As the effects of climate change are becoming undeniably visible with time, there is an increasing awareness of terms like carbon, credit, carbon footprint, or carbon offsets.
In this blog, we will explore what carbon credits for industries mean and their solutions to reduce carbon footprint in detail.

International efforts to reduce carbon footprint

The United Nations (UN) set up the IPCC (Intergovernmental Panel on Climate Change) to address the challenges of climate change. To mitigate climate change effects, the panel set goals to reduce carbon pollution so that the temperature increase stabilizes to 1.5 degrees by 2100 compared to pre-industrial levels.

The increasing temperature of the earth is due to the total amount of carbon present in the atmosphere, not just the carbon emitted.

Therefore, to completely halt the temperature increase, we must balance the carbon emitted with removing carbon from the atmosphere.

In particular, for each gram of carbon that businesses and individuals emit, they must extract one gram of carbon from the atmosphere.

Consequently, this will ensure the overall mass of carbon in the atmosphere remains fixed and that there is a net-zero emission.

To achieve this target, we need to reduce our overall emissions to a 45% reduction by 2030 and reach a net-zero target by 2050.

Assigning carbon credits was a mechanism devised by the Kyoto Protocol in 1997 and the Paris Agreement in 2015 formed by the IPCC to quantify the carbon footprints of an industry.

Background – Carbon Credits, Carbon Offsets and Carbon Markets

All industrial activities inevitably produce carbon and other Greenhouse gases (GHGs) as a biproduct. The government permits industries to emit a limited amount of these GHGs or carbon to curb its adverse climatic impact.

Carbon credits:

A ton of GHG gases emitted equals one carbon credit. For a company, the number of credits received declines over time, and they can sell any surplus credits to other companies to reduce their carbon footprint.

Carbon Offsets:

Similarly, when a company removes carbon emissions as a part of its business activity, it generates an offset. The companies can offset their excess emissions by using renewable energy sources or energy-efficient processes, planting more trees, etc. Other companies can then purchase this carbon offset to reduce their carbon footprint.

Carbon markets:

On that account, the voluntary and regulated carbon markets had materialized. Carbon markets facilitate the companies to trade (buy or sell) their carbon credits and offsets.

In a regulated carbon market, governments or authorities issue carbon credits as a part of regulatory compliance, and the trading works on “cap-and-trade-model”.

On the other hand, voluntary carbon markets allow businesses and individuals to trade carbon credits to offset carbon emissions. However, unlike regulated markets, it is not mandated.

How are carbon credits for industries generated?

With today’s climate crisis, Sustainability and Corporate Social Responsibility are increasingly becoming the integral pillars of industries’ functioning. Various industries – including manufacturing, plastics, automotive, pharmaceuticals, Finance industry, aviation, and logistics are major carbon emitters and are therefore required to mitigate their carbon footprint and make net-zero commitments.

In practice, for most industries, the efforts in this direction involve setting up heavy treatment plants and implementing advanced technologies and other cash-heavy solutions.

However, there are some projects that industries can implement to generate carbon credits:

Invest in renewable energy –

by using renewable energy sources like solar, wind, geothermal, etc, for business activities or funding projects to generate renewable energy by using such sources.

Capture carbon from the atmosphere –

There are specific devices that companies can use to extract carbon from the atmosphere and store it on earth, which can then be used by plants or as a biofuel.
Recycling of materials like plastics

Soil carbon sequestration for agriculture –

farmers can extract soil from the atmosphere and store it in the soil that they can use for farming and productive activities.
Planting more trees and afforestation
Develop Energy-efficient products and services
that use less energy and produce more output.

Use substitute fuel sources-

like biofuels, bio-derived ethanol etc, for production activities.
Overall, increasing education and developing practical solutions to reduce carbon footprint are vital for industries to encourage green operations.

How do companies measure their carbon credits?

Predominantly, most companies aim to offset carbon emissions and position themselves as green companies with sustainable practices. But how do they measure the amount of carbon emissions reduced? How do they ensure the carbon credits they buy from other companies are authentic?

MRV (Monitoring, Reporting and Validation) of carbon credits

MRV (Measurement, Reporting and Validation) is a multi-step process through which third-party authorities can evaluate the carbon offset data.

Measurement:

It is the degree to which the evaluating party can quantify the carbon removal efforts of a company. Organizations must define a process or technology to measure the carbon removal from a specific project or activity. Then, they conduct measurements infield and update and revise protocols as and when required.

Reporting:

It includes providing reliable data and information related to measurement in a transparent and usable format. The developers of carbon removal projects set up a process for gathering, saving and presenting the data. They can either report this data to the evaluating parties or make the information on carbon credits publicly available.

Verification:

Independent third parties access and verify whether the data for carbon removal is accurate and complete. For this purpose, they conduct an audit at the beginning of a carbon removal project to validate it. Further, they monitor the emission reductions on an ongoing basis.

MRV is a mainstay mechanism for carbon markets that builds accountability and trust in the carbon-reduction
ecosystem. Hence, the accuracy and validity of data are crucial in maintaining the integrity of this system.

Digital technologies to reduce carbon credit:

To achieve long-term success in reducing carbon footprint and generating carbon credits, companies must invest in digital technologies that significantly reduce the use of paper and other carbon-generating activities.

Various studies have supported digitization in the operational process to yield sustainable outcomes for industries. For example, organizations can go paperless and increase efficiency by adopting digital data reporting and analytics systems like Microsoft Power BI instead of paper-based reporting systems.

Not only internal operations, but industries can also implement digital technologies to measure their sustainability initiatives and track progress towards their net-zero goals.

Further, technological advancements in digitizing and tokenizing carbon credits can streamline the carbon-trading process with increased transparency and accuracy.

Several countries are now implementing Digitization of MRV (DMRV) systems that simplify the MRV process and increase the efficiency of carbon markets.

Conclusion

As a part of international efforts to counter the impact of climate change, the IPCC devised climate credits as a mechanism for reducing carbon emissions from businesses and individuals. It creates a regulated and voluntary market where companies can trade carbon credits or permits for emissions.

Various industries with high carbon emissions can generate carbon credits and offsets by adopting sustainable practices for their operations.

The companies that cannot do so need to buy carbon credits from other companies and operate at a higher cost.

Moreover, independent third-party authorities access the validity and authenticity of the carbon credits of a company through a Monitoring, reporting, and evaluating system. This system creates trust and accountability amongst industries while trading carbon credits or offsets.

Finally, by embracing digital technologies, industries can reduce their carbon footprint and increase their carbon credit, thus contributing to a greener earth.

If you are wondering how digital technologies can enable growth in your organization without compromising on its environmental impact, you’ve come to the right place. Share your questions or get in touch with us- and let’s see how we can help your business achieve operational efficiency with sustainable digital solutions.