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The path to climate neutrality is difficult and requires the combined efforts of actors across industries and societies. Market-based solutions are efficient to allocate capital where impact is highest. Voluntary GHG markets can potentially play a large complementary role to mandatory compliance markets as they offer the possibility to engage a wide range of actors – and this far beyond their legal requirements.
Besides technical solutions, nature-based solutions are widely seen as having huge potential as capital requirements are often relatively low. If designed correctly, nature-based solutions for GHG offsets usually also have large positive side effects on biodiversity, soil health, food security, recreational value and other ecosystem services. Several international bodies and trustworthy individuals, NGOs etc. therefore promote the development of nature-based solutions.
One difficulty with voluntary markets and nature-based solutions arises from the fact that actors are largely disconnected from directly visible effects of their actions. On one hand, the positive effects on the climate are not seen immediately, and will moreover only manifest if the other actors behave in a similar manner. More importantly, nature-based solutions will often be implemented in regions with limited access and reduced possibility for personal verification.
Clearly, voluntary markets would greatly benefit if one could be sure that one own’s actions are matched by others in a fair and reciprocal way, and that any given financial contribution reaches the expected beneficiary. This even applies to the most climate-conscious actors – both institutional and private – who need to trust the offered solution to fully engage.
To create trust and to sustain nature-based solutions, reliable monitoring, reporting and verification (MRV) tools are needed. Today, reliable MRV tools are in their infancy and often too expensive. Indeed, it was demonstrated that the voluntary GHG market could potentially grow over several orders of magnitude compared to today’s trading volume, if MRV tools could be made more cost-efficient. High costs for MRV inherently diminish the – mostly small – financial incentives stimulating credit sellers to implement the required land management changes. These counterproductive effects of high MRV costs are particularly strong when GHG prices are low.
Cost-efficient and reliable MRV tools would not only increase financial incentives for market participants to move towards climate-neutral paths but also accelerate the growth of these markets. The Taskforce on Scaling Voluntary Carbon Markets (TSVCM), the Institute of International Finance and McKinsey estimates the market for carbon credits could be worth more than $50 billion by 2030.
At the same time, such tools would also sustain compliance markets, increase awareness and social coherence, and increase trust of society in stakeholders and politics.