Finance & Investment
Climate Vault Aims to Spur Climate Action by Locking Away Carbon Permits

The voluntary carbon market (VCM) is facing a reckoning. Objections and red flags abound — with opponents citing a lack of additionality and quality in reporting, and offering a blank check for polluters to keep emitting instead of verifying real emissions reductions. Alternatively, government-regulated compliance carbon markets (also called CCM or cap-and-trade markets) give polluters a set number of permits that allow them to emit one ton of CO2 in the market’s jurisdiction. If the polluter doesn’t use all of its allowances, it can sell them to others that overshoot theirs, and vice versa.

The goal is an eventual reduction in the number of permits released, thereby encouraging a fossil fuel phase-out and investments in clean technologies.

Regulated carbon markets tend to have a higher degree of credibility and proven additionality than voluntary markets. And because the number of allowances is capped, they’re also tradeable, bankable and scarce — so, when traded and sold, they can pull significant market levers influencing large-scale carbon management.

Organizations and businesses looking to voluntarily participate in regulated carbon markets must go through a lot of red tape; and many organizations fall outside of a regulated market’s jurisdiction. It’s a stumbling block keeping many companies from participating in the rigorous standards of CCMs, and a major reason many companies and organizations choose to participate in voluntary markets instead.

Seattle-based nonprofit Climate Vault Solutions — launched just last month by the nonprofit Climate Vault, Inc — wants to change that by opening up the $851 billion global compliance market to the masses.

“We are big believers in the notion that markets can be a powerful force for good when it comes to combating climate change,” Climate Vault Solutions CEO Jonathan Cohen told Sustainable Brands® via email. “The elegance of CCMs is their simplicity: When you purchase one allowance, you prevent a polluter from emitting one ton of CO2. As a third-party custodian, Climate Vault is opening the door for those that are serious about taking meaningful climate action by providing bespoke carbon consultations and making the administration and audibility of allowance purchases significantly easier and faster.”

Climate Vault — which is recognized with CDP as a Science-Based Targets Accredited Solution Provider — aims to create an ecosystem linking offsets, carbon markets and carbon-dioxide removal (CDR) to address both past, present and future emissions. Climate Vault works with supporters, organizations and individuals to purchase and vault CO2 permits from regulated cap-and-trade compliance markets — thus keeping major polluters such as utilities from using them to emit and, theoretically, stopping pollution before it happens. Climate Vault then uses the value of vaulted permits to remove atmospheric carbon from verified, breakthrough CDR projects.

Here's how it works:

1. Company 1 and Company 2 calculate their emissions (ex: X1 and X2 tons).

2. Company 1 and Company 2 cover the costs associated with obtaining enough permits to cover X1 and X2 tons.

3. Climate Vault purchases X1 and X2 permits on the regulated market and “locks” them away, reducing the amount of CO2 that can be emitted into the compliance market.

4. Climate Vault exchanges Company 1 and 2’s permits (X1 + X2 = Y) and uses the funds to purchase Y tons of carbon-dioxide removal (CDR) from a verified CDR project.

5. CDR purchases enable further innovation and scale in CDR solutions aimed at promoting greater deployment and lowered costs.

“Because the number of allowances is capped by a governmental body and each allowance is serialized, keeping them off the market verifiably decreases CO2 emissions and provides a quantifiable and immediate carbon reduction — limiting the risk of greenwashing for our clients,” Cohen explained. “Through this market-based approach we can track, quantify and verify the precise amount of our carbon reductions. Our clients and donors know they are having a real and measurable impact on carbon reduction today, rather than hoping for positive results years or decades down the line.”

The elephant in the room

Offsets, Cohen told us, have become a four-letter word in the sustainability lexicon.

“Traditional voluntary offsets have struggled with and been criticized for credibility issues stemming from inadequate oversight, lack of measurability, and inconsistent third-party verification almost since their inception,” he said.

Scrutiny around greenwashing is cutting to the heart of many sustainability solutions previously considered sacrosanct — particularly, voluntary carbon offsets; Verra CEO David Antonioli resigned in June after millions of projects verified by the nonprofit were proved next to worthless. Though well-intentioned, the VCM struggles with near-endless criticism surrounding whether offset projects simply displace emissions to another region or sector, whether the offset stores carbon for long periods of time, and additionality. Most traditional offset programs focus on nature-based carbon-removal solutions such as forestry and agriculture projects. But they’re prone to reversal — as exemplified by the growing prevalence of catastrophic wildfires.

A forest-related offset project, for example, may burn down, and regenerative-agriculture projects that sequester carbon in the soil can be one extreme weather event or property sale away from unearthing it. In these cases, permanence and additionality are questioned — because even if it can be proved that the carbon sequestered by a forest or field is indeed additional; in a rapidly changing climate, there’s no guarantee that these natural carbon sinks will be there the following year.

Climate Vault’s focus on emissions avoidance through regulated markets is only one side of the climate-mitigation coin: It recognizes the need to scale up CDR solutions to also remove the legacy carbon already in the atmosphere. Climate Vault’s growing portfolio of novel CDR investments is meant to help scale the other side of the coin: Removing existing atmospheric carbon.

“We see the importance of making an immediate impact through verifiable emission reductions so that our clients do not have to wait for CDR projects to become both feasible and easily accessible,” Cohen said. “We also understand the importance of leveraging our immediate carbon reductions into ultimate removals, thereby making an equal (or greater) permanent impact on carbon while advancing the growth of some of the most promising CDR projects in the world today.”