In 2015, leaders from nearly 200 countries sat around a table and signed the Paris Climate Agreement, agreeing to drastically reduce emissions and limit global warming to 1.5 C above pre-industrial levels. Seven years later, only one thing is certain – we are nowhere near this goal. If we have any hope of correcting course, governments and the general public must embrace the carbon offset industry. Allow me to explain why.
The race to “net-zero” requires carbon offsets. The “net” in net-zero implies the use of offsets – “gross-zero” means zero emissions, and “net-zero” means excess emissions are offset by a counter activity that removes or reduces CO2 from the atmosphere. If you produce 100 tonnes of CO2, you need to remove that CO2 somewhere else; think of it as balancing the proverbial teeter-totter.
Carbon offsets offer a practical and achievable path to a low-carbon economy, but as the carbon offset industry takes shape, a gap has formed between urgent demand and public understanding. Without immediate adoption by industry, governments and the public, Canada will lag behind its global counterparts. In turn, we will miss a window of opportunity to become a leader in this emerging market.
For those unfamiliar with the key elements of the carbon market, a carbon offset represents the equivalent of one tonne of C02 that has been reduced, avoided, or removed from the atmosphere. Carbon offsets can be created in dozens of ways, from reforestation and protecting vulnerable forests to improved energy efficiency projects and coastal and marine ecosystem rehabilitation.
Though the terms are often used interchangeably, carbon offsets differ from carbon credits. When we talk about the physical removal or reduction of CO2, it’s an offset, but when we’re buying or selling the equivalent of that removal, it’s a credit. At Vida Carbon, we invest in carbon offset projects and sell the resulting credits to companies seeking to offset their emissions.
It’s important to distinguish the two distinct markets in which carbon credits exist:
- The compliance market is regulated by government carbon reduction policies, which regulate the quantity of carbon that companies are permitted to emit. Under a cap-and-trade system, companies that stay below their mandated emissions target can sell any surplus emission allowances to another party through compliance carbon credits. Those unable to meet the target are required to purchase additional credits to offset surplus emissions.
- The voluntary market is driven by corporate commitments and capitalism, it exists outside government-mandated systems, and participating organizations purchase offsets on a voluntary basis. These organizations buy credits to reach self-imposed climate targets. Vida Carbon operates exclusively in the voluntary space.
Although preliminary COP27 discussions alluded to a carbon market consensus, no single globally-recognized validation system exists to regulate carbon offset projects. As a result, any organization can create and sell an offset. This means that projects vary wildly in their credit quality and their actual contributions to fighting climate change and/or reducing greenhouse gas emissions.
Until such a system exists, third-party validation serves to evaluate the legitimacy of an offset project. Buyers are best served by purchasing high-quality carbon credits verified by reputable carbon credit registries such as the Gold Standard, Verra, the American Carbon Registry, or the Climate Action Reserve. Additionally, carbon offset firms can demonstrate their legitimacy by aligning themselves with trusted climate solution coalitions.
At Vida Carbon, we’ve done both. All Vida projects are verified and serialized by respected carbon registries. Earlier this year, Vida Carbon was accepted as a member of the IETA, the world leader in market-based climate solutions.
At the project level, a high-quality carbon offset-generating project must deliver on three primary criteria:
- Additionality – signifies that the project is not mandated by law and requires the economic proceeds from the sale of carbon offsets to justify operating. In other words, the project activity would not take place if offsets were not created and sold.
- Permanence – refers to the project’s ability to keep the emissions it’s removing or reducing out of the atmosphere for a significant length of time. If the project’s impact only exists on a short time scale, its climate contributions are understandably limited.
- Leakage – implies that a project’s activities are having an unintended increase in carbon emissions or shifting emissions to another location. For example, if a project protects an area from clear-cut logging, and the logging company simply moves down the road and cuts down another nearby forest – that’s leakage. This needs to be avoided. High-quality projects have very low leakage.
The highest-quality carbon offset projects also consider the project’s human and environmental impact and create co-benefits that strengthen communities and preserve ecosystems. At Vida, prospective projects undergo a rigorous evaluation process; only projects that achieve extensive co-benefits are considered for our investment portfolio.
Due to recent growth, the carbon offset market has been referred to as the New Canadian Gold Rush, but this market is just getting started and has yet to reach the scale required to meet global demand. Over 10,000 businesses, educational institutions, and organizations have committed to the UN’s Race to Zero, and hundreds more have set carbon-neutral climate objectives. To meet these goals, total carbon offset volumes must grow to $550 billion in value, representing a massive opportunity for Canada.
Although firms like Vida Carbon are actively working to develop the carbon credit industry, public support and understanding are essential to achieving the scale required. Carbon offsets are the key to achieving Canada, and the world’s, CO2 reduction goals, but before they can be utilized to their full potential, leaders in this sector must help educate Canadians on the crucial role of carbon markets in the fight against climate change.