Updated: Oct 19, 2022
One measure which has been proven to reduce greenhouse gas emissions while also demonstrating the potential to aid the economically vulnerable is carbon markets. Carbon markets give private entities the ability to generate outcomes in poverty alleviation as well as positive externalities as a result of companies meeting their climate change goals through the purchase of verified carbon units. For this reason, a detailed understanding of the relationship between the carbon markets and positive outcomes for local human welfare is necessary.
For climate mitigation, it is ideal that emitting companies find their carbon-neutrality first through changes in their production chains. Once they cover all the opportunities to increase their carbon efficiency, they could access the carbon offsets option. The carbon offsets are born into an accredited process that consists of an independent evaluation and certification of the quality of packages of mitigation results. However, the expected quality is not ever achievable. During the accreditation process, sometimes mistakes happen—especially when governments do not offer precise and transparent Monitoring, Reporting and Verification (MRV) rules and their implementation capacity. These mistakes affect the long-term offsets credibility and impacts on the local communities that generate some offset volumes. The lack of offsetting policies in private companies and public control promotes the generation of hot air results and affects the contributions to climate change.
More than ever, it is essential for the private sector to participate in various types of carbon markets, such as the independent certified emission reduction market, given its connection to the promulgation of economic welfare, particularly for the most economically vulnerable. Since the economic benefits of the carbon market take place through the creation of carbon offsetting activities that also lead to improved economic conditions, large financial institutions and corporations can facilitate the movement towards a carbon-negative and financially inclusive world.
Corporate Social Responsibility-CSR Policies Regarding Carbon Markets Activities from Prominent Multinational corporations
In order to solve the global problem of climate change, it is strongly recommended that a majority of S&P 500 firms switch to environmentally friendly company policies centered around aggressive carbon removal and carbon reduction. Traditionally, the purchasing or generation of credits for projects that cause a reduction in emissions has been a method used by the corporate world. It seems as though the market offers some natural solutions that ultimately result in the removal of carbon from the atmosphere or avoided emissions. The climate offsetting projects typically take place through renewable energy development, reforestation/afforestation and reduction of deforestation.
At the moment, multinational corporations in many regions of the world are also making considerable efforts to become carbon-negative firms. This view can be seen when one examines the carbon removal portfolio of firms such as Alphabet, Meta, Salesforce and others. Commonalities among carbon removal portfolios can be seen as diversified and emphasize contracted projects centered around forestry, bio-char, coastal blue carbon and various other market-based sustainability solutions.
There are examples of private climate policies that positively impact local welfare. Microsoft has already committed to being a carbon-negative firm by the year 2030. After analyzing Microsoft’s “Carbon Removal White Paper,” it was clear that Microsoft is pursuing a set of policies that recognizes global climate inequity stemming from the fact that countries that are most responsible for emissions causing climate change are not those who will most likely feel the greatest impacts. Microsoft’s Carbon Removal White Paper covers challenges associated with carbon removal. These challenges are validated by the present condition of the global credit economy, which favors the avoidance of emissions rather than direct carbon removal. It is good that Microsoft recognizes the imperative for high-quality carbon removal projects.
It is safe to say that there is potential for poverty alleviation through forest mitigation activities under the concept of Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (REDD+), plus the sustainable management of forests and the conservation and enhancement of forest carbon stocks in which corporations are engaged in. Through sustainable natural resource management of forests, there can be job creation centered around the promulgation and conservation of forests. Coastal blue carbon is known to induce habitat restoration while also creating jobs through the amelioration of ecological and financial conditions. Some examples include coastal tourism, optimized fisheries and increased property values.
If one were to focus on the economic benefits of the voluntary carbon market, they may find that many verified carbon offset suppliers to S&P 500 firms are engaged in corporate social responsibility practices, which positively benefit the local communities in which the projects are embedded. For instance, the “Delta Blue Carbon Project” has installed various reverse osmosis plants in the region of Sindh in Pakistan. These plants currently provide drinking water to thousands of individuals. Company policies such as these can be seen as a reference for corporate social responsibility given that they have a Sustainable Development Goals (SDG) component.
Financial institutions are worth scrutinizing as it pertains to the link between carbon credits and lower rates of poverty. J.P. Morgan has made efforts that can be analyzed by similar large financial institutions. This is evident in the corporation's Paris-aligned financing commitment as well as the activities of the bank in its sustainability efforts. According to the International Finance Corporation (IFC), J.P. Morgan Chase is currently generating its own carbon credits through the subsidization of the distribution of efficient cooking stoves that are distributed to countries such as Cambodia, Kenya, Ghana, Uganda and others. Based on what is known about these stoves, they are estimated to reduce carbon dioxide emissions by approximately 2.5 tons a year. With each ton generated, there is a credit worth $10-15. Through this process, J.P. Morgan can generate carbon credits to be sold to entities seeking to offset their own emissions. These climate change mitigation strategies are useful because they have a multi-faceted component that involves the purchase of carbon credits and the promulgation of climate-efficient technologies.
In the case of the generation of carbon credits by J.P. Morgan Chase, there are some linkages to poverty alleviation. Given that there is a strong need for sustainable development in various global south countries, activities such as the one J.P. Morgan Chase is pursuing can be modeled and replicated for the purposes of optimizing the functionalities of the carbon credit market. More self-generated credits can be produced through clean, non-GHG producing technology transfers and investing in carbon removal technologies. There should also be a corporate social responsibility aspect that aims to direct more technology transfers at Least Developed Countries (LDCs). All of this will ultimately offset carbon, promulgate technology and reduce global rates of poverty.
It is evident that given the behavior of firms that participate in the carbon credit market, their climate action behaviors are likely to have subsequent poverty reduction capabilities. However, there is still more space to improve mechanisms that assist in offsets generation and its standardization contributions for living conditions across the globe. The activities of firms as active participants in the carbon credit market demonstrate the potential for a much more bolstered marketplace with more carbon removal opportunities and an opportunity for local welfare through complementary CSR policies.
To conclude, some recommendations for companies to enhance their nexus between carbon markets and local welfare following the studied cases include whatever carbon offsetting activity contributes toward empirical economic results. One recommendation for public institutions is to promulgate safeguards for local communities, specifically designed for mitigation projects typologies (i.e. Waste, renewable energy or REDD+). For multinational companies seeking to strengthen their carbon offsets portfolio results based in direct and fair investments with communities, there should be a concerted effort to align their actions and correspond performance with national MRV public systems. We hope that the carbon markets will continue to support a smooth carbon transition and align with new high-quality recommendations regarding the claiming process. These public/private actions represent more optimism for a society with the capacity for net zero emission and fulfilling SDG goal number one: no poverty.
CCAP’s mission is to support every step of climate action, from ambition to implementation. A recognized world leader in climate policy and action, CCAP creates innovative, replicable climate solutions, strengthens capacities, and promotes best practices across the local, national, and international levels to accelerate the transition to a net-zero, climate resilient future. CCAP was founded in 1985 and is based in Washington, DC.