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 Net Zero?
A company is considered to have reached Net Zero when the amount of carbon dioxide (CO2) or greenhouse gases (GHGs) it emits is neutralised by an equivalent amount that is being removed. This balance can be achieved by combining efforts to reduce or avoid direct emissions, and neutralising the remaining emissions by investing in carbon removal projects. Carbon neutrality generally focuses on CO2 emissions specifically, but it can also encompass other GHGs.
PAS 2060: British Standards Institution's specifications for carbon neutrality.
ISO 14064: International standard for quantifying and reporting GHG emissions and removals.
No global regulation currently enforces carbon neutrality.
The Spectrum of Climate Commitments
Climate Neutrality: The initial step involving offsetting current emissions for all GHGs.
Net Zero: A significant reduction in emissions across the entire value chain, with remaining emissions neutralised through carbon removals.
Climate Positive: Beyond Net Zero, aiming to remove more greenhouse gases than emitted.
A company achieves Net Zero when its greenhouse gas (GHG) emissions are balanced by an equivalent amount removed. Unlike carbon neutrality, which focuses on offsetting CO2 emissions specifically, Net Zero emphasises reducing all greenhouse gases and is a more ambitious and comprehensive approach.
Large Companies with Targets
Several large companies have set carbon neutrality targets, signalling their commitment to sustainability. For instance: