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Businesses and governments are striving to release commitments and commitments to decarbonize. These goals mean that the markets for CO2 offsetting have to become massively larger and more standardized very quickly.

That says Karen Fang, Head of Global Sustainable Finance at Bank of America.

Right now, companies are making estimates in their decarbonization plans to the best of their knowledge – but they’re only estimates, Fang told CNBC.

“I think the skepticism is always justified, because if someone tells you today that they know exactly every single technology, at what speed it will develop, how much and how quickly green hydrogen is needed to keep up with fossil fuels to break – I think that’s not believable, “said Fang. “Anyone who claims to know the answer is not believable.”

Fang knows what organizations are dealing with because her team works with clients from all sectors to fund their decarbonization plans, including corporate clients, institutions and communities that she lends, invests in, or otherwise funds.

Bank of America’s goal is to achieve net greenhouse gas emissions in its financing activities, operations and supply chains by 2050.

“Every single customer who receives, finances, or invests money from Bank of America is important to me,” Fang told CNBC. “We spend so much time talking to the C-suite or top management at every customer, institution, organization, company, because their plan affects our plan.”

The climate protection market is in its infancy

There are three emission levels that organizations pursue, referred to as Scope 1, 2, and 3.

Scope 1 emissions are the direct emissions from operations owned or controlled by the organization concerned. Scope 2 emissions are the indirect emissions resulting from the generation of electricity, steam, heating or cooling that are consumed by the organization.

Scope 3 emissions include all indirect emissions that originate from the value chain or supply chain of the respective organization.

Tracking Scope 3 emissions requires a company to question everything: “Where does this piece of paper come from? Where is the vendor? How does the vendor make the product you use, like your pen?” said Fang.

To achieve net zero, companies may need to use carbon offsets, especially to offset Scope 3 emissions.

That should be seen as an honest way of doing things, not as a cop, said Fang. But CO2 accounting and offsetting must be standardized.

“What is the most defensible and most credible way of using offsets in your company on the scale of your own, one, two and three reduction methods, but without being seen as a lazy way out?” Said Fang. “We did everything we could – you still have the last bit. And we’re not laissez-faire, we’re not lazy. We actually say: ‘We have everything we could, there was this leftover piece, we basically want to compensate’ “, the last piece.

The carbon offsetting market not only needs clearer and more enforceable standards, it also needs to become much larger very quickly.

Last month, Bank of America said in a research note that the carbon offsets issued in 2020 equals 210 million tons of carbon dioxide emissions, either removed or avoided. This corresponds to only 0.4% of total global emissions.

Achieving net zero emissions by 2050 will require about 7.6 gigatons of carbon offset or removal, the BofA said. That could take a fifty fold increase in the offset market. At the lower end, the market for offsets will quadruple, the bank said.

Today there are four main registers for carbon offsets: Verified Carbon Standard or Verra; The Gold Standard, the American Carbon Registry, and the Climate Action Reserve. All are non-profit, non-governmental organizations.

“I almost hope, maybe this is naive, that they all come together with a unified form of standard recommendations,” said Fang.

“Because the world needs it and needs a lot of it and really, really, needs a lot of it quickly,” she said.

While the carbon offsetting industry has a bad rap, this is mainly due to a small number of nefarious abuse cases, Fang said. They are not all bad.

“Planting a tree is better than not planting a tree. I don’t think anyone can deny that from a carbon perspective, ”said Fang.

The upcoming gathering of world leaders at COP26, the 26th United Nations Climate Change Conference in Glasgow, is an opportunity to support standardization of carbon offsetting. The Group of Seven (G7) and Group of Twenty (G20) or the United Nations are all kinds of governing bodies that could provide accepted guidelines for the industry, Fang said.

“We don’t have a choice,” said Fang. “We have to be very pragmatic and not make the perfect the enemy of the good.”