There’s a problem of scarcity in the voluntary carbon market. Viridios Group CEO Eddie Listorti says that while transactions in the market quadrupled from 2020 to 2021, it still falls well short of what’s needed to adequately impact climate change.
To reach the ambitious global climate change initiatives, between 10 gigatons and 13 gigatons per year of emissions must be removed through 2050. The voluntary carbon market can’t achieve this alone, though a trusted market can undoubtedly play a vital role in steering investments to various emission reduction programs.
First, though, the voluntary carbon market must overcome the widespread mistrust that has built up in recent years. Restoring this trust in the market is essential and of an urgent nature. Here are some ways that can be done.
Reduce Cost and Time
The capital and time requirements of developments largely constrain carbon credits. Projects typically don’t even begin issuing carbon credits for two or three years, which could stretch out longer for any solution that’s nature-based.
Expenses for bringing these credits to market can total between 20% and 30% of the total revenue the credit will produce. These expenses include fees for reporting, verifying and monitoring the credits.
One important way to build a trusted voluntary carbon market is to reduce the associated cost and time significantly. Recently, some projects offered upfront capital for projects, which is a great step in that direction.
The supply of carbon credits is very heterogeneous. Removal and reduction of carbon emissions can come from many different types of projects, all of which have varying levels of externalities, co-benefits and risks.
A trusted voluntary carbon market must support all of this differentiation, including not only removing carbon but protecting natural carbon sinks.
Not only will a differentiated carbon market give buyers a diverse selection to choose from, but it also provides incentives for projects that are high quality to continue to scale up.
Differentiation should include not just the quality or risks associated with a carbon credit but its externalities beyond the impact of the emissions. This could consist of whether it promotes the quality of water or help to conserve biodiversity.
Transparency is vital today in any sector, but especially so in the voluntary carbon market. Eddie Listorti says the carbon market has suffered from a lack of trust primarily because it hasn’t been transparent.
The market has tried to respond to negative publicity by creating new or strengthening current standards. What’s really needed, though, is a platform with data requirements forcing full transparency of the supply of carbon credits.
The platform in question needs to provide complete visibility of all transactions and attributes of carbon credits but also must empower communities and developers to develop the projects more cost-effectively and efficiently.
To build a voluntary carbon market that people can trust, it must include transparency.
About Eddie Listorti
Eddie Listorti is the Founding Partner and CEO of Viridios Group. He has a proven track record with 30 years in business and banking. His experience includes managing teams of over 2,000 people and annual revenues exceeding AUD 2 billion. Mr Listorti has held board positions in industry bodies and joint venture partnerships.