As climate action becomes a must-have activity in every business worldwide, more and more companies are pledging to help stop climate change by reducing their greenhouse-gas emissions to the lowest possible point.

But even with the best intentions in mind, many businesses find they cannot eliminate their emissions or even lessen them as quickly as they wish or even need to. The challenge is especially tough for organisations that aim to achieve the coveted net-zero status, which some investors and customers are now looking for when they decide where to invest their hard-earned money. This is where carbon credits come in - an accessible way to offset emissions that are not dismissable by other means.

A carbon credit is a kind of permit that represents one ton of carbon dioxide removed from the atmosphere. They can be purchased by an individual or a company to make up for carbon dioxide emissions from industrial production, delivery vehicles, or travel. It is a permit that allows the owner to emit a certain amount of carbon dioxide or other greenhouse gases. Today, after long years of development, credit categories include avoided nature loss (including deforestation); nature-based sequestration, such as reforestation; avoidance or reduction of emissions such as methane from landfills; and technology-based removal of carbon dioxide from the atmosphere.

The market is undoubtedly growing by the day, yet market size ranges widely due to varying calculations. According to global management consulting firm McKinsey, demand for carbon credits could increase by 15 or more by 2030 and by a factor of up to 100 by 2050. Overall, the market for carbon credits could be worth upward of $50 billion in 2030.

Forecasts and global trends paint a pretty green picture of the high demand carbon credits simply cannot meet today. So what are the main issues, and how should they be addressed? Let’s jump in.

Growing market, fundamental problems

After many years of a slow, somewhat specific movement, carbon credits have reached a boiling point where the market is now facing a demand it simply cannot answer, as requests for offsetting activities have skyrocketed. The reasons for the lack of available credits vary; Most potential supply of avoided nature loss and nature-based sequestration (two of the more dominant types of projects) is concentrated in a small number of countries to which not all companies have access. Many projects struggle with initial financing due to high risk and long lag times between the initial investment and the final credit sale.

Accounting and verification methodologies present a central issue, hurting the market’s integrity and compliance. Overall, the market is characterized by low financing, low liquidity, a worrying lack of risk-management services, and minimal transparency. As carbon credits become an essential part of our business reality worldwide, now at a point where they are crucial in reaching emission goals, SDGs, and other imminent records, change is badly required by all parties.

The fundamental pillars must be enhanced and work together to establish a positive movement to create a better, more adaptable market that could meet rising global demand. First, the development of offsetting projects must increase at an unprecedented rate and include more geographies and sectors. Second, transparency would have to become a key factor and would be reached through proprietary technologies. Gold standards must be agreed upon for the formalities, and vetting entities would be essential in asserting the quality of projects. At the same time, accounting and finance would have to partake in setting said standards. As with other markets, serious regulatory efforts would have to be a dominant factor in making a trusted deal path.

It might seem like a lot of effort, but there is an underlying potential for extensive global change to go along. For the companies operating in the sector, financial incentives will lead to increased business, and those who need it the most – that is African countries – could benefit from the extended operations.

In fact, it is Africa that can and should lead the transition, as many countries across the continent have the potential to enjoy the outcomes of an array of offset projects – such as renewable energy electrification, and others – bridge financing gaps, and reach proper infrastructure, all the while supporting the just transition.

Each factor here requires its own article for a deeper, more thorough explanation. But the gist is that carbon credits are becoming an essential part of our business environment, and they must be regulated, transparent, and straightforward. Governments, private entities, intermediaries, and offsetting projects should all come together to generate a better global sphere that could lead us all during the just transition.

The writer is an entrepreneur and investor, leading sustainability-driven companies in Africa and the Middle East