Ideas & Insights / All Perspectives / Ideas & Insights

Fighting the Climate Crisis with Carbon Credits

An innovative means to meet the crisis of a catastrophically warming planet while shifting climate investments to where they are needed most for a just energy transition?

Or a work-around that allows wealthy countries and corporations to sidestep their obligations while failing to address the root causes of climate change?

These are the dueling narratives about carbon credits, which have both advocates and critics.

The Rockefeller Foundation is joining the U.S. government and the Bezos Earth Fund to focus efforts over the coming year on developing high-quality carbon credits to support an accelerated just transition from fossil fuels.

To explain why, and what that means, here are the answers to seven questions.

What kinds of activities can generate carbon credits?

Carbon dioxide is a greenhouse gas that traps heat close to Earth and is responsible for roughly 80 percent of global warming.

The carbon market is a type of commodity market standardized to the unit of a ton of carbon. Actions that prevent or remove carbon emissions can generate credits which can be bought, sold and traded by market participants.

These activities can be either nature-based or technology-based. Some reduce the emission of carbon into the atmosphere—for instance, by building renewable energy sources instead of fossil fuels.

Some remove carbon already in the atmosphere by the use of reforestation projects, soil carbon sequestration projects, or technologies that capture and sequester carbon dioxide from the atmosphere.

  • Image is sourced from Carbon Credits.

Who participates in the carbon market?

Carbon credits can be traded on voluntary or compliance carbon markets.

In voluntary markets, organizations decide on their own to compensate for their carbon footprint.

In compliance markets, demand is driven by government’s mandatory emission reduction requirements.

The voluntary market relies on a complex ecosystem to develop and validate credit-generating activities. These include project developers, project validators, carbon standards bodies, carbon traders and bodies which govern the use of credits by purchasers.

The absence of a single regulatory authority has resulted in carbon credits of variable integrity and quality. Article 6 of the Paris Agreement, which envisages the creation of an international carbon market governed by a United Nations body, will be a crucial driver of future carbon market development.

What is a “high quality” carbon credit?

A number of initiatives seek to bring greater coherence and integrity to voluntary carbon markets. Among them, the Integrity Council for Voluntary Carbon Markets (ICVCM) aims to establish a global benchmark for high integrity, proposing that carbon credit-generating activities should deliver:

  • Additionality: Prove that the mitigation activity would not have happened without carbon credit revenues;
  • Permanence: Prove that carbon avoidance or removal will be sustained over time,and any reversals will be compensated;
  • Robust governance: Provide transparency and accountability to the market;
  • Robust quantification: Use conservative approaches and sound science to measure impacts;
  • Safeguards: Consider and mitigate impacts on people and the environment while delivering positive sustainable development impacts.
Image is sourced from Carbon Credits.

Who buys carbon credits?

Corporations are the main purchasers of credits on voluntary carbon markets. Demand is generated by companies committed to achieving net zero emissions—in other words, balancing the amount of carbon they emit with the amount they remove. As of 2022, over 4,000 companies have committed to net zero targets.

Countries will be an additional source of demand for carbon credits. Sweden, for example, has taken on very ambitious climate targets (achieving “net-zero emissions by 2045), but envisages achieving some of this by supporting “emission reduction efforts outside of Sweden.”

International sectors such as airlines could be another source of demand, as could individuals seeking to reduce their own carbon footprints.

How large is the voluntary carbon market?

The current volume of carbon credits traded is relatively modest.

According to the Taskforce on Scaling Voluntary Carbon Markets (TSVCM), demand for carbon credits on the voluntary carbon market was approximately 100 million tons in 2020. TSVCM expects the demand for carbon credits in the voluntary market to increase tenfold by 2030 and by 30-40 times by 2050.

The price of carbon credits varies according to the project type and certifying standard, but according to analysis by the Boston Consulting Group, generally ranges between $2 and $12 per ton of carbon.

Higher prices will come with more competition for carbon credits in response to climbing public and private net zero commitments. Trove Research, a leading source of data on climate commitments, expects the price of carbon credits on the voluntary market to soar to $20-50 per ton by 2030.


How can carbon markets be a force for good?

Annual clean energy investment must triple to $4.2 trillion by 2030 to keep 1.5°C within reach, according to the International Energy Agency.

Given how far off we are from meeting our climate goals, it’s pretty clear that we need an open mind about new and innovative solutions.

The Rockefeller Foundation is interested in carbon credits as a mechanism for bringing climate finance to countries and communities with the largest shortfall in investment for energy transition.

They can be particularly helpful in addressing the single largest threat to meeting climate targets: existing and new coal-fired power plants.

More than 6,500 coal plants are in operation across the world, and at least 941 more are in planning stages. According to our calculations, these would emit 273 billion tons of carbon dioxide combined over their normal operational lifetime of about 40 years. Some 80% of these coal plants are in emerging economies.

Accelerating the transition from dirty to clean power at a rate that averts climate disaster will require catalyzing private finance in emerging and developing economies. Harnessing the power of carbon markets is one such potential solution. If a single coal plant could be mothballed and replaced with clean power decades ahead of its planned retirement date, tens of millions of tons of carbon dioxide emissions would be avoided.

Monetizing these savings by selling them as carbon credits would be instrumental in getting the first replacement projects across the line. These credits would have to reflect real, verifiable emissions reductions, and some of the revenue could be directed to affected workers and communities.

What is the Energy Transition Accelerator (ETA)?

The ETA, announced at the United Nations Climate Change Conference last year (COP27) by the U.S. Government, Bezos Earth Fund and The Rockefeller Foundation, aims to help ensure the world limits warming to 1.5°C by driving private investment in comprehensive energy transition strategies in developing countries.

The ETA will be an independent initiative to support country-driven energy transition work through a high-integrity jurisdictional crediting framework. This means it will operate at the level of an entire power system within a particular geography, for instance, to ensure that one closed plant is not simply replaced with another polluting plant.

Countries will be eligible for credits when they increase the pace of their energy transition.

A new type of high-integrity carbon credit will thus be generated, representing verified greenhouse gas emissions reductions, which participating countries can market to qualified private sector and sovereign government buyers.

The objective is to complete an inclusive design process by COP28 this December.

Challenging Work with Enormous Potential

Carbon credits are among the most challenging climate work we have in the year ahead.

We are at a critical moment. We need to fight climate change with every tool in our toolkits, and that includes carbon credits.

With robust guardrails, carbon credits can help us phase out fossil fuels and accelerate renewable energy development quickly enough to slow down the dangerous warming of our planet.