The Lifecycle of a Carbon Offset, Part 2
Brokers, Buyers, and Providers
In the first part of our series on the lifecycle of carbon offsets, we explored where carbon credits come from by digging into how reductions in carbon officially become “offsets,” and met some of the different players they encounter before they’re ever officially purchased or exchanged (if you haven’t checked that one out yet, we highly recommend giving it a once-over before you read on).
Now, in Part 2, we’d like to take a look at what happens to a carbon offset when it hits the market(s) and meet some of the individuals, organizations, and entities that actually buy and sell these offsets.
To understand how carbon offsets are used and exchanged, it’s important to understand the distinction between the two available carbon markets:
Mandatory, or Compliance, Carbon Markets (CER)
Like the name implies, the mandatory market isn’t an optional one. Anyone legally required to offset their emissions does so via this marketplace. Mainly, we’re talking about countries and governments here — essentially anyone that’s adopted the emission limits established by the Kyoto Protocol and the United Nations Convention on Climate Change (UNFCCC).
Voluntary Carbon Markets (VER)
Unless you’re currently running a country, this is likely where you first heard of carbon offsets. The voluntary carbon market (which Cool Effect is a part of) allows businesses, organizations, and individuals to offset their unavoidable emissions by voluntarily purchasing carbon credits emitted by projects targeted at removing or reducing GHG from the atmosphere.
While the compliance markets are regulated by mandatory national, regional, or international carbon reduction organizations, the voluntary market has multiple standards in place, each with its own slightly different focus. Some are limited to types of carbon projects, some are limited by locations, some are essentially carbon (pun intended) copies of compliance systems, and so on.
It’s within these markets that Brokers, Providers, and Buyers operate.
Born out of the compliance market, brokers essentially serve as matchmakers, pairing an organization, business, or individual with a carbon project ready to sell their offsets. Brokers typically don’t ever actually own any offsets themselves — they simply facilitate the sale, usually for a commission. Traders operate very similarly, but they often purchase large amounts of carbon credits from developers, then typically sell those directly to buyers.
Non-Profit and For-Profit Providers:
One key point of differentiation between types of providers involves their approach to supporting carbon projects as a whole. When selecting carbon projects, non-profit providers primarily gravitate towards projects that offer more than just reduced emissions as an end goal. By placing an emphasis on additional carbon project end benefits like improved local infrastructures, increased job opportunities for locals, or direct financial support in places that need it most, they’re able to support those who have most often been hit hardest by the impacts of climate change.
For-profits approach things slightly differently, as their name implies. Their primary focus is making a profit, which unfortunately means that there are often brokers and traders out there using hidden fees and secret markups in order to improve their bottom line at the expense of the planet.
No matter the provider, you still need buyers to decide to take carbon action, evaluate carbon programs, and purchase carbon offsets. In the voluntary market, these are most often organizations, businesses, or individuals rather than industrial entities or governments.
Now that our offset is ready to meet a buyer, let’s talk about a tricky subject: pricing. Carbon credits can typically range from less than $1 to around $150 per tonne of carbon dioxide equivalent (CO₂e). Most prices for well managed and regularly verified projects tend to be between $5 and $25 per tonne. The reason for the wide range of pricing is due to the wide range of carbon projects out there.
In purely technical terms, a carbon offset is expected to reflect the costs to implement the project, the amount of infrastructure required to execute the project or whether real, additional reductions of GHG emissions occurred. Pricing can also often sometimes reflect whether or not additional benefits are included in your purchase, like project social and environmental benefits, project location, age of credits, or even project type. Providers may also charge processing fees or commissions in addition to the offset’s price.
With a Cool Effect project, more than 90% of each dollar you donate goes directly to helping our projects, with a fee of 9.87% to help us cover credit charges, research, and possible registration fees.
Here’s a breakdown of where that 9.87% goes:
1.5% Research Fee
2–4% Credit Card Fee
Registry Fee (where applicable)
Remainder for Cool Effect Administration Fee
With so many variables involved in pricing, it’s crucial that providers remain extremely transparent when sharing this information with buyers. The key to a thriving carbon market, one filled with people ready to purchase carbon offsets and reduce carbon emissions, is trust — and there’s no trust without transparency. It’s why since Day 1, Cool Effect has put transparency at the forefront of everything we do, from our pricing to our administrative fees, to our rejection of hidden markups, to our guarantee that every single project on our platform has been thoroughly vetted and triple-verified. It’s an approach we call “Carbon Done Correctly,” because it’s exactly that.
Now that our offset has been purchased, we’re now at the last phase of its lifecycle — retirement. No gold watch here, this is when offsets are purchased and taken out of circulation once their specific greenhouse gas reductions are verified. As much as we love reusing and recycling, carbon offsets are a one time deal. Once an offset credit is retired, it cannot be transferred or used. All that transparency, those rigorous standards, and needs for verification are particularly important here to avoid something called “double counting,” a situation in which a single greenhouse gas emission reduction or removal is counted more than once (usually by multiple parties) towards achieving mitigation targets or goals.
From methodology to retirement, a carbon offset’s lifecycle may seem like a simple, straightforward process, but in reality it’s a complicated, regimented process that requires many different stakeholders to ensure these offsets do the good for the planet that they’re intended to.