Carbon Credits

What are carbon credits?

carbon credit is a tradable certificate or permits representing the right to emit a set amount of carbon dioxide or the equivalent amount of a different greenhouse gas (tCO2e)

In-simple words – Carbon Credit is essentially a permit received from the government or an authorized body to emit a certain amount of CO2 for a specific price. Carbon credits are a tradable request that represents a certain amount of carbon dioxide being removed from the atmosphere.

Types of carbon credits?

Carbon Credits are of two types 

  • Certified Emissions Reduction (CER) 

This type of carbon credit is backed by the UN which issues a permit for one tonne of carbon emissions. They are issued to UN member states for offsetting projects through the Clean Development Mechanism (CDM), regulated by the Kyoto protocol 

  • Voluntary Emissions Reduction (VER) 

A carbon credit that has a third-party certification standard such as Gold / Verra standards but is not certified by the CDM. It is exchanged over the voluntary carbon market for credits. VER projects are certified but not traded through a central government system.

How do carbon credits work?

The reduction of greenhouse gas emissions into the atmosphere is the ultimate purpose of carbon credits. As stated, the right to emit greenhouse gases equal to one tonne of carbon dioxide is represented by a carbon credit.

One Carbon Credit = One tonne of CO2 

A carbon credit is worth one tonne of CO2e (tCO2e) emissions which is equivalent to 556.2 cubic metres of volume.

In terms of carbon dioxide emissions, that is equivalent to driving 2,400 miles, according to the Environmental Defense Fund.

Carbon credits are measurable, verifiable emission reductions from certified climate action projects which reduce, remove or avoid greenhouse gas emissions. They restore forests, reduce dependency on fossil fuels, protect the ecosystems and empower communities. Since these credits are purchased in measurable quantities, the companies which undertake these climate action projects must adhere to several regulations to ensure that credits are put to best use. The projects must adhere to a set of criteria to pass the verification process by third-party agencies and a review by a panel of experts at the leading carbon offset standard like Verra and Gold standards. 

The amount of carbon credits allocated to each company is reduced over time. After an organization buys a carbon credit, the credit is permanently retired so that it cannot be reused. 

Carbon credits can be purchased to contribute to offset projects. Companies set lower emission targets every year so that they can reduce emissions and not only purchase offsets. Only the residuals are offset.

Are carbon credits the same as carbon offsets?

No, carbon credits and carbon offsets are 2 different things:

Carbon credits are a tradeable request that amounts to a certain amount of carbon dioxide being removed from the atmosphere in exchange for an existing carbon footprint that is already there. A carbon credit can only be produced in exchange for a carbon footprint that has already been made. 

A carbon offset is when a company emitting a high carbon footprint chooses to invest in a project that reduces carbon emissions, instead of reducing its own contribution to global warming on its own. A carbon offset can be purchased in advance to compensate for the anticipated use of carbon emissions. Carbon offsetting is an act of canceling out the carbon emissions produced in one place with the act of reducing emissions in another place.  

How much does a carbon credit cost? 

Carbon prices vary depending on the projects. They can go from roughly $10 to hundreds based on the offsetting project and the market that it is bought from. 

  • CERs are over $300 
  • VERs range from $10 to $100 per tonne on average. 

The price variation could be due to 

  • Implementation costs depend on the size and location of the project 
  • Technology solutions differ in rates 
  • Carbon pricing Regulations 
  • The value the projects deliver also decides the price of the credit 
  • Supply and Demand 

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