A New UN Push Aims to Feed the World’s Rabid Hunger for Carbon Credits
(Bloomberg) -- Many companies bent on zeroing out carbon emissions by mid-century or sooner are seeing their ambitions run up against the same big obstacle: there aren’t enough trees.
One of the most popular ways for businesses to reduce their net emissions is to buy carbon-reduction credits, or “offsets,” for things like protecting forests from destruction or regrowing them. Offset programs are arduous and expensive to establish. Governments must develop comprehensive conservation strategies and invest in technologies and practices to verify and monitor them. Consequently, the number of trustworthy offsets programs is a small fraction of what’s possible.
In response to this growing need, the United Nations and the environmental nonprofit Emergent are stepping in to help with the “Green Gigaton Challenge.” The idea is to link the corporate demand for offsets with a supply of trustworthy credits from forest-rich countries. They hope to guarantee enough credits to offset a billion tons of CO₂ each year from 2025 to 2030. That means a minimum of 5 gigatons of carbon sucked out of the atmosphere—a solid chunk of the 32 gigatons of emissions reductions needed worldwide by then, the organizers said. The UN’s climate forestry program, called UN-REDD, aims to have financing and commitments in hand for its first gigaton of supply by November 2021, when negotiators will converge on Glasgow for the COP26 climate summit, according to Gabriel Labbate, the UN Environment Program’s team leader for reducing emissions from deforestation and forest degradation (REDD+).
“It’s a sizable number, but it can be done,” he said. “It can be done.”
The global economy emits the equivalent of about 50 billion metric tons of carbon dioxide every year, a number that must reach net zero by mid-century if humanity has a chance of limiting global warming to 1.5° Celsius above preindustrial temperatures, UN scientists wrote in a landmark 2018 assessment. In September the Science Based Targets initiative, a program that helps companies set climate goals in line with scientific understanding, published guidance stating that offsets should complement, not replace direct action to reduce emissions. Still, net zero will be next to impossible without forestry and other “nature-based solutions,” according to Forest Trends, a nonprofit that has a supporting role in the Green Gigaton Challenge, along with the Environmental Defense Fund and Architecture for REDD+ Transactions.
Demand for offsets has only picked up in the last decade. For years, prices hovered around just $5 a metric ton. Norway upped the minimum price to $10 a ton in 2019 when it signed an agreement with Gabon to generate up to $150 million worth of offsets over 10 years. The upfront deal gave Gabon enough confidence that there will be demand, and income, to invest in the production of credits.
Still, without a robust global market, nations won’t be willing to invest in the programs and reforms necessary to guarantee trustworthy offsets. And unless the offsets can hold up to scrutiny from consumers and investors, companies won’t be willing to buy them on the global market.
Now the nascent market needs matchmakers, as companies don’t want to have to negotiate directly with each nation they want offsets from and governments don’t want the headache of selling directly to every company. Luckily for the Gigaton Challenge, Emergent already acts as a middleman between the countries or subnational jurisdictions that sell offsets and the companies that want to buy them.
Eron Bloomgarden, Emergent’s executive director, said his group is in the business of maximizing environmental benefit. In a few years, he said, “every capital markets desk, every commercial bank, every energy company should have a nature-based solutions desk.”
It’s a tricky proposition, though. Offset programs are notoriously difficult to execute with confidence. REDD+, launched in 2007 to much fanfare among developing nations and UN climate negotiators, but has rarely lived up to its original excitement as developed nations failed to install carbon-pricing policies that succeed in guaranteeing demand.
Global demand for offsets may outstrip supply by 2025, according to a September analysis by Fitch Ratings. Many companies, including Microsoft Corp, The Walt Disney Co, and Royal Dutch Shell Plc, have already begun either buying or planning to buy offsets. Amazon.com Inc. founder Jeff Bezos this week announced $791 million in funding for 16 environmental groups, including $100 million each to organizations with strong forestry or offsets programs—EDF, World Resources Institute, and World Wildlife Fund.
Navigating the challenges to come may require groups like Emergent to continue to act as market-making entities. Or, if markets get the boost they need from the Green Gigaton Challenge and other initiatives, “we'd be thrilled to turn off the lights, close the door,” Bloomgarden said. “Impact achieved.”
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