How Carbon Credits Can Help Close the Climate Funding Gap

How Carbon Credits Can Help Close the Climate Funding Gap

Governments around the world have committed to the goals of the Paris Agreement, but their climate pledges are insufficient. To keep a 1.5℃ world within reach, global emissions need to fall by as much as 45% by 2030.

Bold and immediate action is essential, but so are resources that will make it happen. 

In this graphic, we have partnered with Carbon Streaming to look at the role that the voluntary carbon market and carbon credits can play in closing that gap.

More Funds are Needed for Climate Finance

According to data from the Climate Policy Initiative, climate finance, which includes funds for both adaptation and mitigation, needs to increase at least five-fold, from $1.3T in 2021/2022, to an average $8.6T annually until 2030, and then to just over $10T in the two decades leading up to 2050. 

That adds up to a very large number, but consider that in 2022, $7.0T went to fossil fuel subsidies, which almost covers the annual estimated outlay. And the world has shown that when pressed, governments can come up with the money, if the global pandemic is any indication. 

Mobilizing Carbon Finance to the Developing World

But the same cannot be said of the developing world, where debt, inequality, and poverty reduce the ability of governments to act. And this is where carbon credits can play an important role. According to analyses from Ecosystem Marketplace, carbon credits help move capital from developed countries, to where funds are needed in the developing world. 

For example, in 2019, 69.2% of the carbon credits by volume in the voluntary carbon market were purchased by buyers in Europe, and nearly a third from North America. Compare that to over 90% of the volume of carbon credits sold in the voluntary carbon market in 2022 came from projects that were located outside of those two regions.  

Carbon Credits Can Complement Decarbonization Efforts

Carbon credits can also complement decarbonization efforts in the corporate world, where more and more companies have been signing up to reduce emissions. According to the 2022 monitoring report from the Science Based Targets initiative, 4,230 companies around the world had approved targets and commitments, which represented an 88% increase from the prior year. However, as of year end 2022, combined scope 1 and 2 emissions covered by science-based targets totaled approximately 2 GtCO₂e, which represents just a fraction of global emissions. 

The fine print is that this is just scope 1 and 2 emissions, and doesn’t include scope 3 emissions, which can account for more than 70% of a company’s total emissions. And as these emissions come under greater and greater scrutiny the closer we get to 2030 and beyond, the voluntary carbon credit market could expand exponentially to help meet the need to compensate for these emissions.

Potential Carbon Credit Market Size in 2030

OK, but how big? In 2022, the voluntary carbon credit market was around $2B, but some analysts predict that it could grow to between $5–250 billion by 2030. 

Morgan Stanley and Barclays were the most bullish on the size of the voluntary carbon credit market in 2030, but the latter firm was even more optimistic about 2050, and predicted that the voluntary carbon credit market could grow to a colossal $1.5 trillion. 

Carbon Streaming is Focused on Carbon Credit Integrity

Ultimately, carbon credits could have an important role to play in marshaling the resources needed to keep the world on track to net zero by 2050, and avoiding the worst consequences of a warming world. 

Carbon Streaming uses streaming transactions, a proven and flexible funding model, to scale high-integrity carbon credit projects to advance global climate action and UN Sustainable Development Goals.  

Learn more at www.carbonstreaming.com.

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