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In this two-part series, we’ll take a close look at the decarbonization efforts of Climate Neutral companies that completed certification in 2022. Part I explores the range of carbon credits certifying companies supported in 2022, as well as our recommendations for companies buying carbon credits in 2023. Part II will track reduction action and planning work.
The 2022 voluntary carbon market looked different for buyers compared to 2021. Prices across the market were 2-3x higher due to increasing demand, delays in issuances, and the rise of tokenized credits. We see this price increase as an overall positive for the market. It signals that outdated, low-quality credits are no longer available, and means that buyers now expect to pay more per tonne to support ongoing climate mitigation. This creates a bigger incentive for project developers to initiate new projects.
Because of the higher prices, the total cost of compensating for cradle-to-customer emissions was greater in 2022 than in 2021. Yet, companies in Climate Neutral’s network stuck with it. They rose to the challenge, adapted their budgets, and worked harder to find carbon credits that aligned with our Standard and fit their company goals.
Time and again, throughout the certification process, we heard from project leads that the higher price for carbon credits was elevating the internal conversation about offset quality and reduction planning—even though it stretched their budgets for compensation. Teams became increasingly motivated to figure out ways to reduce their emissions.
To all of our certified companies who ramped-up decarbonization work during such wild market shifts, thank you. Global climate goals depend on the success of your efforts, and we see all the ways you stepped up as climate leaders in the last year.
We are one year closer to 2030. One year closer to that critical year by which we must reduce global emissions 50%.
While an emissions reduction strategy is vital (more on that in Part II), we’re proud to report the 2022 Climate Neutral certified brand community mobilized over $10 million into climate solutions from projects that meet our Standard. That amount is more than double the total investment our certified companies made into climate solutions in 2021. I’m excited to share our observations from 300+ Climate Neutral certified companies that purchased carbon credits in 2022.
One of our goals in 2022 was to help people source credits from more countries. I was pumped to see this goal achieved. Certified companies successfully supported climate change mitigation projects in 27 countries (relative to 24 countries in 2021).
Relative to 2021, a greater percentage of purchased credits came from the US, China, and India (69% in 2022, relative to 53% in 2021). In a year when credit prices increased so quickly, this ratio makes sense. Those three countries are home to large carbon avoidance projects with credits that are both affordable and available.
China, the US, and India also continue to be three of the top-emitting countries in the world year-after-year. It’s important to recognize the value in tackling these top-emitting areas while also supporting GHG mitigation in vulnerable ecosystems and communities across the globe.
Our Standard lays out suggested credit portfolio allocation targets, loosely aligned with the Oxford Principles. In 2022, our guidance was for ~60% of credits to come from Energy & Industry project types, ~40% from Natural Climate Solutions, and ~1% from Engineered Removals. The aim here was to support a high-quality, diverse set of projects that address a wide range of carbon avoidance and removal needs.
As you can see in the graphic below, our final global breakdown was 73% Energy & Industry, 27% Natural Climate Solutions, and a small handful of Engineered Removals credits. Companies tended to favor Energy & Industry credits—and overwhelmingly wind energy credits—because they are often a more affordable option and relatively easy to find.
Because of the increase in credit price, people spent much more time exploring project options than they did in 2021. I was often impressed by the depth of carbon credit research our certification leads conducted during a few short weeks mid-certification. They dug deep to understand whether certain projects or credit types met—or did not meet—our Standard.
Although the focus was often finding the most affordable credits that met our Standard, a number of associated benefits came to life. Certification leads collected better data on each project and gained a deeper understanding of the nuances in carbon market pricing. Many also needed to make the business case for increasing compensation budgets. Making the business case for compensation required organizations to understand how offsetting fit into credible climate plans.
One of my roles is to help companies better understand this market—how to navigate changes in project types, adapt to new pricing, and compile the best portfolio based on their company’s needs. As companies step-up their research game, high-quality and low-risk credit options will increasingly beat out lower quality alternatives. This is a good thing because it will push the market in a needed direction. I look forward to seeing companies continue to push to collect and assess more detailed project information as people become more discriminating buyers of carbon credits.
As credit prices increased, more companies prioritized strategic reduction planning over offsetting. Reduction work is crucial to meet science-aligned targets and reduce global emissions by 50% in the next 7 years. It is also crucial to reducing the cost of carbon emissions over time. Trove Research projects carbon credit prices will increase tenfold by 2030. Others have made similar predictions. This will increase the cost of climate neutrality. Companies will want to be sure that they are working to reduce those costs by eliminating emissions at the source.
If I could reinforce one takeaway from this past year, it is higher offset costs are helping people to prioritize emissions reduction work.
Stay-tuned for Part II in this series where we will dig deeper into 2022 Climate Neutral certified reduction strategies.
I love to dig in when it comes to our annual offset dataset. It’s a nice glimpse of how consumer brands are approaching this market. So how should companies prioritize in 2023? Here are my top three recommendations for carbon credit investment in the year ahead:
In 2022, certifying companies did a great job at scoping out the best low-priced options that met both the Climate Neutral Standard and their budget. In 2023, continue to look at every project you evaluate; however, expand your scope. Study project pages until you feel comfortable explaining the different options you’re considering to a friend or family member. Seek information on how non-carbon co-benefits are measured. Require information on the percentage of credit revenues that go directly to developers in the communities where projects are based. And ask your provider what will happen if credit issuances are delayed.
Our Standard was built to ensure all credits purchased by Climate Neutral certified companies meet the same requirements. This uniform approach is designed to reduce carbon performance risk and credit delivery risk. Yet, companies can also continue to push brokers to be more transparent by requiring additional pre-purchase details. Access to data should be a priority equal to or greater than price, and if people begin pushing for it, they will have substantial collective power to further evolve the voluntary carbon market. So let’s do it.
If you are only checking in with your credit provider once a year to compensate for that year’s emissions, you are much more likely to be surprised by any market changes. The voluntary carbon market is complex and has so many options for different project types, eligible brokers, and contracting structures. Our most successful brands track the market throughout the year—from attending webinars and workshops, to simply following carbon providers and credit screening organizations on LinkedIn.
Gaining a more holistic understanding of the market will help your organization both set a realistic budget and plan for market changes over time. That way, your annual check-in with your provider doesn’t leave you with surprises. You'll also be better prepared to understand the risks and benefits of different project types.
The most prepared companies integrate their decarbonization budget directly into day-to-day operations—whether it’s by requiring each department to compensate for their own emissions, or calculating an internal cost of carbon to apply to emissions across departments.
It can be helpful to invite people from across your organization into the process of building out a carbon credit portfolio. This exercise can make it easier to get a purchase approved because your whole team will be onboard with your decarbonization strategy and budget.
Whatever your approach is, making all of your internal teams accountable for their emissions mobilizes action. We’ve seen this engagement accelerate longer-term reduction goals, and it could have the added benefit of helping your whole team become more climate savvy.
Every climate plan should pair credible compensation with investments in future reductions.
I don’t want to downplay how exciting it is that our certifying brands passed the threshold of mobilizing $10 million into climate solutions. This funding is both a climate win and a significant milestone for Climate Neutral’s mission to eliminate global emissions. But throughout our certifying network, we’ve seen the cost of offsetting is less than 0.4% of a brand’s total revenues. These are actions that all brands should be taking—regardless of size and industry—to accelerate global climate targets. Give us a shout at hello@climateneutral.org if you’re interested in learning more and taking immediate climate action in 2023. We look forward to hearing your story!
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About our Compensate requirement: The Climate Neutral Standard sets requirements for how brands will measure their emissions, set both short-term and longer-term internal reduction strategies, and compensate for their full set of emissions. The Standard is updated annually to reflect changes in the voluntary carbon market and the collective understanding of carbon credit quality and integrity.
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