The problem of climate change cannot be solved without capitalism. Governments have tried for more than three decades with little to show for it. And while more of them are now engaging partners in the private sector, the world is still lagging in deploying the full power of the market.
An announcement by the Joe Biden administration in the US could help change that by beginning a much-needed overhaul of the market for carbon credits. Global investment in clean energy has accelerated but is far below what’s required to restrain rising temperatures. Governments will not make up that difference on their own.
Private capital will be needed, and while businesses and investors are eager to provide it, a market failure in one crucial area—carbon credits—is keeping them on the sidelines. Carbon credits, which are bought and sold in a voluntary carbon market, offer companies and investors many ways to reduce greenhouse-gas emissions. In addition to helping finance new clean-energy installations, these credits can drive capital to projects with high upfront costs and high potential rewards, such as scaling up green hydrogen technology.
They can also play a role in funding reforestation and ecological preservation, as well as financing the early retirement of coal plants. There is enormous potential demand for carbon credits. Many business leaders recognize that tackling climate change is in their companies’ self-interest and are setting ambitious decarbonization goals.
That is not altruism. It’s capitalism. Companies have far less control, however, of their ‘Scope 3’ emissions, those generated by suppliers and customers.
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