Fixing carbon credits requires a new financing model.

Abstract

Carbon-crediting mechanisms could play a critical role in achieving net zero, yet growing evidence shows that many offset projects lack environmental integrity. Achieving geological net zero requires balancing residual fossil fuel-based emissions with permanent carbon dioxide removal (CDR), making the scale-up of CDR essential. However, current discussions on improving carbon-crediting mechanisms have focused too narrowly on implementation challenges, such as refining standards or monitoring systems. We argue that scaling permanent carbon removal requires a new financing model to address market barriers. This financing model must reduce price volatility and raise credit prices to attract investment. We propose a tiered auction framework to build and scale markets for novel CDR technologies by (i) setting a permanent removal target, (ii) ensuring minimum quality standards, and (iii) running reverse auctions combined with first-of-a-kind finance.