90% of corporations now view sustainability as a crucial part of their organization’s strategy. But turning recognition of the importance of sustainability into concrete action is often easier said than done. Notably, only 60% of organizations actually have a sustainability strategy in place — representing a 30% gap between the number that view this as important and the number that are actually taking action.
As part of the effort to get more companies to adopt eco-conscious initiatives, carbon credits have become an increasingly important part of the modern sustainability narrative. But challenges to the effective adoption and use of carbon credits remain. However, with digital carbon spurring a new wave of green entrepreneurship, this is poised to change.
So, what are carbon credits?
First, it’s important to understand what carbon credits are and what their role looks like in the current corporate environment. Carbon credits are designed to offset the greenhouse gas emissions of corporations and nations.
There are two main types of carbon credits. The first is often referred to as a “permit to pollute” or “regulatory compliance credits,” in which a company essentially buys carbon credits equivalent to the amount that they went over the allowed rate. As Investopedia explains, companies are granted a specific number of credits, with each credit allowing for the emission of one ton of carbon dioxide.
These credits are designed to decline over time, and companies can sell or trade their excess credits. Essentially, the idea is that having credits to “cap” carbon emissions will create a financial incentive for businesses to lower their emissions.
For example, a country might require companies to limit their greenhouse emissions to 50,000 tons per year. A business that previously produced 70,000 tons of emissions per year must either buy carbon credits or find a way to lower its emissions. Even for smaller businesses, these guidelines can serve as a good way to consider how you can lower your emissions over time.
The other type of credit (known as “voluntary offset credits”) is obtained when a company offsets its own emissions through its voluntary participation in an environmental project. An organization that invests in a project in areas such as renewable energy or forestry can then obtain carbon offset credits as a way of quantifying their environmental impact.
How digital carbon enhances the existing carbon credit market
Currently, the standard market for creating, selling and trading carbon credits leaves a lot of room for interpretation. “Permit to pollute” credits are government issued — but in many parts of the world, participation in these carbon credit exchanges is relatively limited.
For example, the United States only has two state-based emissions trading programs. These are the Regional Greenhouse Gas Initiative (RGGI), which is limited to power sector emissions in several Northeastern states, and California’s AB-32 Cap-and-Trade Program.
Because of this, most businesses only participate in the carbon offsets voluntary market — obtaining carbon credits by investing in sustainability projects. However, offset credits aren’t regulated by the government, which can create challenges for selling, trading and verifying carbon offsets. How can your business manage carbon credits effectively without a clear system in place?
This is where digital carbon can help level the playing field, improving accessibility and streamlining processes. As a report from Changeblock reveals, digital carbon offers digital credits representing proportional ownership of climate-backed tokens. A central digital platform enables these tokens to be gathered as a single asset that is easily traded. Rather than needing to buy individual tokens from different sellers or marketplaces, digital carbon credits can represent one ton’s worth of emissions from several offsetting projects.
With blockchain management, each digital carbon credit comes with a comprehensive data packet detailing the transaction. This includes details on emissions reductions quantity and pricing. In some cases, it could even provide transparent access to raw data from sensors such as gas chromatography devices, scales, pressure monitoring systems and more to verify the amount of carbon offset associated with each digital credit.
This actionable insight and the accessibility of a digital platform help bring offset carbon credits to a significantly broader audience, incentivizing more organizations and individuals to participate in climate change initiatives. Digital carbon credits open up this concept to the masses — so even if you’re “too small” for a traditional carbon credit program, you can still access digital credits.
Key advantages of digital carbon
Digital carbon offers several noteworthy benefits that, when properly implemented, allow carbon credits to become more effective in driving the transition to a global net-zero economy.
By using a digital platform as a central location for tracking and trading carbon credits, these processes will naturally become more efficient and transparent. For organizations that are seeking to sell, trade or verify their carbon credits, this provides a much-needed layer of trust in what is still a largely unregulated industry.
A digital platform also enhances the potential for organizations to offset emissions on a global scale by being able to support and gain carbon credits for sustainability projects anywhere. This also makes carbon credits more easily accessible to individuals and organizations that might not have the capabilities to undertake carbon reduction projects on their own. For example, you could partner with another sustainability organization, donating whatever money or resources you can, rather than needing to spearhead a sustainability project on your own.
Creating the Future of sustainability
Demand for carbon credits is only expected to increase in the coming years. As businesses and governments seek to curb their impact on the environment, the ability to effectively create, track and trade carbon and other environmental credits will become even more important.
With the growing wave of digital carbon initiatives, much-needed transparency and efficiency can make these efforts more effective than ever before. As you consider how your own business can become more environmentally friendly, don’t overlook the potential value of digital carbon.
