How to Select Carbon Credits

How to Select Carbon Credits

Sam Hope

5 years: Carbon Markets

If you've ever wondered what a carbon credit is, or how they can vary according to region and vintage, you've come to the right place. Join Sam Hope as he explores these questions in depth.

If you've ever wondered what a carbon credit is, or how they can vary according to region and vintage, you've come to the right place. Join Sam Hope as he explores these questions in depth.

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How to Select Carbon Credits

8 mins 31 secs

Overview

A carbon credit represents 1 metric tonne of carbon dioxide reduced or removed from the atmosphere. A verified credit can be used against an organisation’s carbon footprint to offset the company's negative climate impacts. There are many options to consider when buying carbon credits which affect their value, including: project type (e.g. agriculture, renewable energy, waste disposal), regionality (where the project is located), registry (who the credit is registered and verified with), vintage (the year the benefit was delivered), and additional co-benefits (such as the UN Sustainable Development Goals).

Key learning objectives:

  • Define a carbon credit

  • Outline the offset selection framework

  • Understand how the framework affects price

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Summary

What is a carbon credit? 

A carbon credit represents 1 metric tonne of carbon dioxide reduced or removed from the atmosphere. A verified credit can be used against an organisation’s carbon footprint to offset the company's negative climate impacts. 

What do you need to consider when buying carbon credits? 

  • Project type
  • Regionality
  • Registry
  • Vintage
  • Additional co-benefits

How do these options affect credit pricing? 

1. Project type

Carbon offsets can be generated by different types of projects, each classified under the following categories (in order of market share):

  • Agriculture, forestry and other land use (42%)
  • Renewable energy (33%)
  • Chemical and industrial processes including energy efficiency and fuel switching (12%)
  • Waste disposal/management (6%)
  • Household/community devices such as cookstoves (6%)
  • Transportation, carbon capture and storage and long-lived carbon removal (<1%)

Credits can also be categorised into two classes: carbon reduction credits and carbon removals.

2. Regionality

Prices can vary materially for the same project in a different location due to implementation and project delivery costs, meaning two projects of the same type with similar credentials could have drastically different pricing. Desirable projects include those located in niche territories, located within the operating jurisdictions of listed corporations and European projects.

3. Registry

Registries provide the framework to oversee the registration, verification and credit issuance of projects. The traditional big four registries are:

- VERRA 

The single largest registry, which is global and mostly oriented towards nature-based solutions. 

- Gold Standard 

Mostly specialised in energy efficiency and technology-based solutions. 

- The Climate Action Reserve (CAR) and the American Carbon Registry (ACR) 

US-based registries which almost exclusively register projects within the North American region. 

4. Vintage

Each carbon credit is marked with a vintage year, which dates the unit. The vintage of a carbon credit corresponds to the year in which the environmental benefit of that credit was delivered. In the voluntary carbon market, credits tend to become less desirable as vintages age. The perception of older vintages being worth less creates a discount for buyers wanting to support certain projects in line with their procurement budgets.

5. Additional co-benefits

Offsetting projects can also generate other positive impacts referred to as co-benefits. The United Nations’ Sustainable Developments Goals is the most widely adopted framework to demonstrate this type of additional value. While not directly linked to the pricing or integrity of the carbon credit, the more SDGs associated with a project, the more marketable the project is to end users. 

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Sam Hope

Sam Hope

Sam Hope is the Senior Carbon Advisor at Plannet Zero, a tech company dedicated to developing smart carbon footprinting software for SMEs. He joins from Redshaw Advisors, an advisory firm that will help organisations clearly understand the assignment of net zero.

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