The world is rapidly approaching its global “carbon budget,” the amount of carbon emissions that can be emitted without causing a 1.5-degree Celsius temperature rise. At the current rate of 54 billion tons of emissions per year, this limit will be surpassed in the next decade. To mitigate this, carbon offsets are being used as a way to reduce emissions. Carbon offsets are tradable rights or certificates that correspond to activities that lower CO2 in the atmosphere. Money from the purchase of these offsets can be invested in projects that combat climate change. It is predicted that purchases of carbon offsets will reach $100 billion per year by 2030.
The banking industry can play a crucial role in the carbon credit market by developing the infrastructure that connects brands and retailers with carbon credits. Banks can also communicate the impact of carbon credit purchases to customers by adding visual elements that demonstrate environmental benefits. Additionally, banks may contribute data and infrastructure to a market-wide public registry, providing further transparency and insight into the carbon credit industry.
However, there are complications in the industry. Reports have shown that many carbon offsets certified by leading certifiers are ineffective, rendering claims of net-zero carbon emissions by major brands invalid. Some credits depend on future climate benefits and offer vague predictions, which may not align with the purpose of carbon credits to compensate for current emissions. The industry is working on creating uniform standards for vetting and certifying carbon credits to address these concerns.
Banks have an opportunity to provide critical infrastructure and data to ensure the effectiveness of carbon credits. Their involvement directly impacts the net-zero goals that larger banks have committed to. Without trustworthy carbon credits, the pledge for net-zero emissions will be meaningless.