As Climate Week kicks off in New York City, on the other side of the continent, thousands attended Salesforce Inc’s annual Dreamforce Developers and Software Conference. in San Francisco. Among the software giant’s many announcements, it revealed plans for a new market for carbon offsets. This may be important because today’s carbon markets are structurally limited in key ways.
First, there are no global requirements for carbon pricing, which means that carbon markets in many places are entirely voluntary. Within voluntary markets, there are a number of factors that limit their growth:
Availability of projects that can generate carbon offsets on a scale sufficient to meet global demand
The quality of carbon offsets generated by current and future projects
Liquidity of voluntary carbon markets, and the ease with which companies can buy and sell credits
Familiarity with voluntary carbon markets for non-business professionals
Without a solution to all of these, voluntary carbon markets will remain restricted in scope. Increasing liquidity and familiarity in particular will be critical to its expansion.
To see why, consider two hypothetical companies, each committed to reducing their emissions:
Company A is a global manufacturing company active in multiple sectors. It has publicized its commitment to specific emission reductions on a set timeline, and has a high-profile strategic package that will set the course for the next two decades. Company A has a plan to convert fuel, rotate capital toward low-emission technologies, purchase carbon-neutral electricity, and purchase carbon offsets. She sees positive aspects in this strategy (and not just because the CEO promised it at the World Economic Forum).
You will have no problem standing up to what you need to achieve their goals. They may even increase profits in doing so.
Then there’s Company B, a regional wholesaler with a new CEO mandate to reduce the company’s carbon footprint in the next decade. Company B does not have the capital to immediately replace boilers, climate control systems, or medium service vehicles. It is not large enough to force changes in the supply chain through purchasing power. It cannot hire dedicated personnel to create a strategic carbon plan or hire expensive consultants to do the same, or build a sophisticated carbon offset trading process.
Although the emissions cuts are true, Company B is structurally constrained.
But one thing Company A and Company B have in common is that they are both Salesforce customers, since Salesforce has the most widely used CRM system in the world. The Salesforce carbon offset marketplace is great for Company A, but it can also be a key component of Company B. Instead of creating new accounts in order to access ratings, or searching for individual compensation projects one by one, she can see them all — and pay for them, via Stripe — in one place. The strategic imperative that may have previously required a dedicated team can now operate at the purchasing manager level.
Of course, a business marketplace like Salesforce doesn’t answer the annoying quality problem with compensation. It does not remove meaningless offsets from the market nor does it absolve companies from liability for their emissions. But fluidity and familiarity are like sunlight: an effective form of disinfectant. It will be difficult for spurious offsets to survive in a much larger market, when more people include carbon offsets in their own business operations. Each new defective compensation report will be more important, as it means something to more companies.
There could be millions of small businesses that care about carbon today, or that will care about it in the future. They desire a carbon strategy but their size, budget and capabilities are inherently limited. Today, these companies must make sincere efforts to bring themselves into the carbon market. Tomorrow, big business markets may bring the carbon market to it.
Nat Pollard is a major contributor to BloombergNEF and Bloomberg Green. He is a partner in the Voyager project, an investor in early-stage climate technology.
© Bloomberg LP 2022