Why Carbon Finance Matters

The climate crisis is a huge issue that affects all of us. To tackle it, we need as many people and companies as possible to engage with the best solutions out there. One such solution are carbon (removal) credits, which have recently gotten a lot of attention. Let's dive into what exactly they are, how they work, and if they actually are a legit and impactful form of climate action.

What is Carbon Fiance?

Carbon credits (or carbon finance) offer a way for corporations and individuals to take responsibility for the emissions they produce. Carbon credits should be used in addition to reducing avoidable emissions, and they are essentially a way to move money from entities that are negatively impacting the planet to projects that are working to mitigate this negative externality, specifically by removing carbon from the atmosphere.

Often, carbon projects are located in areas that suffer from dramatic tail events of our changing climate, and financial support for local project developers is key for them to scale and continue doing planet-positive work.

Learn more about the carbon removal projects you can support via CHAR by Toucan, ie. BC Biocarbon, American Biocarbon, and Exomad Green.

How are Carbon Credits generated?

A carbon credit is a tradable token representing one tonne of carbon dioxide (or an equivalent amount of another greenhouse gas) that has been removed from or prevented from entering the atmosphere. Carbon projects can specialize in all kinds of methodologies, from the conservation of wetlands to reforestation or engineered carbon removal, helping to combat our climate crisis.

To generate carbon credits, project developers must complete rigorous steps to ensure their credits genuinely represent a reduction or removal of greenhouse gases. Whether it's a reforestation, biochar, or blue carbon project, each must meet strict standards and undergo verification by independent carbon standards.

Once verified, credits are issued and recorded in a registry. Companies can then purchase these credits to offset their emissions or hold them for future use. This process ensures that the credits reflect real environmental benefits.

The Role of Carbon Credits in Climate Action

In an ideal world, we have a thriving carbon credit market that generates significant carbon finance, which is directly reinvested in projects that reduce or remove greenhouse gases, while providing additional benefits to people and biodiversity. But currently, carbon markets are not scaling as fast as they could, and they have been under scrutiny because of trust and transparency issues.

Here, businesses and individuals come in – they can play an important role in accelerating the market to its full potential.

Their demand for transparent and credible climate action spurs project developers to supply high-quality credits, creating a positive flywheel that enhances the ways through which humanity can contribute to climate action.

Why Do Companies even Buy Carbon Credits?

Companies purchase carbon credits for two main reasons. Firstly, to compensate for emissions they cannot currently eliminate. Secondly, companies can buy credits to support broader climate action, independent of their emissions, demonstrating a commitment to global environmental improvement.

The money they spend on carbon credits provides essential financial backing, known as carbon finance, to projects that mitigate greenhouse gases. This finance is vital for projects to scale. Often, this money is also used to exacerbate sustainability co-benefits of a given project.

Web3: A New Frontier for Carbon Credit Demand

Web3 technology offers a transformative opportunity to scale up demand for carbon credits and create liquid carbon markets. By moving carbon credits on-chain, blockchains can improve transparency and trust in the market, and simplify and democratize participation in climate finance, so as many individually and organizations as possible can contribute. Off-chain, it can be difficult to access carbon credits, which slows down climate action.

Web3 also enables new and innovative uses of carbon credits. For example, integrating credits into decentralized applications (dApps) can increase demand and incentivize more project development, as credits aren't "only" bought to support climate projects – they can also have a utility. Web3 infrastructure also allows for countless ways to incorporate automated "planet fees" that are taken on each transaction. This ensures that as Web3 adoption grows, so does the capital deployed to climate action.

The Future of the Carbon Market

The carbon market is evolving, guided by national and international guidelines into a fast-paced, interconnected system. This positive momentum, coupled with the potential of Web3, can significantly enhance the environmental and social impacts of carbon credits.

Companies have a powerful role in shaping this future. Their demand will drive the market, determining how quickly carbon finance can be channeled to climate mitigation projects. This demand sets the tone for a sustainable and impactful future.

By understanding and participating in the carbon market, we can all contribute to meaningful climate action, supporting Toucan's mission to facilitate better carbon finance and create a healthier planet for future generations.