2 Angel Hsu et al., Accelerating net zero: Exploring cities, regions, and companies’ pledges to decarbonize, Data-Driven EnviroLab & NewClimate Institute, September 2020,. More companies are aligning themselves with this agenda: in less than a year, the number of companies with net-zero pledges doubled, from 500 in 2019 to more than 1,000 in 2020. Reaching the 1.5-degree target would require that global greenhouse-gas emissions are cut by 50 percent of current levels by 2030 and reduced to net zero by 2050. Under the 2015 Paris Agreement, nearly 200 countries have endorsed the global goal of limiting the rise in average temperatures to 2.0 degrees Celsius above preindustrial levels, and ideallyġ.5 degrees. Carbon credits can help companies to meet their climate-change goals In this article, which is based on McKinsey’s research for a new report by the TSVCM, we look at these issues and how market participants, standard-setting organizations, financial institutions, market-infrastructure providers, and other constituencies might address them to scale up the voluntary carbon market. Limited pricing data make it challenging for buyers to know whether they are paying a fair price, and for suppliers to manage the risk they take on by financing and working on carbon-reduction projects without knowing how much buyers will ultimately pay for carbon credits. Some credits have turned out to represent emissions reductions that were questionable at best. Today’s market, though, is fragmented and complex. Given the demand for carbon credits that could ensue from global efforts to reduce greenhouse-gas emissions, it’s apparent that the world will need a voluntary carbon market that is large, transparent, verifiable, and environmentally robust. 1 To learn more about how carbon credits and carbon markets work, see Christopher Blaufelder, Joshua Katz, Cindy Levy, Dickon Pinner, and Jop Weterings, “ How the voluntary carbon market can help address climate change,” December 2020. And scaled-up voluntary carbon markets would facilitate the mobilization of capital to the Global South, where there is the most potential for economical nature-based emissions-reduction projects. Carbon credits also support investment into the innovation required to lower the cost of emerging climate technologies.
These projects can have additional benefits such as biodiversity protection, pollution prevention, public-health improvements, and job creation.
Voluntary carbon credits direct private financing to climate-action projects that would not otherwise get off the ground.
The market for carbon credits purchased voluntarily (rather than for compliance purposes) is important for other reasons, too. Overall, the market for carbon credits could be worth upward of $50 billion in 2030. The Taskforce on Scaling Voluntary Carbon Markets (TSVCM), sponsored by the Institute of International Finance (IIF) with knowledge support from McKinsey, estimates that demand for carbon credits could increase by a factor of 15 or more by 2030 and by a factor of up to 100 by 2050. For many, it will be necessary to use carbon credits to offset emissions they can’t get rid of by other means. The challenge is especially tough for organizations that aim to achieve net-zero emissions, which means removing as much greenhouse gas from the air as they put into it.
Yet many businesses find they cannot fully eliminate their emissions, or even lessen them as quickly as they might like. More and more companies are pledging to help stop climate change by reducing their own greenhouse-gas emissions as much as they can.
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