The year 2024 is nearing its end, making it time to summarize the developments in the voluntary carbon market over the past year.
Over the past year, we have witnessed significant progress in both governmental and corporate commitments to a more carbon-neutral future. However, despite these positive changes, there is still a long way to go to achieve a sustainable outcome.
Before diving deeper, I need to explain a few key concepts and acronyms related to the voluntary carbon market that will be discussed further as this text progresses:
KAISU is Finland's medium-term climate plan, prepared under the leadership of the Ministry of the Environment, which outlines climate actions in the non-emissions trading sector to meet climate targets.
The emissions trading sector includes energy production, large industrial facilities, and intra-European aviation.
The effort-sharing sector covers transportation, agriculture, separate heating of buildings, waste management, machinery, F-gases, and small industrial and heat plants.
The land use sector refers to the combined areas of agricultural land, forestry, and other land uses.
MISU (Climate Plan for the Land Use Sector) defines the measures to reduce climate emissions in the land use sector and enhance carbon sinks and stocks.
Offsetting refers to compensating for emissions, for example, by purchasing carbon credits from voluntary carbon markets.
Climate Annual Report 2024
The Climate Annual Report for the past year, prepared by the Ministry of the Environment, contained both positive and negative news. Overall, Finland's greenhouse gas emissions decreased by 11 percent compared to 2023, driven particularly by a 19 percent reduction in the emissions trading sector.
In contrast, emissions in the effort-sharing sector continue to decline very slowly, and carbon sinks in the land use sector, led by forests, have been shrinking for several years.
The Ministry of the Environment acknowledges in its annual report that current measures are insufficient to meet climate targets, and additional actions are urgently needed across all sectors.
Actions in the land use sector, such as increasing forest carbon sinks, were highlighted among the ministry's proposed additional measures. However, the initiatives outlined in KAISU and MISU are not set to receive sufficient funding, despite the urgent need to significantly prioritize land use sector measures at this time.
With limited resources, Finland and the world must focus on the most impactful and cost-effective measures that do not strangle the economy, ensuring we can afford climate actions in the future as well. The fight against climate change is a marathon, not a sprint.
All actions are needed, but prioritization is essential. We cannot regulate or tax the economy to death, and the transition must be fair within the country.
Planting a new forest on peat fields genuinely alters the emissions trajectory of the area compared to the baseline, and this is precisely why Carboreal focuses on such areas. Finland's emission reductions should prioritize all impactful climate actions, and siloed optimization between sectors must be avoided.
National decisions are slowing the growth of carbon sequestration
Decision-makers continue to clash over climate decisions on an ideological level, with an excellent example being the distribution obligation and its crippled flexibility mechanism.
As LUKE (Natural Resources Institute Finland) noted in its statement on HE 121/2024, the flexibility mechanism within the distribution obligation is the only measure in the proposal that genuinely reduces emissions. Despite this, its use is being debated, and it is subjected to unjustified limitations through double requirements and percentage thresholds, for which there is no scientific basis.
Considering that German researchers (H. Fehrenbach, S. Bürck (2022) and H. Fehrenbach, S. Bürck, A. Wehrle (2023)) have shown that the production and use of biofuels can even have a negative climate impact, the aforementioned restrictions on the flexibility mechanism are highly questionable.
For the sake of clarity, let it be explicitly stated that Carboreal does not defend the use of fossil fuels but advocates solely for scientifically verified genuine climate actions. The atmosphere remains technology-neutral, and only the quantity of carbon dioxide molecules and other greenhouse gases should matter—not ideological opinions. This isn’t rocket science.
What matters most is what happens on a global scale. By enabling leadership and market growth in climate actions through private funding, Finland can export expertise without tapping into taxpayers’ wallets or imposing economy-strangling rules or taxes.
In this way, we can help other countries catch up to Finland in climate efforts. However, Finland’s own success is also significant. There’s no time for policymakers to hesitate, as Finland has dropped to 11th place in international comparisons of climate action and is projected to fall significantly short of its climate targets.
Impactful climate decisions must be made immediately, and funding should be directed to the most effective measures without ideological maneuvering.
However, the changes to the distribution obligation and flexibility mechanism have brought about a significant shift: the proposal states that related climate actions must be implemented in Finland, including those leveraging the land use sector. This addition is important because discussions have taken place between the government and companies regarding double-counting and what is and isn’t allowed in Finland.
Finland must utilize its own strengths
Finland should move forward by leveraging its strengths and focusing on natural, low-risk actions. Even with good intentions, significant harm can be done if we recklessly venture into untested waters and new technologies.
We need all available tools, along with both moderation and ambition in everything we do. Primum Non Nocere—"First, do no harm," as doctors say. All totalitarian ideologies have historically been extremely dangerous, whether Nazism, Stalinism, or Maoism, and reasonable voices are needed in this matter too. The cure must not kill the patient—nor can we afford the harm caused by neglecting treatment altogether.
Finland’s current policy aligns with EU Regulation 2023/839 as well as the findings of the MARVIC project, both of which have previously brought clarity to calculations between nations and helped prevent double-counting in transactions.
Finnish and European companies and organizations can, therefore, offset emissions through Finnish climate actions that meet the criteria, with the responsibility of avoiding double-counting in intergovernmental calculations and transactions resting on the states themselves.
Furthermore, it is both essential and urgent that the certification framework decided by the EU this year progresses as quickly as possible, as Europe is emerging as a frontrunner in this major market.
Previous market standards have unfortunately proven ineffective, and there is a pressing need for a new, non-ideological, and truly science-based certification system—a demand to which the market has responded.
That said, this market must not be regulated to death. From a climate perspective, the real effectiveness of actions is what matters most, not artificially imposed ideological accounting rules.
Domestic companies and municipalities as pioneers
While climate policy at the state level has largely stalled, Finnish companies and cities have taken the initiative. For instance, procurement criteria in cities now include requirements for offsetting, and construction projects are beginning to demand land swaps for built areas and/or the restoration of other areas.
Additionally, many companies have started publicly sharing their offsetting goals, encouraging others still deliberating to join the sustainability transition.
The sooner a company, municipality, or government recognizes the value of carbon sequestration, the cheaper offsetting emissions will be for them. Waiting only increases costs, as financial media outlet Bloomberg predicts the price of an EU carbon ton could reach as high as €150 by the end of this decade.
Currently, the market is pricing voluntary, high-quality carbon tons relatively affordably. Demand is growing rapidly as we approach 2030, a year when many entities have concrete net-zero targets.
Achieving those net-zero goals without accounting gimmicks almost always requires partial offsetting. Historically, strong demand growth has significantly impacted prices in virtually every market, and I don’t believe the world has changed in this regard.
In previous calculations and forecasts, it has been estimated that Finland will fall short of its targets and will need to offset 40 million equivalent tons of emissions.
The calculations assumed an offset price of €20–50 per ton. Therefore, if Bloomberg's and E&Y's forecasts are correct, the cost to taxpayers will multiply significantly. A €6 billion bill should be large enough to prompt even the most passive civil servant or politician to recognize the seriousness of the situation.
This is, of course, assuming that commitments actually require concrete transactions or that there would be financial consequences for failing to adhere to the rules. However, as seen in the EU regulations during the financial crisis, the EU's tradition is not always to uphold commitments if doing so would have genuinely significant economic repercussions.
Regulation at the EU Level Becoming Clearer
At the EU level, there is light at the end of the tunnel, as the long-awaited EU regulation on carbon farming and carbon storage in products will come into force at the beginning of next January.
The regulation largely follows the current best practices of the voluntary carbon market, particularly with respect to additionality, permanence, and verifiability. However, the most important aspect of the regulation is that it will transform current practices into law, while also clarifying the market.
The common rules enshrined in the law provide a strong foundation for both producers and clients, ensuring that more effective actions are taken in a verified manner. Implementing the regulation in practice will require sufficient resources from member states to ensure that carbon sequestration producers, their methods, and certifiers are properly verified.
Considering the Finnish Energy Authority's statements regarding its resource shortages in connection with the flexibility mechanism of the distribution obligation, it unfortunately seems that the implementation of the regulation in Finland will take a long time. Let’s hope I’m wrong, as our administration does have top expertise.
It remains to be seen how much potential delays will hinder market growth and companies' climate actions. It is nationally significant that this issue is not delayed, so that a significant new export sector can emerge in Finland.
This doesn't require much from the state, and in this case, we should not let other countries get ahead of us. Finland can succeed by leveraging its strengths, and we must know how to utilize them. Instead of billion-dollar subsidies, this represents a concrete and quick-acting small investment in the state's good governance—so the rapid implementation of the regulation could result in billions of benefits for Finland's economy.
In addition to the regulation itself, the long-awaited EU-wide carbon sink credit and removal registry is expected to be introduced under the regulation, but not until four years from now.
A registry similar to green energy certificates would likely be a functional and anticipated addition for the traceability and transparency of carbon sink credits, but its absence is not an obstacle to market development.
A more important issue will be the role of verifiers and certifiers, for which we also hope for quick actions and sufficient investments from the Finnish government. The sector will support the development on its part, which will drive concrete growth within Finland.
The Bakú climate conference
Individual climate conferences will not stop or even slow down climate change; unfortunately, they are largely theater. What is needed are actions, not speeches. We need the market, and now the market is being created.
Governments should only create the regulation and allow the markets to do their job. This is where the most cost-effective and impactful actions in addressing climate change will be found. Issues must be discussed by their correct names, without ideological baggage—scientifically and neutrally.
For example, development aid disguised as climate action, such as building safer homes inland for coastal residents to protect them from rising sea levels, is not a climate action if it does not have an impact on climate change. While it may be a good and necessary action, it is not a climate action.
It is completely misleading to talk about the annual climate finance of 298 or 289 billion if a significant portion of that funding is directed toward actions that have no impact on the climate. If there is an impact, it could even be negative.
It must be remembered that both emissions have continued to grow, and the easily measurable greenhouse gas concentrations in the atmosphere have also increased year after year, as naturally occurs with net activities.
We reduce emissions, increase sinks, enhance well-being, and use all available tools in this shared fight. However, with limited resources, the focus must be on cost-effective actions that do not strangle the economy.
Future generations also have the right to a just, happy, and good life, which may not be achievable if we focus solely on one issue with blinders on. The end does not justify the means in this case either.
The atmosphere is technology-neutral, and a ton of carbon is a ton of carbon, regardless of how it is removed from the atmosphere or how it ended up there in the first place.
Summary
Voluntary carbon sequestration is a rapidly evolving market that will grow significantly in the coming years. Finland, with its own land resources, expertise in forestry, and statutory registers, has an excellent opportunity to be a market leader and create a massive export product from carbon sinks.
The Boston Consulting Group estimated last year that the carbon sink market could be worth hundreds of billions of euros by 2040. The decisions of policymakers in the near future will determine whether Finnish companies can capture these billions for Finland or if climate actions will move abroad.
Let's support Finnish solutions, create growth, and save the planet at the same time. All of us together.
Janne Saarikko
Chairman of the Board
Carboreal Oy
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