By Akash Keshav
The carbon credits market, born out of the Kyoto Protocol’s ambition to incentivize emissions reductions, was a pioneering, though imperfect, attempt to align economic incentives with environmental goals. It introduced a framework where emissions could be quantified, traded, and offset, creating a financial lever for climate action. However, its evolution reveals both its limitations and the need for a broader, more impactful system of green credits that prioritizes measurable, holistic sustainability outcomes over narrow carbon accounting.
In its infancy, the carbon credit market was a blunt tool. Credits were often tied to projects like reforestation or renewable energy, with value derived from avoided emissions. Yet, the system struggled with issues of additionality, whether projects would have happened without credit funding, and permanence, as seen in cases where forested lands were later cleared. Verification was another hurdle; early methodologies lacked rigor, leading to inflated claims. There are studies that showed that some clean development mechanism (CDM) projects overstated emissions reductions quite significantly. The market’s focus on carbon tonnage also sidelined co-benefits like biodiversity or community development, rendering it reductive.
Greater scrutiny
As global awareness of sustainability grew, so did scrutiny of carbon credits. By the early 2020s, frameworks like the EU’s Emissions Trading System (ETS) and India’s Business Responsibility and Sustainability Reporting (BRSR) began demanding greater transparency and data-driven accountability. Companies faced pressure not just to offset emissions but to integrate sustainability into their core operations. This shift exposed a critical flaw: carbon credits often served as a compliance checkbox rather than a driver of systemic change. Businesses that treated credits as a quick fix, purchasing offsets without addressing Scope 1, 2, or 3 emissions, found themselves vulnerable to reputational risks and stranded assets as regulations tightened.
The transition to green credits marks a response to these shortcomings. Unlike carbon credits, which fixate on emissions, green credits aim to reward a spectrum of sustainability actions—energy efficiency, water conservation, waste reduction, and social impact. They are designed to be outcome-based, tying financial incentives to verified, long-term environmental and social benefits. For example, a green credit system could reward a factory for reducing water usage by 30% through smart metering, with credits tradable on a market that values resource efficiency alongside carbon metrics. This approach aligns with the reality that sustainability is multidimensional, requiring integrated strategies that carbon credits alone cannot address.
Technology has been a linchpin in this evolution. Advanced data systems, powered by AI, now enable real-time tracking of sustainability metrics across the organization and supply chains. Unlike the manual, error-prone processes of early carbon credit accounting, modern platforms ensure accuracy and traceability. For instance, AI-driven analytics can detect anomalies in emissions data or predict the impact of interventions like solar panel installation, making green credits more credible and actionable.
The mindset shift is equally critical. A couple of years ago, sustainability was a boardroom afterthought, often relegated to corporate social responsibility teams. Today, it’s a strategic imperative. Companies that embraced digitization early in the 2010s gained a competitive edge; similarly, those embedding sustainability now, through green credits and beyond, are reducing business risks exponentially. Yet, awareness gaps persist, particularly in regions where sustainability is still equated with compliance rather than opportunity.
The article is authored by Akash Keshav, CEO & Co-founder, Sprih. The views expressed are personal
