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 a Project Developer?
Project developers in the voluntary carbon market are the entities who orchestrate the projects that actively remove, reduce, or avoid emissions. These projects incentivise environmental initiatives by generating carbon credits, and enable the transfer of funds from developed to developing countries, supporting a unified global approach to climate change mitigation.
Role in Channeling Funds Internationally
- Global Impact of Local Actions: The greenhouse effect is a global phenomenon; greenhouse gases (GHGs) emitted in one region affect the entire planet. Consequently, carbon credits from projects in developing countries have a worldwide impact. By reducing or sequestering GHGs in one location, we contribute to the global effort against climate change.
- Financial Flow Facilitation: Carbon credits provide a means for businesses in developed nations to invest in emission reduction projects in developing countries, channeling funds to where they can make a substantial difference.
- Encouraging International Cooperation: This transfer of funds is encouraged by international bodies like the UNFCCC, aligning with global climate goals. It not only addresses environmental needs but also fosters economic and social development in less affluent regions.
What Does a Project Developer Do?
- Project Design and Execution: Developers conceptualise and implement projects according to international carbon reduction or sequestration standards.
- Management and Compliance: They manage all aspects of the project, ensuring compliance with regulatory frameworks and operational success.
- Verification and Certification: Projects undergo strict verification to generate credible carbon credits, essential for market trust.
- Market Engagement: By selling credits, developers facilitate the transfer of funds and resources from developed to developing countries, supporting global climate action.
What Makes a Good Project Developer?
- Standard Compliance: Adhering to rigorous environmental standards is paramount, especially within the EU’s regulatory landscape.
- Innovation and Effectiveness: Employing advanced technologies and innovative strategies maximises the environmental impact of their projects.
- Socio-Environmental Co-benefits: Projects offering additional benefits like biodiversity conservation and community development are particularly valuable.
- Market Acumen: Understanding the intricacies of the carbon market is crucial for successful project development and international fund transfer.