The brutal reality of climate physics is that the carbon budget to limit warming to 1.5C will be exhausted within a decade if the world remains on its current trajectory. That makes emissions reductions today especially crucial because they create time for the enormous investments needed in clean technologies, while extending the horizon to commercialise such innovations.
Voluntary carbon markets can play a key role in realising this time value of carbon. At present, VCMs are small — just $2bn annual issuance globally. This is largely because they have lacked integrity. There are valid questions about the credibility of claims made for projects and by buyers, the negative impacts on local and indigenous communities and whether the expansion of credits could disincentivise absolute emissions reductions.
Policymakers are now stepping up to address these concerns. The US government took a groundbreaking step last month in announcing its principles for responsible participation in VCMs. It is putting to work the power of market-based solutions to build a clean economy that supports jobs, communities and growth. This is a vital first move. To reach the scale needed, major economies should work together to build globally integrated markets, not least to expand dramatically the decarbonisation opportunities for emerging and developing economies that are currently starved of capital.