Norwegian Non-EU ETS-firms’ participation in Voluntary Carbon Markets and Alignment with national emissions reduction targets

Abstract

Corporate actors within non-EU ETS sectors will likely play a significant role in reaching Norway’s target of reducing greenhouse gas emissions by at least 55% by 2030 compared to emissions levels in 1990, as a crucial part of reaching the national targets hinges on significant emissions reduction within these sectors. However, the systems surrounding these firms’ practices and determinants on emissions reduction and removal measures such as the purchase of voluntary carbon credits [VCCs] from voluntary carbon markets [VCMs] appears misaligned with both the emissions reduction targets set on the national level and the non-EU ETS sector-level.

This thesis aims to understand the extent and determinants of Norwegian non-EU ETS sector actors’ participation in VCM through the form of VCC purchases and attempts to assess and address the need for system adaptations ensuring alignment of these practices with reaching national emissions reduction targets by 2030. Using a mixed-methods approach through an online questionnaire and semi-structured interviews with respectively 74 and six (6) respondents from firms in non-EU ETS sectors, the following three research questions were addressed: 1. How and to what extent do firms within Norwegian non-EU ETS sectors participate in the purchase of voluntary carbon credits?; 2. Which determinants influence the voluntary carbon credit practices of firms within Norwegian non-EU ETS sectors?; and 3. Which system adaptations might facilitate alignment between practices of Norwegian firms in non-EU ETS sectors purchasing or hypothetically purchasing VCCs, and Norway’s target of reducing national emissions by at least 55% of 1990-levels by 2030?

Very low levels of VCM participation were identified among the studied firms, with only two firms reporting to currently purchase VCCs. Meanwhile, a number of firms reported hypothetically considering purchasing VCCs in the future. The purchasing and hypothetically purchasing firms’ type of VCM participation was mostly characteristic of inclination towards VCCs from carbon capture and storage [CCS] projects for the sake of climate financing or compensating for remaining emissions, with some reference to forest and land projects for carbon removal, and climate reduction projects in developing countries. The firms exhibit a clear tendency of prioritising reducing their own emissions before hypothetically purchasing VCCs, and display a clear preference for credible, measurable, and sector-relevant measures. In analysing determinants of current and hypothetical VCM participation through a thematic analysis, four main themes of determining factors were identified, namely 1. timing and priority of actions, 2. firms’ conditions for financial stability and profitability, 3. firms’ incentives and motivations in assessment of VCM participation, and 4. firms’ knowledge and preferences regarding corporate social responsibility [CSR], VCMs and VCCs. The firms current and hypothetical VCM participation display a clear tendency to be dominated by strategic considerations of upholding stakeholder accountability and legitimacy for financial survival, with discussable elements of altruism in choices not to engage in VCMs since they do not want to buy their way out of the responsibility of reducing their own emissions. Furthermore, they exhibit clear tendencies of dependence on customer demand and industry peers in adapting to altered conditions for competition and a lack of consensus on how to meet emissions reduction demands.

Proposed system adaptations for increased alignment between non-EU ETS sector firms’ currently purchasing or considering purchasing VCCs and Norway’s emissions reduction targets include strengthening the role of civil society in forming sector-relevant policy and regulation in line with national circumstances, accelerated investment in emissions-reducing infrastructure, and capacity-building and collaboration across bodies of government, industry, academia and civil society.

Corporate actors within non-EU ETS sectors will likely play a significant role in reaching Norway’s target of reducing greenhouse gas emissions by at least 55% by 2030 compared to emissions levels in 1990, as a crucial part of reaching the national targets hinges on significant emissions reduction within these sectors. However, the systems surrounding these firms’ practices and determinants on emissions reduction and removal measures such as the purchase of voluntary carbon credits [VCCs] from voluntary carbon markets [VCMs] appears misaligned with both the emissions reduction targets set on the national level and the non-EU ETS sector-level.

This thesis aims to understand the extent and determinants of Norwegian non-EU ETS sector actors’ participation in VCM through the form of VCC purchases and attempts to assess and address the need for system adaptations ensuring alignment of these practices with reaching national emissions reduction targets by 2030. Using a mixed-methods approach through an online questionnaire and semi-structured interviews with respectively 74 and six (6) respondents from firms in non-EU ETS sectors, the following three research questions were addressed: 1. How and to what extent do firms within Norwegian non-EU ETS sectors participate in the purchase of voluntary carbon credits?; 2. Which determinants influence the voluntary carbon credit practices of firms within Norwegian non-EU ETS sectors?; and 3. Which system adaptations might facilitate alignment between practices of Norwegian firms in non-EU ETS sectors purchasing or hypothetically purchasing VCCs, and Norway’s target of reducing national emissions by at least 55% of 1990-levels by 2030?

Very low levels of VCM participation were identified among the studied firms, with only two firms reporting to currently purchase VCCs. Meanwhile, a number of firms reported hypothetically considering purchasing VCCs in the future. The purchasing and hypothetically purchasing firms’ type of VCM participation was mostly characteristic of inclination towards VCCs from carbon capture and storage [CCS] projects for the sake of climate financing or compensating for remaining emissions, with some reference to forest and land projects for carbon removal, and climate reduction projects in developing countries. The firms exhibit a clear tendency of prioritising reducing their own emissions before hypothetically purchasing VCCs, and display a clear preference for credible, measurable, and sector-relevant measures. In analysing determinants of current and hypothetical VCM participation through a thematic analysis, four main themes of determining factors were identified, namely 1. timing and priority of actions, 2. firms’ conditions for financial stability and profitability, 3. firms’ incentives and motivations in assessment of VCM participation, and 4. firms’ knowledge and preferences regarding corporate social responsibility [CSR], VCMs and VCCs. The firms current and hypothetical VCM participation display a clear tendency to be dominated by strategic considerations of upholding stakeholder accountability and legitimacy for financial survival, with discussable elements of altruism in choices not to engage in VCMs since they do not want to buy their way out of the responsibility of reducing their own emissions. Furthermore, they exhibit clear tendencies of dependence on customer demand and industry peers in adapting to altered conditions for competition and a lack of consensus on how to meet emissions reduction demands.

Proposed system adaptations for increased alignment between non-EU ETS sector firms’ currently purchasing or considering purchasing VCCs and Norway’s emissions reduction targets include strengthening the role of civil society in forming sector-relevant policy and regulation in line with national circumstances, accelerated investment in emissions-reducing infrastructure, and capacity-building and collaboration across bodies of government, industry, academia and civil society.