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The Social Side of the Carbon Market

The carbon market has been dominated by price since its inception. Nowadays, price is still the number one factor determining purchase decisions. Specifically, the price per ton is the most critical metric. While there is inherently logical to incorporate pricing into the purchase, it is often much harder to put a price on the social side of carbon projects, this leads to its neglect.





CO2 as the main metric

The typical carbon offset project has the goal of simply reducing the amount of carbon in the atmosphere, or reducing the amount to be emitted in the future. This makes CO2 the key metric in projects. While there is inherently nothing wrong with this, it can lead to negative externalities on the communities around the projects. For instance, recently communities in the Democratic Republic of Congo have been misled into signing their rights away. Community members signed agreements that restricted the use of their own lands for generations to come, they were lied to and information was not adequately explained. Furthermore, biodiversity associated with projects is oftentimes neglected.


The motivation of companies

Companies that offset with carbon removal/ reduction projects are mainly motivated by customer, partner, and shareholder pressure. The desire is caused because the biggest environmental public issue is emissions reductions. In this context, net zero pledges have almost become expected. Half of the Forbes 2000 largest firms have pledged to become net-zero in some form. Firms take a purely financial approach to commitments. They do carbon accounting balances and then look for cheap ways of reducing emissions (As a side note, oftentimes see offsetting as a cheap way not to reduce emissions, which is also extremely controversial and wrong. It will be the topic of a future article.) After this comes offsetting. When offsetting, unfortunately often only the carbon metric is taken into account. Firms want to be net zero without spending huge amounts of money.


The Social side is coming into focus

Recently there has been a spotlight on carbon credits, and consciousness of common methods and social costs has garnered attention. This is a good thing, it forces companies to put a higher emphasis on the reduction of emissions (by for example using more efficient processes). Furthermore, people are more likely to focus on how firms offset, when they claim to do so. Companies will need to be transparent about how they offset if they wish to be taken seriously by their stakeholders. High-quality carbon offsetting, that shows the public how the process works will become the norm.