The Carbon Credits Ecosystem

The carbon credits ecosystem refers to a market-based approach to address carbon emissions and mitigate climate change. It involves the buying and selling of carbon credits, also known as carbon offsets or emissions allowances, as a means of compensating for greenhouse gas emissions. It also incentivises emission reductions, supports sustainable projects, and channels financial resources towards activities that mitigate climate change.

How does it work?

Organisations, companies, or individuals undertake projects that reduce or remove greenhouse gas emissions, such as renewable energy generation, energy efficiency improvements, reforestation, methane capture from landfills, or adopting sustainable agricultural practices. These projects are validated and verified to ensure they meet established standards and methodologies.

Once an emission reduction project is successfully implemented and verified, it is eligible to generate carbon credits which each represent a reduction or removal of one metric ton of carbon dioxide equivalent (CO2e) from the atmosphere. The credits are typically issued by recognized carbon standards and certification bodies, and can be bought and sold on carbon markets.

What’s a carbon market?

There are two primary types of markets: compliance markets and voluntary markets. Compliance markets are established under government-regulated systems, such as cap-and-trade programs or carbon pricing schemes. Companies or entities that are required to comply with emissions reduction targets or limits can trade carbon credits to meet their obligations. Compliance markets are often mandatory and enforce emissions reductions in specific sectors or regions.

Voluntary markets meanwhile are not bound by regulatory requirements and allow individuals, organisations, and companies to voluntarily purchase carbon credits to offset their emissions. These credits are used to take responsibility for their carbon footprint and support emission reduction projects. Voluntary markets provide opportunities for businesses and individuals to go beyond regulatory requirements and proactively demonstrate their commitment to sustainability.

How are carbon credits used?

Organisations or individuals can use carbon credits to offset their emissions and achieve carbon neutrality. The theory is that by purchasing credits equivalent to their emissions, they effectively balance out their carbon footprint. However, offsetting should always be considered a complementary measure, while we continue to prioritise reducing emissions directly if we are to ever achieve net-zero emissions.

Carbon credits tend to be associated with specific emission reduction projects. Each credit is uniquely identified and tracked to ensure transparency and integrity. Certification bodies and registries play a vital role in verifying and validating emission reductions, ensuring that the projects meet rigorous standards and criteria. Certificates are issued to buyers as proof of their contribution to offsetting emissions.

How do you know you’ve picked the right carbon offset?

In general, you want to make sure you’re dealing with a “high quality” carbon offset. A high-quality carbon offset refers to a carbon credit that meets rigorous standards and criteria, ensuring that it represents a genuine and meaningful reduction or removal of greenhouse gas emissions. High-quality offsets are typically associated with projects that have strong environmental integrity and contribute to sustainable development.

A Switch2Zero subscription, for example, will only contribute to carbon offset projects that have been verified and certified by the United Nations or Gold Standard.

Here’s a helpful graphic:

Additionality

Additionality refers to the principle that emission reduction projects must result in additional emissions reductions beyond what would have occurred without the project. This ensures that the credits represent genuine emissions reductions.

Verification

High-quality offsets undergo a robust and transparent verification process. Independent third-party auditors or certification bodies verify that the project has achieved the claimed emission reductions or removals according to recognized standards and methodologies. The verification process ensures the credibility and integrity of the offsets.

Permanence

Permanence refers to the longevity of emission reductions or carbon storage achieved by the projects, ensuring that the benefits are sustained over the long term.

Measurability

The measurability of a carbon offset refers to the ability to accurately quantify the greenhouse gas emissions that are reduced or removed by an offset project. It involves establishing a robust methodology and measurement system to determine the amount of emissions that have been avoided or sequestered as a result of the project’s activities.

Avoid Leakage

Leakage occurs when the implementation of a carbon offset project leads to unintended consequences that result in emissions being displaced or shifted from the project site to other locations or sectors. This can happen due to various factors, such as market dynamics, changes in behaviour, or the redistribution of activities.