Will a carbon market happen?

Dear Headway readers

Here’s a mood brightener for you: Lots of scientific and business model innovation is now going toward removing carbon from the atmosphere.

But there’s a hitch. Who’s going to pay for it?

For years now, the hoped-for answer has been “businesses.” As a way of compensating for their emissions, many companies now buy carbon offsets, which pay for things like planting trees or growing cover crops to capture carbon in the soil. They do this either to comply with regulations or out of a sense of corporate citizenship. Europe and the United Kingdom have “compliance markets,” since they have imposed limits on emissions. But in the U.S. there is only a “voluntary carbon market,” reliant on the squishier concept of good will.

Private market, public trust

The voluntary carbon market is much smaller than the compliance markets, but it had been growing quickly — up until about a year ago. That’s when prices for offsets swooned and large buyers pulled back. A series of press reports found that many credits, especially those intended to avert deforestation, had flawed underpinnings. Some companies that touted themselves as “carbon neutral” based on offsets they purchased have been sued by customers for making false claims.

Those who are trying to put markets to work for nature restoration worried that the critiques, while often merited, could torpedo the industry.

“More than anything, it’s perpetuated a lack of trust in the voluntary carbon market, which has greatly affected demand,” the Arbor Day Foundation lamented last year.

Trust: Markets can’t scale without it. Trust is forged from common standards and the knowledge that someone’s enforcing them. Carbon markets have neither of those things, yet.