CARBON CREDITS

Carbon credits are a form of currency that can be used to measure and offset the amount of carbon dioxide that is emitted into the atmosphere. Carbon credits are bought, sold, and traded in a variety of marketplaces, and they can play an important role in helping to reduce the amount of carbon dioxide that is released into the atmosphere.

Carbon credits are created through a process known as carbon offsetting, which is the practice of reducing the amount of carbon dioxide that is emitted into the atmosphere by offsetting it with an equivalent amount of carbon credits. Carbon credits are created when a business or individual buys or sells the rights to emit a certain amount of carbon dioxide. The purpose of this process is to reduce the overall emissions of carbon dioxide in the atmosphere, which can help to reduce the effects of climate change.

The main marketplaces for carbon credits are often exchanges, such as the Chicago Climate Exchange (CCX) and the European Climate Exchange (ECX). These exchanges act as a platform for buyers and sellers to trade carbon credits and other commodities related to climate change. They also provide a level of liquidity, which allows buyers and sellers to find a market price for their carbon credits.

The main marketplaces for carbon credits often offer a variety of different types of credits, such as voluntary, compliance, and market-based credits. Voluntary carbon credits are created when an individual or business voluntarily chooses to reduce their carbon footprint by purchasing carbon credits. Compliance carbon credits are created when a business or government is required to purchase a certain amount of carbon credits to meet certain environmental regulations. Market-based carbon credits are created by a market mechanism, such as a carbon tax, which is based on the price of carbon dioxide in the atmosphere.

The trading of carbon credits has become an increasingly important part of the global effort to reduce carbon dioxide emissions and combat climate change. Carbon credits are an important tool in the fight against climate change, and the main marketplaces for carbon credits are an important part of this effort. By providing buyers and sellers with a platform to purchase and sell carbon credits, these marketplaces are helping to reduce the amount of carbon dioxide that is emitted into the atmosphere, which can help to reduce the effects of climate change.

Carbon offset credits refer to measurable, verifiable emission reductions from climate action projects. These projects reduce, remove, or avoid greenhouse gas (GHG) emissions. But they also do other things apart from abating carbon emissions.

Most climate-related projects also bring many other positive benefits such as restoring or protecting ecosystems and empowering local communities. Let alone reducing, if not stopping, reliance on fossil fuels.

But to ensure that the credits are of high quality, projects must meet a rigorous set of criteria to pass verification by 3rd-party agencies and leading carbon standards like Verra and Gold Standard.

Theoretically speaking, 1 offset credit stands for 1 tonne of CO2 reduced or removed.

After a company or an individual buys the carbon offset credit, it is permanently retired so it can’t be reused.

Though carbon offset credits also trade in the compliance carbon market (cap-and-trade schemes), they’re more prevalent in the voluntary carbon market (VCM). That’s because many other companies outside the heavy emitting sectors seek to offset their emissions voluntarily. Credits circulating in the VCM are popularly known as carbon offsets.

The end goal of carbon offset credits is to reduce or prevent the release of planet-warming GHG into the atmosphere.

As mentioned, a carbon credit represents the right to emit one ton of CO2 or its equivalent gas. According to the Environmental Defence Fund, that is equal to about 2,400-mile drive in terms of CO2 footprint.

Since carbon dioxide is the principal GHG, people speak simply of trading in carbon. But other gasses are also measured in reduction claims such as methane and nitrous oxide.

Under the compliance market, emitters are given a certain number of carbon credits (cap) that they can trade to help neutralize or offset global emissions (trade). Carbon credits in this market refer to certified emissions reductions or CER that follow a regulatory framework. These credits are issued and regulated by the government.

If regulated entities emit more than their limits, they should buy the credits from others to comply with the required level. If they have an excess as they emit less than their cap, they can sell those credits to others who are short of them.

The major purpose of the scheme is to reduce the number of credits over time to incentivize emitters to look for ways to cut their footprint.

In the VCM, things work differently but they all add up to the same intention. Market players don’t have to follow any limits but can decide how much emissions to offset by buying carbon credits. And same with mandated businesses, voluntary firms want to neutralize their footprint.

Carbon offsets in the VCM are called voluntary emissions reductions or VER. They are independent and don’t need to follow government regulations.

Sales from carbon offset credits help channel money to the right projects that protect carbon sinks.

In fact, many industry experts encourage companies to not just slash their own carbon emissions but also invest in actions outside of their value chain.

Moving the dial on climate change is critical to achieving global net zero emissions. And one key option in the dial is carbon offset credits.

They provide a great way for businesses to fund climate actions such as protecting natural carbon sinks. Carbon credits are also crucial in scaling up carbon removal technologies which climate scientists consider elemental in keeping global warming from rising.

More importantly, carbon offset credits work by ensuring that firms are putting a price on the impact their operations have on the environment.

Best of all, offsetting hard-to-abate emissions through carbon credits attract funding to projects that effectively reduce emissions.

Businesses should regularly assess their emissions and include them in sustainability reports. Reporting emissions is compulsory in many countries.

In the United States, firms that emit 25,000 or more metric tons of CO2 must report those emissions to the EPA yearly.

Obviously, you would be asking how much a single carbon credit is worth. The actual price depends on some things like the type of project and where its location.

But in general, carbon offset credits cost around $3 to $5 per ton of CO2. This carbon price, however, will rise dramatically in the next decade. Thanks to stronger climate policies and better standardization in the market.

The updated actual market prices for carbon offset credits can be followed here: