological advancements are expanding the potential for significant carbon capture and long-term storage, offering new solutions to help curb climate challenges in the long run.
Challenges in Carbon Sequestration:
- Artificial sequestration methods, such as Enhanced Rock Weathering and Direct Air Capture, face challenges regarding high costs, energy requirements, and scalability.
- There are concerns around the sustainability and environmental impact of certain sequestration methods, particularly those involving large-scale land use or ecosystem alterations.