Offsetting emissions is part of the solution to a zero-CO2 world.
Who are the players in the carbon credit market, how big is it, how will it evolve?
The world today emits 42 billion tons of CO2 per year and 2024 will mark yet another record in this regard.
For some years there has been a notable effort underway to reduce them through more virtuous behavior and also through obligations for some economic sectors and therefore certain categories of companies. In fact, around a quarter of global emissions (10 billion tonnes) are regulated by some carbon market (the longest-running, largest and most virtuous is the European ETS) or are subject to carbon taxes. We are therefore talking about mandatory mechanisms that currently generate around 100 billion dollars in revenues / year.
We all hope that this process continues and leads us to a much greater reduction in emissions and above all that it also involves countries that are currently doing very little on the matter (USA, China, India, Gulf countries).
In any case, we will never arrive at a world with zero emissions given that some economic activities will still produce them, even after optimization (think of a cement factory); and this is where the emissions offsetting we are talking about today comes into play.
Offsetting means compensating for a CO2 emission that we have produced through the purchase of a certificate (or carbon credit) that has been generated by a specific project that can be based on the reduction / cancellation of emissions (think of a wind farm that produces clean energy) or on the removal of emissions (a classic example is the planting of new trees that absorb CO2).
Here we are therefore talking about companies, private individuals, investors who voluntarily and without any obligation decide to offset the emissions produced; for example when we buy a plane ticket we are now almost always offered one.
This market is smaller (it offsets around 200 million tonnes of CO2 per year, i.e. 0.5% of those emitted and in 2024 it will be worth around 1 billion dollars in “revenues”), it is still not very standardized (each project that generates carbon credits tends to make a story in itself) and the negotiations take place not on centralized exchanges or platforms, but with direct or intermediated negotiations between brokers between companies interested in buying and project developers who have certificates to sell.
Why are we telling you about it? Because it is a market that has very high potential (estimates speak of the possibility of it multiplying a thousand times) and which will be essential to truly achieve a zero-emission planet, at least as an algebraic sum between emissions produced and compensation.
Today the market suffers due to incorrect behavior in classification (there are both rating agencies and auditors who must “certify” the projects) and in the sale of carbon credits which have led to some scandals in the past (the Verra one is the best known) . Standardization is therefore fundamental in order to arrive at clearer and safer rules. From this point of view, the COP29 underway in Baku seems to have produced an important agreement on the matter, even if implementation will, as always, be the most complicated part.
The projects are mainly located in developing countries as you can see from Sylvera’s depiction.
How can an interested company obtain carbon credits in practice? There are four different modes:
- Select valid projects around the world, then buying the carbon credits that are generated. It is not an easy job to do independently and therefore it is good practice to rely on those who select them professionally (Lifegate is a good partner in Italy for example). The Sella group, for which I work, has followed this method by offsetting the emissions produced starting from 2021.
- Investing directly in a project and then entrusting it to someone for the operational part or managing it yourself. Asset manager Algebris has successfully followed this path in Tanzania.
- Investing in a fund where the money raised is used to finance and manage projects and where instead of receiving dividends you get the carbon credits generated. This innovative method was created by the French asset manager Mirova (Natixis group) specialized in sustainability and impact, through the Climate Fund for Nature fund which sees companies of the caliber of Kering, L’Occitane, CapGemini, UnibailRodamco among its first investors.
- Buy directly on the credit market. This is the method followed by airlines with the Carbon Offsetting and Reduction Scheme (CORSIA), a global carbon offset program that aims to counteract CO2 emissions from international aviation.
We are not facing an easy path, but I am convinced that offsetting is part of the solution for a “net-zero” world.
