Carbon Credits Help in Achieving Net-Zero Goals
As governments and businesses across the globe grapple with increasing societal demand to act on climate change, more and more companies are setting ambitious targets of net-zero emissions. This typically means that they will eliminate their remaining GHG (greenhouse gas) emissions by modifying production processes, converting to renewable energy, investing in carbon removal projects, or both. To offset their remaining emissions, many of these firms will buy ‘carbon credits’ — marketable permits that reflect one tonne of CO2 equivalent greenhouse gases avoided or reduced.
carbon.credit have a long history that dates back to the 1997 establishment of the Kyoto Protocol, the first binding international agreement to reduce GHG emissions. This set quotas for industrialized countries and created a marketplace to trade those quotas with other nations and private institutions, via a system known as the Clean Development Mechanism. The Paris Agreement replaced the Kyoto-era mechanisms with new rules grouped into Article 6. These set high-level expectations that any actors — governments or private institutions — must meet if they want to buy and sell carbon credits within these official markets.
This type of credit is generated by projects that are carried out as part of a government-sanctioned cap-and-trade system in which a company receives a fixed number of credits for its emissions and can then sell any excess. Examples of this include the EU Emissions Trading System and California’s carbon tax.
How Do Carbon Credits Help in Achieving Net-Zero Goals?
These types of credits are sold on the voluntary market and can be purchased by individuals, companies or governments looking to offset their environmental footprint beyond legal requirements. Projects that generate these credits can be split into two categories, based on whether they involve reducing or avoiding emissions:
This category of projects involves enhancing natural ecosystems to capture more carbon dioxide (CO2) from the atmosphere through photosynthesis than they release. This may be through reforestation, forest conservation, or even restoring peatland areas to limit CO2 build-up. These are commonly called ‘assured’ or’verified’ carbon offsets, according to the International Climate Initiative.
These are projects that involve capturing or reducing carbon from the air, such as coal power stations, steel plants, and cement factories. This can also be done through a variety of technology, including carbon capture and storage, biomass power generation, and reforestation. Industrially derived emissions reduction projects often have the highest price per tonne of CO2 prevented or eliminated.
There are a number of programs that define the standards for carbon credits, and compile registries of past and present projects. The leading ones are Verra (which hosts the Verified Carbon Standard), Gold Standard, and American Carbon Registry.
The ‘assured’ and’verified’ distinctions make a difference to the value of the credits, and the prices that can be achieved in these markets. This is because the market largely functions on a buyer-seller basis, and credits are only valid for 10 years. After that they must be’retired’, so that the holder can no longer use them to offset their remaining emissions.
