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 MRV?
MRV stands for Monitoring, Reporting, and Verification. It is one of the cornerstones of environmental management, particularly when it comes to the tracking and managing of greenhouse gas (GHG) emissions and carbon compensation strategies.
Components of MRV:
- Monitoring: Continuously observing and measuring project activities. This includes activities tracking emission levels, resource usage, or the performance of emission reduction projects. Utilises various tools and methods, such as sensors, data collection systems, and field observations.
- Reporting: Systematic documentation and presentation of the monitored information. This can vary in format, from detailed technical reports to simple summaries for public disclosure. This aspect is often required by regulatory bodies and can also be used for transparency and stakeholder communication.
- Verification: The process of independent assessment to confirm the accuracy of reported data. This involves expert review and analysis to ensure data integrity and compliance with standards or regulations. Critical for validating the effectiveness of emissions reduction efforts and maintaining credibility.
What is Digital MRV?
Digital MRV, or dMRV, enhances the traditional MRV process through digital technologies. It incorporates advancements like remote sensing, data analytics, and blockchain to streamline and improve environmental data management.
Advancements in Digital MRV:
- Integration of digital tools for precise, real-time data collection.
- Streamlining the MRV process for enhanced efficiency and reliability.
- Providing more transparent and accessible reporting mechanisms.
- Allows projects to grow at scale.
Challenges with Digital MRV:
- Scaling digital solutions for certain project types and sizes is proving to be quite challenging.
- Certain environmental projects may not be fully amenable to digital monitoring techniques.
- Technological limitations in specific regions or for certain types of projects.
Examples of Digital MRV:
- Satellite Imagery: Satellite imagery captures Earth's surface from orbiting satellites and is crucial for monitoring land cover changes, including deforestation and afforestation. It plays a key role in estimating carbon sequestration potential and verifying carbon offset projects related to forestry and land-use alterations.
- LiDAR: Remote sensing technology utilising laser pulses that is used in carbon credit projects to assess forest canopy height and structure, providing data for estimating carbon sequestration potential, particularly in reforestation and afforestation efforts.
- Bioacoustics: Bioacoustic monitoring involves recording and analysing sounds from living organisms, such as wildlife. In carbon credit applications, it helps assess ecosystem health and biodiversity, offering insights into the impact of conservation and reforestation on wildlife and ecosystem quality.