Bending the Curve

RENEW CARBON MARKETS

It's time to rethink the role of carbon credits

In this paper, we put forward TNC’s vision for the role carbon credits can play in corporates’ transition to net zero to: complement value chain decarbonization, fill the implementation gap where direct mitigation is falling short, and go beyond net zero.

Introduction
Our Approach
The Four Use Cases
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Meeting the Paris Agreement goals is urgent and requires leveraging all available climate solutions. Companies play a crucial role in the transition to global net zero.

In addition to reducing their own emissions, companies’ investments in high-integrity carbon credits within specific guardrails can be a powerful tool that reduces emissions while channeling investments to under-financed mitigation projects (like natural climate solutions) and the communities that lead them, especially in the Global South.

The role of the voluntary carbon market in corporate climate action has been a lightning rod for debate, particularly due to concerns that it could stall meaningful internal decarbonization progress. Leading corporate climate standards and guidance have established a minimal role for carbon credits in the new “net zero” target model, instead relying almost entirely on internal mitigation.

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In recent years, there has been an explosion in companies setting net zero targets: according to Net Zero Tracker, 66% of the annual revenue of the world’s largest 2000 companies is now covered by a net zero target. Yet while the number of targets has soared, real mitigation remains slow and concerns are emerging about companies’ abilities to follow through on those commitments using direct within-value-chain abatement alone.

At The Nature Conservancy (TNC), we think carbon credits can play a larger role in voluntary net zero standards and best practices, especially in the near term, in a way that is complementary to value chain decarbonization and accelerates climate progress.

Our Approach

The Nature Conservancy collaborated with MSCI to quantify the mitigation and market potential of each case. We analyzed emission data from more than 4,000 publicly listed companies with climate targets and estimated potential credit demand ranges for all use cases by developing a set of high- and low-end assumptions, which defined the number of companies that would qualify and be interested in adopting a framework.

Aerial shot of mountains with green patches of plant cover. — Restoring Carbon's Potential Years of heavy logging on the Olympic Peninsula have reduced the forest’s ability to store carbon and made it less biologically diverse and less resilient to drought. © Chris Crisman

We are in a climate emergency—and we need to act accordingly. Now is the time to expand the number of climate solutions available, not limit it.

The Four Use Cases

Bending the Curve Use Case 1 A graph of use case 1 for carbon credits for corporate net zero © TNC

USE CASE 1

Close the Gap

First, close the gap where internal decarbonization is falling short in the near term. Of all four use cases presented here, this would result in the greatest near-term mitigation by carbon credits: as much as 5.9 GtCO2e per year—equivalent to all emissions from the United States in 2022. While voluntary net zero standards have historically not allowed for credits to address near-term shortfalls in direct value.

Bending the Curve Use Case 2 A graph of use case 2 for carbon credits for corporate net zero © TNC

USE CASE 2

Address Unabated Emissions

Once companies are on track to meet targets without carbon credits, use credits to address unabated emissions. This use case could lead to between 0.27 and 3.2 GtCO2e of additional mitigation, with the ceiling being constrained mostly by how many companies can reach their climate targets and how many are willing to go beyond.

Bending the Curve Use Case 3 A graph of use case 3 for carbon credits for corporate net zero © TNC

USE CASE 3

Neutralize Residual Emissions

When companies have reduced internal emissions as much as possible, use credits to neutralize residual emissions—the “net” in net zero. Of any use case, this has the smallest potential in terms of additional mitigation: between 0.1 and 1.3 GtCO2e per year yet is the only use case that is fully aligned with and mandated by existing standards.

USE CASE 4

Take Responsibility for Historical Emissions

After achieving net zero, take responsibility for historical emissions. Using credits in this way can allow companies who bear more responsibility for the climate crisis, or who want to clearly demonstrate leadership, to also contribute more to climate solutions.