Carbon financing: leveraging capitalism to fight Climate Change
Over the last decade, environmental protection has gone from a niche to mainstream. Today, governments, institutions and corporations can no longer ignore or pretend to care without a backlash from its citizens, stakeholders, employees or clients. The world has waken up to the realization that growth cannot antagonize the future of our children, but they must work hand in hand.
The Kyoto Protocol set up the basis for international carbon markets through the establishment of the CDM standard, under the IPCCC of the United Nations. For over ten years, numerous projects have been created around the world that 'offset' emissions created elsewhere, with the main goal of increasing the efficiency of capital allocation when it comes to reducing carbon emissions. Unfortunately, many of these projects are tainted by suspicion, lack of trust, or even fraud. A recent EU study claimed only 2% of CDM projects were actually 'additional', meaning that without the funding from its offsets, they wouldn't have happened. That means that a staggering 98% of CDM projects are not additional!
As a consequence of the above, several organizations worldwide came up with more strict and robust standards for those wishing to purchase offset which set the bar higher. Standards like the Voluntary Carbon Standard (VCS), or the Gold Standard, are internationally recognized as the highest authorities when it comes to development of project methodologies that are additional, strict verification and validation processes through third-party organizations, etc.
"Reduce what you can, offset what you can't" - CarbonFund.org
The carbon markets have seen an impressive rebound in the last couple of years, growing to a staggering 144Bn Euros in 2018 according to Refinitiv. Article 6 of the Paris Agreement, expected to be finalized in Madrid during COP25 this month, should set up the framework which will define the future of carbon offsets/credits and how these can contribute to the Nationally Determined Contributions (NDCs). To top it off, IATA is marching ahead with CORSIA, an agreement which will see airlines purchasing over $40Bn worth of offsets from the key standards over the next 15 years. All in all, the carbon markets are growing in size and importance to meet the goals set by the Paris Agreement.
Surprisingly, offset projects are little known in the construction or transportation sectors. While in the power generation, carbon credits have been produced and sold for over 20 years, these sectors have seen only a handful of small projects being developed around the world. This, considering the fact that buildings and transportation and the two sectors which generate the highest carbon emissions worldwide, should be quite telling.
It is time to start leveraging the strong carbon markets to accelerate the transition towards low-carbon construction/transportation. At SCIUS, we work to develop the mechanisms needed by these industries to reward 'good behaviour', ensuring that responsible organizations who work towards a low-carbon future are set ahead of their competition by leveraging carbon financing.
The time to act, and to bring the construction and transportation sectors on par with power generation and others when it comes to benefitting from carbon financing is now.