COP28: Companies’ embrace of carbon credits puts to shame countries’ climate backsliding

Governments are not on track to meet the target of limiting global warming, and some, particularly in the Global North, are retreating from measures to combat climate change
However, more firms are offsetting emissions with carbon credits – and research shows such companies decarbonise faster

Rich Gilmore

Published: 6:40pm, 19 Nov 2023

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Every year, the 195 parties to the Paris Agreement on climate change come together at a United Nations’ conference. This year’s meeting, COP28, is particularly important because it will hear the results of the first “global stocktake” of countries’ progress on their climate commitments.

The outlook is not good. The Climate Action Tracker, for instance, shows not a single country on track to limit global warming to the 1.5 degree Celsius target. The world may be headed for a catastrophic 3 degrees of warming this century.

But instead of inspiring extra effort, the risk is that governments will attempt to backslide on their carbon commitments, judging that politically, a weak promise kept is better than a bold promise broken. This risk is underlined by wavering support for climate policies in some rich countries.

The United Kingdom is a prime example – 35 years after Margaret Thatcher became the first world leader to take a stand on fighting climate change, Prime Minister Rishi Sunak has announced plans to “max out” the UK’s oil and gas reserves, and postpone or cancel policies to accelerate the uptake of less-polluting transport.

The consequences of a global backslide on carbon commitment on the safety of everyone on Earth are considerable. Worryingly, it may usher in a period of conflict between wealthy Global North nations and developing Global South states.

In recent years, the countries most under threat from climate change have increasingly voiced frustration at the speed and scope of action by the wealthiest and most polluting countries. Plans for a US$100 billion compensation fund underwritten by wealthy countries have met an impasse; the financing of major climate infrastructure projects by organisations such as the World Bank has also been less than forthcoming.

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These projects could help countries without sufficient government funding to transition away from fossil fuel-powered grids to renewable energy, to protect and restore forests, and reduce waste going into landfill. When you consider that investments in these three solutions could eradicate nearly three-quarters of harmful emissions, it seems a case of cutting off one’s nose to spite one’s face.

The stasis is driving a wedge between the Global North and South when all nations need to work together.

While the situation is dire, there is hope, albeit from an unlikely direction: the private sector.

In spite of – or perhaps because of – the lack of leadership evident in many governments, business is stepping in and stepping up, using a mechanism first established in the 1997 Kyoto Protocol: the voluntary carbon market.

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This market allows businesses to offset any carbon emissions they cannot eradicate from their operations. In effect, it means businesses pay compensation to the planet for the carbon they emit.

This compensation, in the form of carbon credits, is directed to projects – usually in developing countries – that are proven to avoid or remove carbon emissions. These credits are bought and retired by companies, at which time they are called a carbon offset.

Fight climate change by funding concrete projects, not pious hopes

Despite driving finance to where it can have the biggest effect on mitigating climate change the fastest, the voluntary carbon market has experienced headwinds in the past 12 months. Critics in the European media have sought to deter the use of carbon offsetting, claiming the voluntary carbon market slows direct decarbonisation.

While this is an understandable concern if true, studies released this year, including from the non-profit think tank Ecosystem Marketplace, show that companies using carbon offsets decarbonise faster than those who do not.

The reality is that we cannot address climate change without a massive increase in corporate emissions offsetting. This explains the growth of carbon offsetting as a climate solution.

Analysis by market research firm Allied Offsets shows an over 50 per cent increase in companies retiring credits this year compared to 2022. Of those, nearly two-thirds (63 per cent) had retired more credits in the first nine months of the year compared to the same period last year.

At least eight of the world’s 10 most valuable brands, including Amazon, Alphabet (Google), Apple and ByteDance (TikTok), use carbon credits – they know they can protect brand value by taking climate action.

Carbon credits amount to more than greenwashing

This participation is underpinned by innovative market changes, many from Asia. Singapore, for example, has launched Climate Impact X, a global marketplace, auction house and exchange for trusted carbon credits.

Closer to home, mainland China is rebooting its voluntary carbon credit trading scheme, while bourse operator Hong Kong Exchanges and Clearing is operating its own voluntary carbon trading marketplace, Core Climate. The platform connects capital with climate-related projects in Hong Kong, the mainland, the rest of Asia and beyond. The project is a key plank in the Hong Kong government’s goal of making the city a global centre of green finance.

Not ones to fall behind, South Korea and Japan are also putting in place carbon trading systems.

To stay on track for the 1.5 degree target, carbon credit projects need an estimated US$90 billion more in finance by 2030; if we are to keep the global temperature increase within safe levels, many more private businesses will need to take the plunge and offset their emissions.

Relying solely on governments in the rich countries of Europe and North America – who have shown willingness to stall and backslide at the first opportunity – is a path to climate purgatory.

Rich Gilmore is CEO of Carbon Growth Partners

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