Carbon Markets Allow the Mobility Industry to Contribute to the Net-Zero Efforts

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In a typical year, the world adds 51 billion tons of Greenhouse Gas (GHG) emissions to the atmosphere, with 16% of those emissions coming from the mobility sector. Over the past few years, governments and regulators have implemented several mechanisms developed for accelerating a net-zero transition. Among these mechanisms, carbon credits schemes became highly relevant, particularly for the mobility industry.

What are carbon credits?

Environmental and industrial regulators globally define a threshold for the amount of carbon dioxide a business can emit, these relative amounts are accounted for through a system of carbon credits, which are essentially regulatory permits to emit an allotted amount of GHG emissions per year (usually one ton of CO2 per credit).

Businesses are allowed to trade their carbon credits with one another, so that one company may sell its unneeded carbon credits to another that needs to emit more than the set threshold. This provides companies with an added incentive for both parties to reduce emissions: the sale of spare carbon credits on the one hand can become an added source of revenue, and on the other hand, the purchase of spare carbon credits is an unwelcome cost.

According to estimates, carbon credit trading schemes have a notable impact on emissions reduction efforts; for example, since the EU Emissions Trading System (ETS) was introduced in 2005, emissions have been cut by 42.8% in the main sectors covered.

Mandatory vs Voluntary Carbon Markets

There are two different types of carbon markets: mandatory and voluntary. Mandatory carbon markets are used by companies to offset emissions levels to be compliant with regulated emission targets, while voluntary carbon markets, as the name implies, involve carbon credits being purchased regardless of compliance status.

Although mandatory markets (USD276 billion) are much bigger than voluntary markets (USD1 billion), voluntary markets are growing significantly faster.

Carbon Credits and the Mobility Industry

So, where does the mobility sector fit in? As one of the most polluting industries, the mobility industry can and should use carbon offsetting schemes and carbon credit trading to align with the global trend. These days, carbon credit trades are already taking place in the mobility industries in the US, China, and the EU through governmental schemes that promote the manufacturing and use of zero-emission vehicles (ZEV). These schemes allow OEMs to buy, sell, and trade special credits with other OEMs in the industry. As with the carbon credit systems in other industries, programs like these provide incentives for OEMs to achieve their climate goals and serve as a tool for the transition to zero-emissions vehicles, while also allowing OEMs that cannot meet the emission threshold to avoid high fines.

Although the carbon credit trading mechanism is not significantly relevant for fleets or private consumers, there are examples of carbon offsetting activities that are done by both. From the fleets’ perspective, various initiatives allow companies that operate fleets to monitor and measure their carbon emissions and offset them by funding nature-based solutions. Likewise, several initiatives encourage private consumers to offset their carbon emissions or improve their carbon-emitting behavior by offering financial and personal incentives.

Carbon Credit Challenges

Despite the significant growth in activity in the global carbon credit markets, there are several challenges that may make it difficult to continue in its development. First, the market has high entry costs due to the expansive and complex process of documentation, monitoring, and verification of carbon emissions-reducing projects. In addition, the differences in emissions measurement standards and carbon credit accounting rules create difficulties in properly estimating projects. And finally, the lack of pricing information in the market, in terms of both supply and demand, makes it challenging for buyers to know whether they are paying a fair price for the carbon credits.

To answer these challenges, various tech companies and startups are developing innovative solutions such as unified carbon credits marketplaces based on blockchain technology, carbon footprint measurement with IOT applications, SaaS carbon accounting solutions, and smart tools to help market pricing.

An Industry-wide Commitment

Given its significant share of global carbon emissions, the mobility industry is committed to contributing seriously to the effort to reach a net-zero economy. This process needs to be done, first and foremost, through the reduction of the carbon footprint of all parts of the industry, but also by participating in carbon credit markets and carbon offsetting programs.

Drive TLV has released comprehensive research on this topic and invites you to download it. Please feel free to reach out to us with questions, comments, or concerns.

In a typical year, the world adds 51 billion tons of Greenhouse Gas (GHG) emissions to the atmosphere, with 16% of those emissions coming from the mobility sector. Over the past few years, governments and regulators have implemented several mechanisms developed for accelerating a net-zero transition. Among these mechanisms, carbon credits schemes became highly relevant, particularly for the mobility industry.

What are carbon credits?

Environmental and industrial regulators globally define a threshold for the amount of carbon dioxide a business can emit, these relative amounts are accounted for through a system of carbon credits, which are essentially regulatory permits to emit an allotted amount of GHG emissions per year (usually one ton of CO2 per credit).

Businesses are allowed to trade their carbon credits with one another, so that one company may sell its unneeded carbon credits to another that needs to emit more than the set threshold. This provides companies with an added incentive for both parties to reduce emissions: the sale of spare carbon credits on the one hand can become an added source of revenue, and on the other hand, the purchase of spare carbon credits is an unwelcome cost.

According to estimates, carbon credit trading schemes have a notable impact on emissions reduction efforts; for example, since the EU Emissions Trading System (ETS) was introduced in 2005, emissions have been cut by 42.8% in the main sectors covered.

Mandatory vs Voluntary Carbon Markets

There are two different types of carbon markets: mandatory and voluntary. Mandatory carbon markets are used by companies to offset emissions levels to be compliant with regulated emission targets, while voluntary carbon markets, as the name implies, involve carbon credits being purchased regardless of compliance status.

Although mandatory markets (USD276 billion) are much bigger than voluntary markets (USD1 billion), voluntary markets are growing significantly faster.

Carbon Credits and the Mobility Industry

So, where does the mobility sector fit in? As one of the most polluting industries, the mobility industry can and should use carbon offsetting schemes and carbon credit trading to align with the global trend. These days, carbon credit trades are already taking place in the mobility industries in the US, China, and the EU through governmental schemes that promote the manufacturing and use of zero-emission vehicles (ZEV). These schemes allow OEMs to buy, sell, and trade special credits with other OEMs in the industry. As with the carbon credit systems in other industries, programs like these provide incentives for OEMs to achieve their climate goals and serve as a tool for the transition to zero-emissions vehicles, while also allowing OEMs that cannot meet the emission threshold to avoid high fines.

Although the carbon credit trading mechanism is not significantly relevant for fleets or private consumers, there are examples of carbon offsetting activities that are done by both. From the fleets’ perspective, various initiatives allow companies that operate fleets to monitor and measure their carbon emissions and offset them by funding nature-based solutions. Likewise, several initiatives encourage private consumers to offset their carbon emissions or improve their carbon-emitting behavior by offering financial and personal incentives.

Carbon Credit Challenges

Despite the significant growth in activity in the global carbon credit markets, there are several challenges that may make it difficult to continue in its development. First, the market has high entry costs due to the expansive and complex process of documentation, monitoring, and verification of carbon emissions-reducing projects. In addition, the differences in emissions measurement standards and carbon credit accounting rules create difficulties in properly estimating projects. And finally, the lack of pricing information in the market, in terms of both supply and demand, makes it challenging for buyers to know whether they are paying a fair price for the carbon credits.

To answer these challenges, various tech companies and startups are developing innovative solutions such as unified carbon credits marketplaces based on blockchain technology, carbon footprint measurement with IOT applications, SaaS carbon accounting solutions, and smart tools to help market pricing.

An Industry-wide Commitment

Given its significant share of global carbon emissions, the mobility industry is committed to contributing seriously to the effort to reach a net-zero economy. This process needs to be done, first and foremost, through the reduction of the carbon footprint of all parts of the industry, but also by participating in carbon credit markets and carbon offsetting programs.

Drive TLV has released comprehensive research on this topic and invites you to download it. Please feel free to reach out to us with questions, comments, or concerns.