Carbon Credit Markets Are Failing Us. Here’s Why.

Carbon credit markets were designed to help the world decarbonize. But they’re broken. Here’s how we fix them.

Carbon markets play an important role in our path toward decarbonization.

Transitioning to carbon neutrality is going to take time. Time for technologies to advance. Time for us to adjust our lifestyles. Time for companies and households alike to make changes.

Carbon markets are a market-driven initiative to reduce carbon emissions. But they are not working. And there are a number of reasons why. First off, let’s start by defining what carbon markets are and how they work.

1. What are carbon markets?

Carbon markets involve carbon emissions trading. They work in the following ways:

a. A maximum quantity of carbon emissions is applied to all participants in the market, and a subsequent price is formed on carbon emissions, usually per metric tonne of CO2.

b. Corporations and organizations are given a number of tonnes of carbon they are permitted to emit.

c. Organizations that exceed their allowance need to purchase carbon credits from the carbon market.

d. Organizations that offset carbon or emit fewer tonnes than they are permitted can sell those carbon credits to net emitters.

2. How Do Carbon Markets Work?

Carbon markets are designed to discourage carbon emissions and incentivize the development of carbon sinks. The markets use economic incentives to allow polluting corporations to offset their footprint by funding carbon-friendly projects, through the purchase of credits, while also being encouraged to reduce their footprints because producing carbon now has a cost associated with it.

If emitting CO2 comes with a cost, emitters will be incentivized to reduce their emissions. And if carbon offsets can be sold, there is an incentive for organizations to earn them to sell to net emitters. Those offsets represent the “reduction, removal, or avoidance of one metric tonne of carbon dioxide equivalent emissions (MTCO2e) from the atmosphere.”

Carbon markets are a tool countries use to meet their obligations under the Paris Agreement, or the Paris Climate Accord. And while they aren’t the only tool being used to combat climate change, they represent a vital part of the mix.

Unfortunately, carbon markets are broken. Let’s explore what the problems are.

3. What Is Wrong With Carbon Markets?

They are highly profitable for middlemen — the participants who should least benefit. The Financial Times wrote a damning article about the role of carbon brokers in the markets. In one example cited, Worldview International Foundation was paid about a third of the price the credits they had generated were sold for on the market. The rest went to brokers.

CarbonKerma is committed to getting verified, measured credits on the blockchain, reducing the need for middlemen entirely, making the market a whole lot more efficient, and earning a flat 7% fee.

Carbon markets are opaque and completely lacking in transparency. This problem has played itself out in a variety of ways. The EU had to clamp down on a scam where Chinese chemical companies would create and then capture HFC-23, a gas used in refrigeration, to sell it on the market. That gas is estimated to be 11,000 times more harmful to the environment than CO2, and the offset markets were incentivizing its creation.

The rise in prices for credits in regulated markets in the EU has led some emitters to turn to unregulated voluntary markets, where credits are cheaper. This has two effects. Firstly, emitters are disincentivized from changing their business practices to reduce their footprints.

Secondly, it opens the door to lower quality, difficult-to-verify credits, which plague the voluntary market. Credit Suisse conducted a study that found that “most of the companies are purchasing carbon offsets with potentially questionable environmental integrity.”

There have also been issues of double-counting of credits, vague standards, and “problems with offset verification, accuracy, and quality.”

Furthermore, carbon markets are difficult to regulate. It is challenging for governments to ensure that businesses comply with the rules, and it can be hard to detect violations due to the complexity of the system.

That complexity is magnified by the emergence of voluntary markets. This means that companies may not take their emissions reduction commitments seriously, and they may end up continuing business as usual.

And if it is difficult for governments to monitor carbon markets effectively and ensure all participants are acting in good faith and lawfully, it is near-impossible for businesses and consumers to navigate the murky world of carbon credits and understand which entities are playing by the rules.

There is, globally, a lack of a framework for carbon offset verification and a lack of consistent standards that offsetters must meet to qualify as carbon credit providers, and this is especially true in the unregulated voluntary markets.

A handful of non-governmental organizations have developed methodologies to separate high-quality offsets from low-quality ones, but the market is so vast and the verification processes so complex that the landscape will remain opaque and difficult to trust for the foreseeable future.

Participation in regulated carbon credit markets is only possible in regions with a state-run Emissions Trading Scheme (ETS). Only 12 states in the US, for example, currently have these schemes in place.

4. And All Of These Problems Help Drive The Disastrous Practice Of Greenwashing.

Greenwashing is a marketing tactic that companies use to deceive customers into believing that their business operations and products are environmentally friendly when they are, in fact, not.

Greenwashing is a cynical product of the growing public awareness of climate change and other environmental issues. As the public’s demand for eco-friendly goods and services grows, more and more companies resort to greenwashing in not only their marketing and communications, but also in their practices.

Low-quality carbon credits only help companies in their greenwashing activities. If it is cheaper to say that you’re carbon neutral than actually being carbon neutral, greenwashing will continue. And cheap, low-quality carbon credits will only perpetuate this problem.

While public awareness of, and contempt for, greenwashing is growing, problems caused by intransparent carbon markets are too complex for the public to digest.

5. The CarbonKerma Solution

CarbonKerma represents a valid and viable way forward for carbon markets.

CarbonKerma is focused on Carbon Capture, Utilization, and Storage (CCUS) technologies, which are carbon avoidance technologies that are measurable, verifiable, and regulated. They are the highest-quality credits in the marketplace.

By placing verified, measured, and regulated carbon credits on the blockchain, CarbonKerma gives assurances to all stakeholders that these carbon credits represent what they should represent: one metric tonne of CO2 avoided from being released into the atmosphere. Here’s how it works:

These credits, represented by CKT tokens, can be traded, bought, sold, and then burned when they are retired. The market efficiencies from an open, transparent, peer-to-peer marketplace on the blockchain mean that:

• Companies can prove their carbon credits are real and can prove when they are retired.
• Consumers can be certain about the carbon footprints of the companies they buy products or services from.
• Markets can appropriately price carbon credits.
• There are no middlemen.
• CKT will become the world’s first ‘carbon money’, monetizing removing atmospheric CO2 through CCUS.

Efficient. Transparent. Effective. And a genuine, pragmatic approach to helping us decarbonize while meeting our energy needs.

CarbonKerma. Minted For Good.

CarbonKerma | LinkedIn | Twitter | Medium