Carbon credits on the EU’s emissions trading system rose above €100 per tonne for the first time on Tuesday, a milestone in the terms of incentivising firms to invest in clean tech.
Credits, used by businesses to offset one tonne worth of CO2 emissions, rose to €105 (£92) on Tuesday afternoon on the European market, up over 21% over the past 12 months and having rocketed up from €23 in February 2020. Some other measures suggested it topped the milestone earlier this week.
Larger emitters, like coal and gas firms, have to buy credits in the European Union as part of efforts to stem pollution, meaning increased use of such fuels due to the energy crisis has pushed up demand.
What's more, the EU introduced rules this year aiming to reduce the number of credits in its system over time, also inflating the price.
Higher prices should, therefore, lead to companies investing in cleaner technologies, such as carbon capture.
In theory, carbon credits are designed to reduce overall greenhouse emissions by allowing eco friendly schemes to be created using money from emissions producers, although the idea has been much criticised.
Critics also say carbon credits are often double counted, with two parties able to claim the emissions reductions from a single credit, while carbon projects are also said to fail as they are not 'additional', meaning that the project does not contribute to achieving additional climate benefits compared to if the project had not existed.
An investigation published last month found that 90% of offsets issued on the world’s largest carbon market Verra were “phantom credits” last month, actually achieving little in reducing emissions.
Businesses were also found by the UK’s Climate Change Committee to be over-relying on offsets in October, with the group calling for more regulation in carbon markets, which often offer firms investments in schemes in other countries.
New research with board directors of FTSE 350-listed companies found that 95% would invest more in domestic carbon offsetting projects if these were more transparent and easier to validate. The research was commissioned by Kana Earth, which is looking to create a new ledger for UK carbon offset units that is more transparent and easier to validate.