A carbon credit is a kind of permit that represents 1 ton of CO2 removed from the atmosphere through an environmentally beneficial project. Companies, organizations and individuals that want to offset their own emissions may purchase these credits on the market. Companies that have reduced their greenhouse gas production may sell them as well, allowing them to negate the impact of their own footprint while earning a healthy profit.
Most commonly, a carbon.credit is created through an agricultural or forestry project that reduces, avoids or destroys emissions. However, a credit can also be generated through nearly any type of project that significantly reduces or eliminates greenhouse gases. Middlemen, who can sell carbon credits to corporations or individuals, may also earn a profit along the way.
There are two main markets for carbon credits, known as the compliance market and the voluntary carbon marketplace (VCM). Companies in the compliance market have the option of reducing their emissions through a variety of methods while being monitored by regulatory approving bodies. Companies that choose to do so, however, are still subject to a capped limit of emissions they can release each year.
The purpose of the cap is to prevent companies from releasing more than their allotted amount. If a company is found to have surpassed their limit, they will need to purchase carbon credits to make up the difference. This process, which is known as offsetting or compensating, allows companies to meet their green goals while avoiding fines and additional taxes.
As more companies are aiming for net zero emissions, the need for these credits has quickly increased. As a result, the market for these credits has expanded beyond the compliance market. In the voluntary market, anyone may buy and sell carbon credits if they wish to do so. This includes individuals who are environmentally conscious, such as the famous billionaire who offsets his frequent airplane flights.
While the standardized products on exchanges are more popular with traders and financial players, end buyers prefer to deal with non-standardized projects. This allows them to examine the specific characteristics of the credits they’re buying and ensure the quality of the projects they’re investing in.
The gold standard for carbon credits is based on an independent third-party assessment of the reductions a credit claims to have achieved, as well as its additionality – whether it has been generated through a renewable energy project or other carbon-reduction methodology. The Gold Standard also advocates for prices of carbon credits to more closely reflect true social costs and economic value. This, in turn, will encourage additional emission reductions and accelerate the transition to a clean energy economy. It is an ambitious goal, but one that we must all work toward. We at Native Energy are committed to helping to achieve it. We source the best-priced, verified carbon credits from around the world and support international projects that will have a real impact. You can learn more about how we are doing our part here.