In the global pursuit to mitigate climate change, innovative mechanisms are essential to reduce greenhouse gas emissions, remove carbon dioxide from the atmosphere and promote a sustainable future. Among these mechanisms, carbon credits stand out as a truly transformative approach.
Voluntary and mandatory carbon credits can be categorised into carbon removal credits, carbon reduction credits, and carbon avoidance credits. Each can play a role in addressing the climate crisis, but their use cases differ. This insight aims to clarify their significance, use cases, and potential to shape a sustainable world within the voluntary carbon market.
What are Carbon Credits?
Carbon credits are tradable certificates representing one metric ton of carbon dioxide (CO2) or an equivalent amount of other greenhouse gases (GHGs). They are integral to carbon trading systems, designed to cap, reduce, and neutralise global carbon emissions. These credits incentivise organisations to lower their carbon footprints by monetising emission reductions, avoidance and removal.
Unpacking Removal, Reduction, and Avoidance Credits
Carbon credits can be divided into three types: removal, reduction, and avoidance. Each type plays a unique and vital role in achieving long-term climate mitigation in line with the Paris Agreement.
Carbon Removal Credits
What are Carbon Removal Credits?
Carbon removal credits are awarded for activities that physically remove CO2 from the atmosphere. These activities sequester carbon in natural or engineered reservoirs, effectively reducing the overall concentration of atmospheric GHGs. Examples include afforestation, reforestation, soil carbon sequestration, and Direct Air Capture (DAC).
The science of sequestration
Afforestation and reforestation involve planting trees that absorb CO2 during photosynthesis and storing it in their biomass and the soil. Soil carbon sequestration enhances carbon storage in agricultural lands through practices like cover cropping and reduced tillage. Carbon removal projects like Direct Air Capture (DAC) use advanced chemical processes to extract CO2 directly from the air. The carbon is then stored underground or utilised in industrial applications.
Pros and cons of Carbon Removal Credits
The primary benefit of carbon removal credits is their potential to achieve negative emissions. They effectively reverse the accumulation of greenhouse gas (GHG) emissions in the atmosphere. This means they can be used to offset an organisation's carbon footprint and enable the world to reach Net Zero.
However, these methods often require significant investment and technological innovation. Ensuring the permanence of sequestered carbon and preventing leakage are also critical challenges that necessitate rigorous monitoring and verification.
Carbon Reduction Credits
What are Carbon Reduction Credits?
Carbon reduction credits are generated through activities that lower the amount of carbon dioxide emitted into the atmosphere compared to a baseline scenario. These credits are typically associated with enhancing energy efficiency, transitioning to renewable energy sources, and improving industrial processes to reduce carbon emissions. They do not remove carbon from the atmosphere.
Practical applications of Carbon Reduction Credits
Energy efficiency improvements in buildings, transportation, and manufacturing can significantly reduce energy consumption and associated emissions. Switching from fossil fuels to renewable energy sources like wind, solar, and hydropower directly reduces greenhouse gas emissions. Industrial process optimisation, such as upgrading to more efficient equipment and adopting cleaner technologies, also contributes to emission reductions.
Pros and cons of Carbon Reduction Credits
Reduction credits drive technological innovation and improve operational efficiency, often resulting in long-term cost savings and enhanced business competitiveness. However, measuring and verifying the actual emission reductions against the baseline can be complex and requires robust methodologies and transparent reporting systems. Additionally, unlike Carbon Removal Credits, Carbon Reduction Credits can't be used by organisations to offset their carbon footprint as no greenhouse gas emissions are removed from the atmosphere.
Carbon Avoidance Credits
What are Carbon Avoidance Credits?
Carbon avoidance credits are awarded for activities that prevent the release of CO2 into the atmosphere. An example of a Carbon Avoidance Credit is preventing deforestation, which would result in the release of carbon dioxide into the atmosphere. This can be confusing as many Carbon Avoidance Credits are called Carbon Reduction Credits. Other examples include methane capture and preventing emissions from waste management processes.
Real-world examples of Carbon Avoidance Credits
Avoiding deforestation involves protecting existing forests, which act as significant carbon sinks, from being cut down. Methane capture projects at landfills and agricultural sites prevent methane from being released into the atmosphere. Waste management improvements, such as diverting organic waste from landfills to composting facilities, also prevent methane emissions.
Pros and cons of Carbon Avoidance Credits
Avoidance credits are crucial for preserving natural carbon sinks and preventing additional emissions from entering the atmosphere. However, there are significant challenges with how many Carbon Avoidance Credits are created. For example, demonstrating additionality—proving that the avoided emissions would have occurred without the intervention—can be challenging.
Carbon Avoidance Credits are based on the emissions that might have existed had a project not been funded. Because it is impossible to observe what might have happened without project funding, carbon avoidance estimates are determined by considering what emissions might have been produced but ultimately weren’t. Unfortunately, despite using historical data, contextual information and statistical models, these estimates remain inaccurate and hypothetical.
The sophistication of Verification and Standards
Ensuring credibility
The integrity of carbon credits relies on rigorous verification and certification processes. Standards such as the Verified Carbon Standard (VCS), Gold Standard, and the Climate Action Reserve (CAR) ensure that carbon credits represent genuine, quantifiable, and permanent emission avoidance, reduction or removal. These standards mandate thorough documentation, third-party audits, and ongoing monitoring to validate the environmental benefits.
Nevertheless, there is currently no universal standard or regulation mandated by a government entity. Global regulations and internationally recognised standards are essential to guarantee that projects are providing accurate information about the effects of their carbon credits.
Technological integration
Technological advancements play a crucial role in enhancing the transparency and efficiency of the carbon credit market. Blockchain technology, for example, creates immutable records of transactions, ensuring the traceability and authenticity of carbon credits. Additionally, satellite imagery and AI-driven analytics are employed to monitor and verify the impact of offset projects in real time, providing a higher degree of confidence in the reported outcomes.
The Ambitious Impact of Carbon Credits
Driving emission reductions
Carbon credits are a powerful tool for incentivising emission reductions across diverse sectors. By putting a price on carbon, they encourage companies to innovate and invest in cleaner technologies and processes. This market-based approach aligns economic interests with environmental goals, fostering a culture of sustainability and accountability within the private sector.
Supporting sustainable development
Beyond emission reductions, carbon offset projects often deliver significant co-benefits, contributing to sustainable development in local communities. Reforestation projects, for instance, enhance biodiversity, improve water quality, and create jobs. Renewable energy projects provide clean power and reduce dependency on fossil fuels, promoting energy security and resilience.
Enabling corporate responsibility
Participating in the carbon credit market is a strategic move for organisations to achieve climate goals and demonstrate corporate social responsibility (CSR). By purchasing Carbon Removal Credits, companies can offset their carbon footprint, meet regulatory requirements, and enhance their brand reputation among environmentally conscious consumers and investors.
The Future of Carbon Credits
Scaling up ambition
As the urgency of climate action intensifies, the carbon credit market is poised for significant growth. Although many companies are reducing their carbon emissions, carbon credits will remain a critical tool in fighting climate change.
Governments are tightening emission regulations and setting more ambitious climate targets, driving demand for carbon credits. Companies are also increasingly committing to net-zero and carbon-neutral goals, further expanding the market. As a result, the voluntary carbon market is expected to grow from $2 billion in 2020 to at least $250 billion by 2050 as carbon credits can help organisations and countries meet these ambitious climate targets.
Embracing the potential of Carbon Credits
Carbon credits represent an extraordinary fusion of economic and environmental strategies, harnessing market forces to drive meaningful climate action. They exemplify the ambitious and sophisticated solutions necessary to tackle the global climate crisis. Organisations proactively embracing carbon credits to mitigate their environmental impacts and enhance their ESG credentials will secure a competitive advantage in an increasingly carbon-conscious world.
As we navigate the challenges posed by climate change, Carbon Credits offer a beacon of hope. By embracing this new frontier, organisations can drive meaningful climate action, foster transparency and accountability, and pave the way toward a more sustainable future for future generations.
Conclusion: Carbon Removal, Reduction, and Avoidance Credits
Removal, reduction, and avoidance credits all offer huge benefits for resolving climate change. However, organisations' use of carbon credits must be specific to their desired climate targets to ensure accurate communication of the claims they make from buying carbon credits. Failure to do so will likely result in an organisation greenwashing and misleading its stakeholders.
Nonetheless, Carbon Credits will revolutionise how we approach climate action. We still need to drastically reduce our emissions, but with Carbon Credits, we can now meet the ambitious climate targets we have set.
CaptureNow can take on the risk and complexity of buying compliant carbon removals, so you don't have to. Talk with on of our removal consultants to start your journey toward owning compliant e-assets today.
