Sustainability in Action is our monthly blog series, featuring a curated selection of new and relevant sustainability insights and actionable recommendations for leaders to drive climate action and growth. In this edition, our McKinsey Sustainability experts Emma Parry and Vishal Agarwal discuss carbon management.
The Paris Agreement sets a clear target: limit global warming to well below 2˚C and pursue efforts to limit warming to 1.5˚C. How?
Imagine for a moment that the atmosphere is a bathtub filled with CO2. To prevent an overflow of carbon, we must slow the tap (reducing emissions) and open the plug (removing carbon from the atmosphere). Scaling both carbon markets and carbon removal technologies is like dealing with an overflowing bathtub. And that’s one of the main takeaways we discussed during the recent webinar we hosted on scaling carbon management solutions to meet the 1.5-degree challenge.
The role of carbon markets and carbon removals to meet the 1.5-degree ambition
Carbon markets provide funding for the transition. They create economic incentives for reducing or removing CO2 and other GHGs and offer co-benefits for community development, biodiversity, and innovation. If our bathtub is overflowing, carbon markets help make it possible to turn the tap off and remove the plug in our overflowing bathtub.
Carbon removals involve actively removing CO2 from the atmosphere and securely storing it--opening the plug to drain water out of the tub. Carbon removals don't replace emissions reductions. They counteract ongoing emissions that are harder to eliminate through nature-based solutions like reforestation or through technological approaches such as direct air capture.
By following the abatement hierarchy, organizations should first decarbonize their operations and value chain and then remove and compensate for remaining emissions through carbon credits.
The challenge: “Emptying the tub” quickly
Voluntary carbon markets (VCMs) grew rapidly to reach $2 billion, however, they must expand to $50-$100 billion in the coming decades to support net zero targets. In particular, the market for carbon removals needs to increase by 40% every year between 2025 and 2030 to meet global climate targets.
The good news: Momentum is growing. COP28 saw new efforts to build trust in carbon markets and innovative transition finance mechanisms. And several advance market commitments, including Frontier, are increasing funding for promising carbon removal technologies.
What does it mean for leaders like you?
As covered in our recent webinar, organizations across the carbon management value chain have good reasons to act now and secure early-mover advantage. Questions to ask depend on your position:
- Governments and regulators: How can we integrate national policy frameworks and global markets to scale climate finance and meet Paris commitments efficiently? How can we create conditions to benefit from rapid growth in value?
- End buyers: What's the best way to source carbon credits for net zero, and ensure the integrity of those credits?
- Project developers: How do we get the funding and buyers you need to grow fast?
- Financial institutions/investors: Which projects and technologies should I invest in, and when?
- Intermediaries: How can we improve offerings, market integrity, and revenue?
Together, carbon markets and carbon removals create a dynamic approach to rapidly emptying the bathtub of overflowing carbon emissions. We need all the tools in the toolbox to meet global targets, and we'll explored this in more detail in our webinar.