Carbon Credit Primer
Carbon credits that are purchasable from Voluntary Carbon Markets are denominated in tonnes; a single carbon tonne represents the mitigation or removal of a single tonne of carbon from the atmosphere, and is commonly referred to in tCO2e (tonnes of carbon dioxide equivalent).
The type of project the carbon credit is derived from is important, as it can impact the market value of the credits, the wider impacts on communities and the environment the project has, and the lead time and costs required to generate credits.
A further key difference between projects to be aware of is whether the credits are from projects that avoid emissions, or that remove carbon directly from the atmosphere. The majority of carbon on the market today are avoidance credits, but to deliver on the Paris Agreement the scaling up of removal credits will be fully necessary.
All verified projects are approved against robust bottom-up Measurement, Reporting and Verification criteria by third-party validation/verification body (VVB). They must be able to demonstrate they can deliver on key criteria, such as:
- Permanence: the carbon avoided or removed by the project must be achievable against a time period into the future (e.g. for the operational lifetime of a renewable energy project), and will not be undermined by leakage (i.e. the project causes emissions elsewhere within its parameters).
- Emissions reductions: demonstrate that the project can achieve carbon reductions above the baseline of existing emissions from the locality.
- Monitoring and reporting: subject to ongoing (ex-post) monitoring and reporting to demonstrate the ongoing impact and permanence of the project's emissions reductions.
- Additionality: demonstrating that the carbon finance secured through the issuance of carbon credits will enable the project to develop, and that without the finance it would not be viable.
- Double-counting: the project will not be credited to other players within another emissions trading scheme.
- Sustainable: the project will not have any negative impact on the sustainable development in the local community
There are a number of key characteristics of carbon credits to be observed. These characteristics enable the market to differentiate between different project types:
- Carbon standards: approved projects receive accreditation from non-profit certifiers including Verra, Gold Standard, American Carbon Registry, Climate Action Reserve.
- Country: some countries may have the experience, supply chains and necessary infrastructure to develop certain projects over others, and project costs for the same type of project may vary from country to country.
- Project type: each credit is derived from a different technique or technology that can avoid or remove carbon, they include but are not limited to: reforestation, afforestation, forest protection, renewable energy (solar, wind, hydro), soil carbon, Direct Air Capture (DAC), or Carbon Capture and Storage (CCS).
- Co-benefits: projects may secure additional certification from standards like the Climate, Community and Biodiversity Standards (CCB Standards), which certifies additional benefits such as positive local impacts for communities and biodiversity benefits that the project can deliver.