AI and Carbon Credits: How the Emergence of AI Tools and Technologies Facilitates the Use of Carbon Credits

10 February 2023 Blog
Author(s): Julie-Anne M. Lutfi Graham P. MacEwan Justin D. Lauria-Banta
Published To: Energy Current Innovative Technology Insights

A carbon credit is a form of instrument or permit that represents one ton of carbon dioxide removed from the atmosphere. While these carbon credits can be purchased by an individual (think Taylor Swift or Floyd Mayweather, who may want to offset carbon emissions from the use of private jets), they are more commonly purchased by companies to make up for carbon dioxide emissions that come from industrial production, delivery vehicles or travel. Carbon credits thus serve as a tool for companies to meet greenhouse gas reduction targets – both government-mandated and voluntary – without materially impacting existing operations. Proponents argue that this market-driven approach can reduce emissions by incentivizing investments in projects that reduce the amount of carbon dioxide released into the atmosphere. As such, carbon credits as a form of investment have expanded dramatically in recent years – and the latest innovations in AI have only bolstered such growth.

The market has indeed responded favorably. Between 2020 and 2021, the carbon commodities market surged from $270 billion to $851 billion. By 2050, the market is projected to expand to $22 trillion. Importantly, the swelling demand for carbon credits is being met by an increase in supply; by 2030, potential annual supply of carbon credits could match demand therefor.

The emergence of AI tools and technologies has played a major role in increasing the popularity of carbon credits, as they have become much easier to manage and track. They are being used to monitor carbon footprints and their offsets, predict carbon emissions, monitor and manage carbon credits and analyze potential carbon credit investments. Consequently, companies are increasingly able to track the progress of their investments and make sure they are meeting their commitments. By implementing AI tools and technologies into the process, companies who participate in the marketplace can rely more heavily on the accuracy of the data, which should increase the inherent value of carbon credits and therefore investment into greenhouse gas reductions.

As companies aim to reduce their carbon emissions (while potentially capturing cost savings from such reductions), they also face continuing pressures to provide accurate disclosures regarding their progress to carbon neutrality, and carbon credits are becoming an increasingly popular avenue to reach such goals, and an important consideration in potential investments.

Reducing greenhouse gas emissions to net zero by 2050 – as endorsed by the 2015 Paris Agreement – will require considerable efforts both to limit and produce “negative” emissions. Investing in carbon credits, with the support of emerging AI tools and technologies, will not only help to support this transition to a low-carbon future (while also allowing investors to earn a profit on their investments), but it will also help to create a market for reducing carbon emissions, which in turn will help to incentivize businesses to reduce their carbon footprints.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.