What are ‘good’ or ‘bad’ carbon credits?

carbon credits

When it comes to choosing the right carbon credits to offset your carbon footprint, there are several aspects to keep in mind beyond company or personal preferences.

So your company has decided to offset its carbon footprint: you have taken the time to identify your emissions sources, calculate and categorize them between Scope 1 (own emissions), Scope 2 (electricity) and Scope 3 (supply chain). You have analyzed the results and put measures in place to reduce your carbon footprint wherever possible. And now is the time to offset your remaining CO2 emissions by purchasing carbon credits from a climate mitigation project. Do you know how to choose the right carbon offsets for your company?

What are carbon offsets or carbon credits

A carbon credit, sometimes known as carbon offset, is a tradable unit representing one ton of CO2-equivalent that has either been removed or avoided from the atmosphere. These credits are generated by different types of sustainable projects that either absorb carbon or avoid it from being emitted in the first place. Once generated and certified by a recognized third party like the Carbon Development Mechanism (CDM), Gold Standard or Verra, these carbon credits can be sold to companies and individuals as a way to offset their own carbon emissions.

Different types of carbon offsets

There are several types of carbon credits, depending on the project that generates them. 

  • Renewable energy: These projects involve building solar, wind or hydropower facilities to produce carbon-free electricity, reducing our reliance on fossil fuels and the carbon emissions associated with power generation.
  • Forestry and conservation projects: These include reforestation (planting trees in a deforested area), afforestation (planting trees in an area that previously didn’t have any) and ecosystem conservation projects (preventing deforestation and preserving biodiversity). These projects are also sometimes called nature-based solutions.
  • Waste to energy: In waste-to-energy or biogas projects, developers collect waste from landfill, communities or agricultural activities and capture the methane it produces to produce electricity. This way, they reduce the amount of methane emitted into the atmosphere and generate cheap and sustainable power.

Other projects can include energy efficiency initiatives that reduce the need for fossil fuels, or community projects that introduce new ways to cook or generate electricity, reducing carbon emissions and avoiding local deforestation.

What makes a good carbon offset?

Considering the urgency of the climate crisis, all carbon offsetting projects are ‘good’ at this time. One way or another, they allow people and companies to measure and mitigate their climate impact, and they direct financing flows towards projects that work every day to preserve the planet.

That being said, the lack of standardization in this space means that it’s not always clear what to look for when choosing carbon credits, or how to measure the impact of projects that generate them. As a result, some carbon offsets can be seen as more controversial than others.

Globally recognized standards

It is very important to choose a project that has been certified by a globally recognized standard: at the end of the day, the quality assurance of a project depends on transparency around it and who is behind it. Reputable standards follow best practices to ensure that these expectations are met. 

All the projects listed on the ClimateTrade marketplace are certified by recognized entities to give companies the comfort of knowing that the credits they buy have been verified.

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Carbon offset additionality and the Paris Agreement

One qualitative element introduced by the Paris Agreement around carbon offsetting projects is the notion of additionality. In a March 2022 paper on the topic, Gold Standard defines additionality “as a question of whether an activity that reduces emissions would have occurred in the absence of the incentive created by carbon finance – by the value given to emission reductions through their representation as carbon credits (…) that can be traded and used by other entities”. In other words, would the projects happen without the financing provided by carbon offsetting?

The principle of additionality is what makes carbon credits from renewable energy increasingly controversial: in many cases, solar or wind energy is now cheaper to produce than fossil fuel energy, and private investment in this sector is abundant. This is making renewable carbon credits cheaper than other types of credits, and poses the question of whether these projects should be given the opportunity to receive carbon financing at all.

Measuring the impact of carbon credits

Aside from additionality, people should consider impact in a holistic way when choosing a project to offset their carbon footprint. For instance, what are the benefits of the project for biodiversity, or for the local community? One way to measure this impact is via the Sustainable Development Goals (SDGs).

The 17 goals defined by the United Nations comes with a much longer list of practical targets associated with each goal. These targets make it relatively easy to measure how a specific project contributes to the SDGs.

On the ClimateTrade marketplace, you can filter projects by SDG, helping you align your carbon offsetting activities with the goals that are important to your company.

Traceability of carbon offsets

Finally, the right carbon offsetting project will also depend on your preferences. For instance, companies tend to prefer projects that are close to their operations, making it easier to demonstrate their impact.

The most important element to consider in choosing carbon credits is traceability. You need to make sure that the money you spend on carbon offsetting actually ends up in the project you chose. This is why we at ClimateTrade use blockchain technology, making all transactions transparent and traceable and supporting your company’s accountability and reporting.

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