One carbon credit equals a metric ton of greenhouse gas (CO2e) emissions avoided or removed from the atmosphere. It’s a kind of permit that represents a company’s reduction in its overall environmental footprint, which can include carbon dioxide emissions from industrial production or delivery vehicles, as well as other sources such as deforestation and methane. There are two significant markets for carbon credits – a regulated market set by “cap-and-trade” regulations in various governments, and the voluntary market where companies choose to offset their emissions of their own accord.
A company can earn a carbon.credit by funding external projects that reduce or remove greenhouse gases from the atmosphere. These projects are independently audited and verified, providing a means for businesses to meet their ambitious climate goals by offsetting the remaining portion of their emissions that cannot be reduced internally. This approach is essential to achieving the global goal of a 1.5°C temperature rise limiting warming to this level or lower.
The first step to earning a carbon credit is conducting a Baseline Assessment and reviewing the Additionality Criteria to establish the potential for the project to produce an additional amount of emissions reductions. This can include a review of existing practices such as the use of solar panels, switching to no-till agriculture, or biofuel production.
Conducting a monitoring plan and adhering to the rigorous reporting guidelines of your chosen carbon standard is also critical. This includes schedules for regular site visits to verify activities, as well as periodic audits conducted by independent third-party verifiers. The results of these reviews will be submitted to the carbon standard for issuance of carbon credits.
Once a carbon project is verified and registered, it can be issued in either the regulatory or voluntary markets. In the case of a regulated market, a company may need to purchase a certain number of carbon credits each year in order to stay under its emissions “cap,” which decreases over time. The company can then trade those credits with other companies that need to buy in order to reach their emission targets.
For example, let’s say Company 1 produces more CO2e than it is allowed to under its cap. To avoid penalties comprised of fines and extra taxes, it can buy carbon credits from Company 2 to cover that additional CO2e.
However, carbon credits are not a license to pollute. They provide a bridge for companies to continue to reduce their own emissions while investing in nature-based solutions, and recent studies have shown that companies that invest in carbon projects do more overall to cut their emissions than those that don’t. That’s why the world’s leading companies are embracing the power of these natural climate solutions, with their clear rules and transparency, as they work to flatten the carbon curve.