The increasing pressure to act on nature loss led governments and companies worldwide to ramp up their decarbonisation commitments. However, making and achieving credible decarbonisation commitments is a challenging task for businesses, especially in emissions-intensive sectors. Carbon credits help businesses make earlier and more ambitious commitments, reduce their emissions through offsets, and take cost-effective action to reduce future emissions. This article discusses the benefits and challenges of using carbon credits for business decarbonisation, the role of credits in the business toolkit, and the future outlook of carbon credit markets.
The benefits of carbon credits for business decarbonisation
Carbon credits are essential to the business toolkit as they provide flexibility, control, and significant cost savings. Businesses can use credits to reduce their emissions through offsets while taking cost-effective action to reduce future emissions through asset turnover and the evolution of their business models. In the long term, credits are essential in offsetting hard-to-abate emissions from products that lack low or zero-emissions options.
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The role of carbon credits in business decarbonisation
Emissions-intensive businesses should generally prioritise reducing direct emissions, using credits focused on emissions that stakeholders agree are difficult or very expensive to reduce. Businesses with lower emissions intensity can make stronger carbon commitments and use credits with co-benefits to reinforce their brand values and positioning.
Read more: 100 Reasons carbon credits are the best thing that ever happened to improve conditions on our planet
However, the best role for credits depends on business context and strategy. Therefore, businesses should act now to identify their best decarbonisation strategy and positioning, including whether and how offsets and carbon credits can contribute over time.
Read more: What are the benefits of the booming carbon credits market?
The challenges of carbon credits for business decarbonisation
Carbon credits will be scarce and expensive across all outlooks due to rising demand, a race to quality, and higher unit supply costs. The volume of credits required globally is projected to increase at least 20-fold by 2035, with volumes increasing 30 to 40-fold from current levels in scenarios consistent with the 2015 Paris Agreement. The increase in credit volumes will drive rising supply costs as growing credit volumes exhaust low-cost supply options.
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Carbon credits with co-benefits will continue to command a price premium, with the value of benefits varying across different types of buyers. Prices for credits could rise to a central estimate of $80–$150 per tonne by 2035 (in real 2020 dollars). Prices will likely be at the lower end of this range if technology costs fall more rapidly or the total global abatement effort is less ambitious. Prices will likely be at the higher end of the range if the total global abatement effort is more ambitious, technology costs fall more slowly, or market friction is more significant and persistent.
Read more: How are carbon credits issued?
The importance of carbon credits in business decarbonisation
Carbon credits can be an effective tool for businesses to achieve their decarbonisation commitments. However, the best role for credits depends on business context and strategy. The future outlook of carbon credit markets is challenging, with rising demand, a race to quality, and higher unit supply costs leading to scarce and expensive credits. Therefore, businesses should act now to identify their best decarbonisation strategy and positioning, including whether and how offsets and carbon credits can contribute over time.
DGB Group can help your business achieve its decarbonisation goals through our high-quality, independently verified carbon credits generated by our nature-based projects. We can help you measure, reduce, and offset your business’ carbon footprint.
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