Buy and Trade Carbon Credits
One way to offset a company’s carbon emissions is to buy and trade carbon credits. A credit, also called an allowance or permit, represents one metric ton of reduced, avoided or removed GHG emissions.
Each credit is based on a specific project and is verified by a third party. These projects can be nature-based, such as reforestation and afforestation; reducing or capturing emissions in industrial processes such as cementing; or technology-based, such as direct air capture or carbon dioxide removal and storage (CCS). The price of a credit is influenced by the type of underlying project and whether it meets the UN’s Sustainable Development Goals, which are intended to help achieve the global environmental, social and economic goals set out in the Paris climate accord.
As a result, there are many different kinds of trade carbon credits on the market and it’s not always easy to put a price on them. The size of the market also influences prices – large companies with ambitious net-zero goals are pushing carbon credits to record levels, according to research by Forest Trends.
How to Buy and Trade Carbon Credits
The market for carbon credits is largely voluntary. It’s on track to hit $1 billion this year, according to Ecosystem Marketplace, a publication by the nonprofit research group Forest Trends. Some governments regulate carbon markets, limiting greenhouse gas emissions and forcing companies to trade credits. Others use a Clean Development Mechanism that lets developing countries earn credits to meet their emission reduction targets under the Kyoto Protocol.
Most of the world’s largest companies and financial institutions are trying to reduce their environmental footprints. They need to buy and trade the credits to do that, but the verification process is often costly and difficult. Buying unverified carbon credits is the equivalent of getting your heart bypassed by an untrained surgeon, and many buyers prefer to stick with verified ones.
For this reason, there is a push to develop a single verification framework that’s available to all. This would include a core set of carbon principles and attributes, hosted and curated by an independent third party. It would also create a taxonomy for additional attributes that could be used to classify projects. These would be the basis for a reference contract that could be traded on a daily basis, sending a clear price signal to all players.
Verification costs money, but it’s important to the integrity of the market. Buyers should be prepared to pay for it, and they should insist on it. It will make them more confident that the credits they’re purchasing are real and will be effective in helping reduce greenhouse gases. A good example is BioCarbon Registry, which recently rebranded from ProClima. The award-winning standard is now accessible through CBL, and buyers can purchase high-quality Verified Carbon Credits directly, 24/7, 365 days a year.