Climate advocates must use the market
Summary
Constraints on flexible solutions like carbon credits limit investment.
Climate action costs money. A global transition to a cleaner future requires companies to invest—and many want to. But they’re limited by overly rigid constraints on market-based tools like carbon credits, which allow businesses that can’t currently remove all their emissions to address them. The result is confusion—and likely billions in deterred climate investment.
On April 9 the board of the Science Based Targets initiative, or SBTi, a group that helps companies set goals for reducing greenhouse-gas emissions, took a step in the right direction. SBTi said it would consider allowing companies to use certificates that track the benefits of climate projects in which they invest to cover part of the businesses’ toughest challenges: reducing Scope 3 emissions. Scope 1 includes emissions a company directly produces and Scope 2 those it indirectly creates by buying electricity. Scope 3 is everything else, including supply-chain emissions and those consumers generate with a businesses’s product.
These usually account for a majority of a company’s carbon footprint and are the hardest to reduce. More businesses are working to reduce their climate pollution, but many get their parts from around the world. While it’s vital that companies curb climate pollution at every step of the supply chain, that’s a complex process that can take a lot of time.
Policies like SBTi’s create space for companies to take meaningful climate action now. As businesses work toward actually eliminating Scope 3 emissions, they can use carbon credits and other tools to address the pollution they can’t yet prevent. These flexible approaches can benefit communities, conserve nature, and foster cleaner industry by unlocking desperately needed climate finance.
In a nation like Ghana, leaders say they see major value in these market-based tools. As the Ghanaian government prepares to sell high-quality carbon credits to support forest conservation, officials hope the international carbon market can deliver financial support for family farms, deter deforestation, and reduce carbon pollution. Under Ghana’s current plans to reduce deforestation from cocoa production, the government will give 69% to local communities.
Some observers worry that carbon credits will lead companies to shirk their responsibility to clean up their supply chains. The unfortunate reality, however, is that certain industries can’t move quickly to zero pollution. Carbon credits or no, these businesses won’t be carbon-free anytime soon. And research from Intercontinental Exchange and the environmental group We Mean Business Coalition shows that credits encourage companies to take more ambitious climate action. Blocking realistic pathways for voluntary climate action guarantees reckless inaction from businesses.
Allowing carbon-credit flexibility can’t mean a free pass for business as usual. Any credits companies use should be proven to reduce pollution and follow strong social and environmental safeguards.
Businesses have a critical role to play, but the climate community also faces an important decision: We can create the conditions companies need to boost climate finance, drive sustainable development in emerging economies, protect critical ecosystems, and cut pollution—or we can stick to inflexible positions that hinder climate progress.
Mr. Krupp is president of the Environmental Defense Fund.
