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 the IPCC?
The Intergovernmental Panel on Climate Change (IPCC) is a United Nations body, established to assess scientific information on climate change. It makes use of existing research to inform global climate policies, but does not carry out its own research. The IPCC includes 195 member countries and thousands of volunteer scientists, ensuring diverse and comprehensive global perspectives.
Its focus is split into three key segments:
Physical science basis
Impacts and adaptation
IPCC 1.5°C Pathway
The IPCC's Special Report on Global Warming of 1.5°C highlights the need for significant reductions in greenhouse gas (GHG) emissions to limit global warming to 1.5°C above pre-industrial levels. The report emphasises the urgent need for drastic changes across all sectors of society.
The IPCC produces Assessment Reports, Special Reports, and Methodology Reports, providing comprehensive insights into climate change and its impacts. These reports are key inputs into international climate discussions, including the United Nations Framework Convention on Climate Change (UNFCCC) negotiations. Sustainability leaders are highly encouraged to remain up to date with the IPCC’s latest reports to ensure they are aware of the latest climate information.