Why we shouldn’t trade carbon offsets

There’s more money than ever flowing into carbon markets. One estimate predicts the market for carbon credits will be worth upward of $50 billion in 2030. Unfortunately, not all of the investments into the market are translating into more projects that reduce, avoid, or remove carbon emissions from the atmosphere. This is due to a phenomenon called carbon trading. Let's take a closer look at this problem and how fixing it now can help us reverse climate change.

Carbon offsets are getting resold in secondary markets. What does that mean?

Imagine this: a supplier creates a carbon offset and sells it to a buyer. The buyer then permanently owns that carbon offset and the offset is taken out of circulation. When this happens, we say that the offset has been “retired,” which means it cannot be used again or resold. In a perfect world, this should be the life cycle for every offset. But in the real world, carbon offsets are routinely sold over, and over, and over again before finally being retired — or they simply don’t get retired.

The secondary market (where carbon offsets are resold) is actually twice as large as the primary market for carbon offsets.

According to the most recent data from Forest Trends (a major nonprofit that assesses the carbon market in yearly reports), 239 million tonnes of carbon were traded last year, for a total value of $748 million. That’s not a fair estimate of the carbon being offset though – that’s just a representation of the trades that have happened. The amount of actual carbon that’s been offset is far, far less. And, after all the trading and re-trading, very little of the total money spent on the offsets ends up in the hands of the project developer — the person who actually generated the carbon offsets.

Okay, this is bonkers. Why do the markets operate like this?

If carbon offsets are used as a tool for climate action, then why do they get re-sold? Money is a big driver here. By reselling offsets, buyers can achieve advantages in price changes and make a profit. It’s literally losing sight of the forest for the trees.

Proponents of carbon trading will tell you that there’s no way to find true price discovery if you don’t trade a commodity. Therefore, by trading the offsets, they can establish their worth. It may sound like a dog chasing its tail but there is a kernel of truth here. If every carbon offset was immediately bought and then retired, sellers would effectively have total control over how they priced their carbon. By trading the offsets over and over again, some baseline price points can be established for both buyers and sellers in the marketplace.

But price discovery via repeated trading doesn’t address what we really need in the carbon market, which is throughput. Put simply, throughput is how much carbon is actually being removed from the atmosphere at any point in time. There is already far too much CO2 in the air, and the more that we can remove from the atmosphere right now, the more likely we can avoid the worst-case warming effects. Carbon trading leads to inflated carbon market numbers that give a false sense of climate action, while throughput remains low.

Trading the same tonne of carbon over and over doesn’t solve climate change. So how do we fix it?

Price discovery should happen on a tradeable commodity asset that isn’t carbon itself. The trading can help determine the price of carbon without sacrificing the value of the commodity behind it.

At Nori, we’ve created a two-asset model in our marketplace. It’s simple: the carbon removal offsets in our marketplace are retired the moment they’re sold. This makes it impossible to re-sell them.

The second asset in our marketplace is $NORI, our soon-to-debut token. By connecting each carbon removal to a $NORI token, we can allow people to trade the token without trading the carbon. The carbon removal is retired the moment it’s sold while the market discovers the price of carbon. Most importantly, it ensures that every new dollar spent on carbon removals will result in net new carbon coming out of the atmosphere.

Since the listing of our first NRT back in 2019, 100% of Nori’s carbon removals have been retired immediately upon sale and tracked on-chain. With the soon-to-launch $NORI token, we will have true price discovery of a tonne of carbon for the first time, without sacrificing the carbon removal in the process. The future is bright, and green. Stay tuned.

Want to buy carbon removals that maximize impact? Each Nori Carbon Removal Tonne (NRT) represents 1 tonne of CO2 removed from the atmosphere and stored. They're third-party verified, trackable, and immediately retired to avoid carbon trading. Buy NRTs here.

Want to discuss, learn or meet other folks in the space? Our discord community is vibrant and can’t wait to meet you!

Want a rundown of how Nori is shaking up the carbon market business? Check out our CEO Paul Gambill’s video presentation on how Nori’s making a difference.