Sellers

Supply of carbon credits has be under attack with allegations of greenwashing. Credits have varying attributes that distinguish them from each other. Therefore they are not homogeneous.

Quality Vs Price

There is vast variability in the price and quality on the supply side of carbon credits. For example, the seller of a carbon credit can generate an offset by avoiding cutting down trees at a cost of a few dollars per credit or by spending up to $1,000 per credit to use 100% green energy to suck carbon from the air using solid sorbent direct air capture (DAC) systems and store it miles underground for centuries.

Access to Project Funding

Tokenization can help bring pre-purchase agreements onto a public ledger, and generate good pricing data and signals.

Criteria To Issue Credits

Projects typically have to adhere to specific standards before they can generate voluntary carbon credits. The primary dimensions of quality are additionality, permanence, efficiency and verifiability.

Additionality

High-quality credits are said to have “additionality,” which means that the sequestration happens only if incremental funding from selling credits is available. (A 2016 study released by the European Commission and carried out by the Oko-Institut estimates that 85% of offset projects were not additional. In other words, the sequestration would have occurred as a continuation of business as usual without the carbon marketplace.)

Permanence

Each sequestration method has a different estimated duration on how long the carbon is captured (Reforestation generally is expected to last for decades while captured and stored carbon can last centuries).

Efficiency

The amount of carbon that is released in the process of sequestering reduces net carbon removal efficiency. (Afforestation and Reforestation can be greater than 95% efficient, with the primary wastage being the forest management, while biochar is estimated to be 25% efficient, where each ton removed requires 0.75 tons to be emitted.)

Verifiability

Traceability and measurability vary between the different methods. (A captured and stored ton of carbon is relatively cheap to document while measuring soil-based sequestration of regenerative farming practices is labor intensive and estimated by lower precision survey work.)

While there are public sector groups like parties of the United Nations Climate Change Conference addressing Article 6 (the Paris Agreement’s rulebook governing carbon markets), and private sector initiatives like Taskforce on Scaling Voluntary Carbon Markets and Carbon Meta-Registry focused on the issues, the scale and complexity of the task is immense.

The lack of interoperability between marketplaces, as well as standards that vary, means a company that sequesters carbon is unable to add their credit to a liquid pool of global supply. As a consequence, carbon credits are not priced to reflect the proper underlying quality. There are currently 68 carbon pricing mechanisms around the world, including 36 carbon taxes and 32 emissions trading schemes. In the compliance market prices range from below $5 to above $100 per ton depending on the country and region. In the voluntary market, prices can range from less than $1 per ton to above $50 per ton.

References

1 Source: National Academies of Sciences, Engineering, and Medicine. Negative Emissions Technologies and Reliable Sequestration: A Research Agenda. 2018.

2 Source: The World Bank, Carbon Pricing Dashboard, 2022.

3 Source: The World Bank, Carbon Pricing Dashboard, 2021.

4 Source: Ecosystem Marketplace, Global Carbon Markets Data Intelligence and Analytics Dashboard, 2021.