Founder & Co-CEO of Heimdal.
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As the founder and co-CEO of Heimdal, developing a carbon removal solution, I had the opportunity to navigate the unique market for voluntary carbon removals. The market for carbon removals is self-regulating. And right now, I’ve noticed that the carbon offset market is dominated by low-cost dodgy avoidance and shoddy removals. I think it needs to move to transparency and regulation for countries and governments to achieve net zero goals.
Right now, there are three compelling reasons I often see for buying carbon credits:
1. Public relations benefit.
2. Hedging against future carbon liabilities.
3. Sense of responsibility.
Verification
The market has developed a form of self-regulation where third parties verify that removal plans and methodologies are genuine, Additional and verifiable. These third-party verifiers come in to assess projects and methodologies and are paid by the project developers/carbon credit providers for the service of doing so. Some of the big service providers include Verra and Gold Standard. Large suppliers can be slow to move and have a reputational hold on the market. There are also other smaller players, sometimes not-for-profit organizations, that are getting involved, especially in verifying new technological approaches.
Not all third-party verifiers are interested in a project, or they may have long lead times. They can often earn more money and more easily by checking out traditional reforestation, forest preservation and cooking stove projects. This system of self-regulation by third parties is ultimately based on reputation, which may be inaccurate or slow to catch up with changing reality.
Quality
It is important to understand the necessary concept of the quality of a compensation or withdrawal. The quality of an offset can be thought of as the multiple of the sustainability multiplied by the risk of reversal. Where durability refers to the expected duration of removal, reversal risk covers the risks that the expected durability will be reduced by an unforeseen event or mismanagement/handling. Currently, two of the three reasons to buy described previously, those with the strongest incentives, favor cheap and low-quality offsets. The self-regulated nature of the market means that these reasons for buying can lead to demand for bad and poor quality credits. This has led to a large existing market, already worth billions and on a trajectory worth as much as $50 billion by 2030.
For net zero to be possible, I believe we need to establish a differentiated market that recognizes the risks of sustainability and credit reversal. This should eventually be regulated by the government; however, another trusted central entity could play a similar role until the government intervenes. I think moving credits should be assessed according to an agreed upon framework, such as the Oxford Compensation Principles, a standard that ranks the quality of removals. Since this market is ultimately dependent on trust more than most other markets, transparency and a non-partisan regulator are needed.
This authority could unlock greater demand for quality solutions and ease the pressure for operators in the market right now. For example, in our experience with existing verifiers and buyers, we end up having to navigate similar or parallel processes for each customer as they naturally need to verify the quality of what they are purchasing. However, this leads to an inefficient and not yet scalable sales model.
The path to follow
There is a way to move the market to where it needs to be. The third reason to buy (sense of responsibility) offers hope and a credible path to changing market dynamics, preparing for a regulated future. The situation in the nascent market for high quality permanent removals is very different from the much larger part of lower quality removals. Credits are generated and sold every year, but many of them are of questionable quality. In fact, estimates suggest that there are only about 10,000 tons of carbon dioxide per year supply of permanent high quality carbon dioxide removal in the world today. Almost half of that is a 4,000 tonnes of carbon dioxide per year pilot plant operated by Climeworks in Iceland. The supply side of the market is still in its infancy.
Hope comes in the form of growing efforts by companies and coalitions offering advanced market commitments to buy high-quality carbon removals. They are purchases made because the leaders think it is the right thing to do and they allow a market to grow. But more than the purchases themselves, the reason they are important in moving the market forward is that they start the process of generating nonpartisan verification. Business owners buy because they want to make a difference; this makes verifying the quality and delivery of removals just as important. I believe it’s the marketplace and the academic infrastructure around it that provides the greatest value. They are not the ideal single authority; however, they are perhaps the earliest incarnation of what may eventually become government policy.
To build for the future, business leaders can work to accelerate the transition to high-quality carbon markets. The best way to do that is to participate. We can define supplier requirements and take responsibility for emissions by sourcing verifiable, high-quality carbon removals. And to other entrepreneurs, I would say that the least explored aspect of carbon markets is verification. There is an opportunity to develop defensible verification technologies that can give businesses and governments confidence that the promised high-quality withdrawal is taking place. We have the technologies available for the removal of cheap, high-quality carbon, and we have the policy instruments at our disposal; all anyone has to do is run.
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