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Understanding Climate Contributions

Understanding Climate Contributions

Climate Contributions: A New Tool for Achieving Credible Net-Zero Targets

Companies are increasingly turning to climate contributions as a means to achieve their climate action goals and establish credible net-zero targets. Unlike carbon offsetting, which has faced scrutiny in recent times, climate contributions go beyond reducing a company’s own emissions and instead focus on financing climate projects that contribute directly to global carbon reduction and net-zero efforts.

The Science Based Targets initiative (SBTi) is leading the way in guiding companies on how to effectively utilize climate contributions, referring to them as “beyond value chain mitigation” (BVCM). According to SBTi, climate contributions should complement a company’s internal climate targets and not replace the need for calculating their own carbon footprint. This involves reducing scope 1 and 2 emissions and using carbon credits to compensate for scope 3 emissions.

In the short term, climate contributions may involve financing carbon avoidance projects and investing in early-stage carbon removal projects. However, in the long term, companies are expected to directly finance carbon removal credits in line with the Oxford Principles for Net-Zero. The voluntary carbon market will still play a role in purchasing and offsetting credits used for climate contributions.

Climate contributions offer several advantages over traditional carbon offsetting. They enable a more comprehensive approach to climate action by encompassing a broader range of investments, donations, or policy engagement. Contributions can support carbon avoidance and removal projects in the global North, allowing for investments in innovative projects in Europe and the US. Additionally, contributions provide more flexibility in terms of the type of climate action supported and the amount of money spent.

By making climate contributions, companies can avoid accusations of greenwashing as they do not claim carbon neutrality based on these contributions. Furthermore, the transparency issues that afflict the voluntary carbon market do not affect the validity of diverse contributions. Contribution claims also avoid accounting challenges related to Article 6 of the Paris Agreement, which allows countries to claim carbon credits against their national climate contribution.

While the use of climate contributions is still emerging, companies are already investing in carbon removal solutions and early-stage projects. However, there is a need for accompanying regulations to ensure the credibility and effectiveness of climate contributions. Blockchains can play a crucial role in supporting climate contributions by tokenizing and transparently recording them on a publicly accessible ledger. This would address the opacity issues associated with the voluntary carbon market and enable timely monitoring, reporting, and verification of climate impact.

Toucan, a technology company, is actively working on building digital infrastructure to unlock climate action at scale. Their aim is to increase the flow of revenue to the most effective climate impact projects by bringing environmental assets onto the blockchain.

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