More than just hot air: the UK should be the home of a carbon market that actually works
This year, peatland ecosystems in the Indonesian districts of Katigan and Kotawaringin Timur – covering an area roughly the size of London – will lock away the carbon emissions equivalent of two million cars. Thousands of miles away, powered by Icelandic geothermal energy, Climeworks’s spaceship-esq Orca project is busily sucking carbon dioxide out of the air. Both projects have their own champions – and both are vital to achieving net zero – but neither will succeed without a carbon market that actually works.
If an organisation wants to proactively reduce their emissions footprint, they can do so through purchasing carbon credits. These credits are often the sole revenue source for a range of activities that remove greenhouse gases from the air, sequester carbon dioxide, or avoid planned activities which would otherwise have released greenhouse gases. Without carbon credits, and the voluntary carbon market which underpins them, the economics of preserving Indonesian peatland, or investing in expensive technology to chemically remove carbon dioxide from the Icelandic air, just don’t add up.
Right now, however, carbon markets are inefficient and greenwashing is rife, undermining every project removing carbon from the atmosphere.
The quality of carbon credits sold on the voluntary carbon markets have, rightfully, been critiqued extensively in recent months. One peek behind the curtain and credits are often found to have no underlying value, questionable governance, and uncertain permanence. This undermines both the principle of a market, and the mitigation activities themselves. This is why it is vital to insert integrity into the carbon markets.
Technology is increasingly at the foundation of a carbon market that actually works. The UK is home to a thriving ‘carbon markets’ startup sector worth over £1.4bn, including firms using tech to accurately measure emissions and removals, such as through satellite imagery. Technology also underpins the work of standards bodies, which have emerged to establish best practice principles. Elsewhere, our world-leading financial sector is also mobilising to establish how to leverage our best in class financial infrastructure, governance and expertise to this new market.
These efforts from industry are necessary to enable a carbon market that actually works, but are not sufficient. In parallel, governments have a role in convening, coordinating and celebrating industry efforts, as well as establishing where formal intervention may be required. For instance, governments around the world have established regulated markets to set absolute limits on emissions from certain industries. As of last year, 17 per cent of global emissions were covered by such “cap and trade” schemes. Where the regulated and voluntary markets meet is firmly within the realm of government.
Establishing the relative role of the government and industry in creating a carbon market that actually works will be a delicate, but vital exercise, which is precisely why the UK government’s forthcoming consultation on the voluntary carbon market is so important.
Canada Corporation and the Startup Coalition have convened firms from the financial services and technology sectors to support the government. The UK VCM Forum has been active in clarifying the market barriers which hinder large-scale purchases of carbon credits and how these can be addressed through public sector intervention. The new Carbon Markets Innovation Forum will enable innovators to debate and discuss how policy interacts with their technologies, and where there is opportunity to unlock growth.
Together, these forums represent firms from across the value chain that will power a high integrity carbon market.
Reaching net zero is a formidable challenge, but not an optional one. A working carbon market will be part of the fundamental infrastructure of the new green economy.