10 common questions about Carbon Credits: everything you need to know to get started.
Table of Contents
What is a carbon credit?
A carbon credit is a tradable unit that represents a certified reduction or removal of one ton of greenhouse gas emissions from the atmosphere. It is a measurable and verifiable unit used to offset emissions produced by an activity or company or otherwise contribute to emissions reduction worldwide.
How are carbon credits generated?
Carbon credits are generated by certified projects that reduce, avoid, or remove GHG from the atmosphere. There is a wide range of project types that qualify for carbon credit generation, and among them, nature-based projects hold great promise in addressing climate change more effectively.
These projects operate within different biomes, such as forests, grasslands or wetlands, with the aim of protecting and/or reforesting these vital ecosystems. For example, some reforestation projects (ARR) focus on restoring forest cover in specific biomes, while native forest protection initiatives (REDD+) aim to preserve existing forests.
Who is responsible for certifying carbon credits? What are the major standards?
Carbon credits are certified by globally recognized carbon crediting standards (programs operators) and verified by third parties entities (auditors), thus ensuring that the carbon credits meet fundamental thresholds in terms of integrity, transparency and fungibility in markets.
Some of the major entities responsible for certification include the Verified Carbon Standard by Verra, the Gold Standard, and the American Carbon Registry. These organizations assess and verify emission reduction projects, ensuring that the generated carbon credits are real, measurable, and additional.
What is the importance of carbon credits?
Carbon credits play a vital role in the battle against climate change by directing capital to climate-positive projects addressing the imperative of carbon capture and reduction of greenhouse gas emissions.
The Intergovernmental Panel on Climate Change (IPCC) has underscored the urgency of removing 6 gigatons of CO₂ from the atmosphere annually to effectively mitigate global warming.
Additionally, carbon credits align with the objectives outlined in the Paris Agreement, which seeks to restrict the global average temperature increase to below the critical threshold of 1.5 degrees Celsius.
By utilizing carbon credits, companies actively contribute to the global endeavors aimed at reducing emissions and achieving the targets set forth by the Paris Agreement.
What’s the difference between the voluntary carbon market and the compliance carbon market?
The difference between the Voluntary Carbon Market and the Compliance Carbon Market goes beyond the simple distinction between voluntary and mandatory participation. There are several characteristics that significantly differentiate them.
Let’s start with the Voluntary Carbon Market (VCM). This market represents an approach based on the willingness of organizations or individuals to actively participate and offset their carbon emissions through the purchase of credits. In the context of the VCM, the purchase of carbon credits is a discretionary choice, without any government obligations binding it.
Organizations participate in this market primarily to demonstrate a voluntary commitment to sustainability and to offset their emissions beyond regulatory requirements. The voluntary market can offer more flexibility and a greater variety of options for emissions offsetting, allowing organizations to choose projects that reflect their specific values and objectives.
On the other hand, the Compliance Carbon Market is created in response to legally binding emission reduction targets established by regional, national, or international agreements. These markets operate through Emission Trading Systems (ETS), regulated by carbon emission reduction regimes. ETS set a maximum limit or “cap” on carbon emissions allowed in specific sectors or countries. Entities involved in the scheme must obtain an amount of emission allowances that corresponds to their emissions.
Purchasing carbon allowances in the compliance market allows entities to exceed their carbon budget, while entities that emit less than their target can sell excess allowances to generate financial revenue.
How can the integrity of an investment in carbon credits be effectively ensured?
To ensure the integrity of an investment in carbon credits, it is important to take several measures. Firstly, conducting a thorough preliminary analysis is crucial (Due Diligence). This involves researching the credibility, industry expertise, and compliance of the company offering the carbon credits.
It is essential to verify the authenticity of carbon credits by ensuring they are generated from legitimate projects that genuinely reduce carbon emissions. The methodology used for emissions reductions should be scrutinized, and it should be confirmed that the credits are retired or canceled to prevent duplication.
Seeking certifications and independent verifications from reputable third-party organizations, such as the Verified Carbon Standard (VCS) from Verra or the Gold Standard, provides assurance of the integrity of the carbon credits. These certifications indicate that the projects or programs have undergone rigorous assessment and adhere to recognized standards.
Considering broader environmental, social, and governance (ESG) factors is also important. Evaluating carbon offset projects based on these criteria ensures that they contribute not only to emissions reductions but also to wider positive impacts on the environment, local communities, and sustainable development.
Lastly, collaborating with reliable carbon credit providers who have proven industry experience and a solid reputation is crucial. Trusted partners can offer increased security and ensure that carbon credits are managed correctly.
What are the benefits of companies adopting carbon credits?
Companies can benefit in several ways from the adoption of carbon credits. Purchasing carbon credits allows companies to achieve their corporate decarbonisation goals while supporting projects that capture, absorb or avoid CO2 emissions, with positive impacts on local populations and biodiversity.
Every time a company chooses to offset its corporate emissions through the purchase of carbon credits, it not only achieves an important goal, but also promotes the development of new projects with a high environmental and social impact. This helps mitigate the impact of carbon emissions and support initiatives to improve the well-being of local communities and environmental conservation.
What are the challenges associated with carbon credits?
Several challenges are associated with carbon credits, including accurately measuring emissions, identifying reliable offset projects, cost management, and ensuring compliance with evolving regulations.
Additionally, a significant concern is the risk of misrepresentation or exaggerated claims of environmental sustainability, commonly known as Greenwashing, through the use of carbon credits. It is crucial to establish transparent and credible verification and certification processes to prevent the misuse of carbon credits for Greenwashing purposes.
Furthermore, ethical considerations stemming from the concept of ‘Pay to Pollute‘, where entities can pay for carbon credits instead of implementing real emission reduction measures, make the public tend to distrust these approaches.
Addressing these challenges requires strong governance, active stakeholder engagement and continuous monitoring to sustain the integrity and effectiveness of carbon credit mechanisms.
What are the co-benefits associated with carbon credits?
The co-benefits associated with carbon credits are diverse and can vary depending on the project and context.
Some examples of co-benefits include the reduction of air pollution, improvements in air quality and human health, biodiversity conservation, the creation of local employment opportunities, the development of sustainable communities, access to clean energy, and increased resilience to climate change.
Additionally, carbon projects can contribute to promoting food security, the sustainable management of natural resources, and the conservation of ecosystems.
Co-benefits are considered an important added value of carbon credits, as they allow for broader environmental, social, and economic benefits in addition to climate change mitigation.
How can I purchase carbon credits?
To ensure the authenticity and adherence to international standards, we recommend purchasing carbon credits directly from the project developers.
Our team is dedicated to developing projects that generate carbon credits, providing a reliable and transparent solution for individuals and businesses looking to offset their carbon footprint.
To take the first step towards offsetting your carbon emissions and supporting sustainable initiatives, simply get in touch with us.
Our team will guide you through the process and answer any questions you may have.
