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How to Invest in Carbon Credits: Your Step by Step Guide

invest in carbon credits

Investing in carbon credits is a logical step for eco-conscious companies looking to manage their carbon footprint. Using carbon credits to offset your greenhouse gas emissions not only allows you to address the emissions that you cannot yet remove from operations, but it can also help your company remain compliant and improve your brand reputation as you showcase your commitment to climate action. 

Unfortunately, the world of carbon credits isn’t always straightforward. We’re here to help clear some things up. Here’s how to invest in carbon credits and what you need to know to do so.

What Is A Carbon Credit?

Carbon credits are the transaction instruments—or commodities—of carbon markets. Verified carbon credits are created when an entity removes or reduces carbon dioxide emissions. The amount of carbon removal is verified by a third party, and a carbon credit is issued—one tonne equals one credit. Although carbon credits are often used to compensate for an entity’s greenhouse gas emissions, therefore becoming a carbon offset, this is not the only way that they can be used. Many eco-conscious companies purchase verified carbon credits to support projects that restore nature and go beyond their carbon profile.

Read more: How Carbon Credits Are Verified

Why Invest In Carbon Credits?

There are a number of reasons why an organization or individual might invest in carbon credits.

  1. To address emissions that they cannot yet remove from operations. When a carbon credit is used in this manner, it becomes a carbon offset. It’s important to note that a carbon offset should not replace carbon reduction efforts. Rather, they should serve as a placeholder as your company works toward its decarbonization goals.
  2. To support climate action and environmental projects. Companies that have already decarbonized their operations might continue to purchase carbon credits so that they can support climate action. Or, some organizations might choose to purchase more carbon credits than they need to offset their emissions for the same reason. 
  3. To gain green business certifications. Carbon credits can help improve your carbon accounting, which is often a key part of gaining a green business certification.
  4. To make a profit. The carbon credit market is a lucrative one. As climate regulations become more stringent, carbon credits are becoming more expensive. Creating and selling carbon credits is a swiftly growing market valued at USD 103.8 billion in 2023. It offers plenty of financial opportunities for those who can tap into it. Carbon offsets are also tax deductible, offering additional value. However, it’s important to note that while there is a profit to be enjoyed from the carbon offsets market, we cannot forget the primary goal of carbon credits: to support climate action. Those seeking to benefit financially from the carbon credit market must first ensure that the carbon credits that they create and sell are verified by a major carbon standard.

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Carbon Markets

Carbon markets are where carbon credits, offsets, and allowances are created, sold, and traded. These types of markets seek to address the carbon issue so that we can find a balance to remove greenhouse gas emissions and avoid catastrophic global temperatures. Through these markets, we can mitigate the following emissions:

  • Carbon dioxide: The most commonly known greenhouse gas, which is emitted through cellular respiration.
  • Methane: This comes from natural gas, like that which comes from a cow.
  • Nitrous oxide: This is used as laughing gas and rocket propellant.
  • Perfluorocarbons: A man-made compound that usually comes from aluminum smelting.
  • Hydrofluorocarbons: A man-made compound found in refrigeration units.
  • Sulfur hexafluoride: Both man-made and natural, this is used in the electrical power industry.

Two types of carbon markets

There are two different types of carbon markets: the Emissions Trading Systems (ETS) and the Voluntary Carbon Market (VCM).

  • Emissions Trading Systems (ETS): These are mandatory markets that are managed by governments and governing entities. In this market, a set number of carbon allowances are determined annually, and they’re distributed based on the entity’s location and industry. Each year, fewer allowances are given so that we can lower carbon output overall. Carbon credits or carbon offset programs are not included in Emissions Trading Systems. Rather, it’s a way for governments to limit carbon output and penalize companies that exceed emissions caps.
  • Voluntary Carbon Market (VCM): This much smaller market is where carbon credits are created and traded. This is where companies and individuals may invest in carbon credits, whether their intention is to offset their carbon emissions or further contribute to climate action. 

The VCM is where you’ll earn your green business certification. Because Emissions Trading Systems are mandatory, green certification entities will not count them in your portfolio. The voluntary market is where you’ll prove your commitment to climate action. As EcoCart operates on the VCM, our offerings and resources can help you earn green business certifications.

Read more: Types of Carbon Credits

How do carbon credits mitigate emissions?

The mandatory market (ETS) and the voluntary market mitigate emissions in their own ways.

The ETS is designed to remove overall emissions slowly over time. They provide a yearly cap of greenhouse gasses that companies can emit, which they lower year after year, incentivizing companies to make emission reductions and invest in decarbonization strategies to remain compliant. Those that exceed the yearly cap are penalized with a fine. While this ensures that greenhouse gas emissions are lowered, it’s a very slow approach to a very imminent threat.

The VCM picks up the slack. Eco-conscious companies can go beyond the caps allocated by ETS, helping to improve progress toward greater carbon emissions goals. By purchasing carbon credits, they can either offset their carbon emissions beyond what’s required, or they can fund projects that remove or reduce carbon from the atmosphere. 

The VCM can additionally be used to avoid taxes and fines from the mandatory market. If a company knows that it cannot adhere to the cap allocated by the government, it can purchase carbon credits on the voluntary market to offset the difference. However, as regulations surrounding emissions become stricter, carbon credits are more costly. Therefore, companies should take care to reduce their emissions rather than relying upon the voluntary market for compliance.

Want to know where your business stands? Get your sustainability scorecard with our quiz:

Investing In Carbon Credits

Now that we’ve covered the different carbon markets and what a carbon credit is, let’s dive into how you can invest in carbon credits. There are a few different ways that you can purchase a carbon credit, depending on your overall goals and needs. Before you decide where you’ll purchase your credits, answer the following:

  • What’s your budget? This will determine everything from the type of crediting system in which you invest to the number of credits you can buy.
  • How quickly do you need your credits? While some crediting systems sell credits after the carbon has been removed from the atmosphere, allowing you to use them as offsets immediately after purchase, others ask for funding upfront, and you’ll receive the credit after the carbon has been removed. In the latter case, there’s no guarantee when you’ll receive the credit.
  • How many credits do you need? If you’re using your credits for offsetting, you can figure this out by calculating your carbon footprint in tonnes and then purchasing the amount of carbon credits that you need to offset your emissions.
  • How involved do you want to be? Some programs are more hands-on while others will simply issue the credits. You need to decide which one you prefer.
  • Are the carbon credits verified by a major carbon standard? These include the Gold Standard, VERRA, and the American Carbon Registry. The carbon credit companies that you support should meet or exceed the standards set forth here.

With these questions in mind, here’s where you can purchase your carbon credits.

Buy directly from projects

Supporting projects directly is the most hands-on approach to purchasing carbon credits. This will allow you to have more control over the projects that you support, and it will provide funding to projects early on, allowing them to get off the ground quicker. Often, these credits are less expensive since you join the project early on, and they carry an element of risk; there’s always a chance that the number of credits you purchase won’t come to fruition. These types of credits also require patience. You might have to wait years before you receive the credit. If you want to buy directly from a project but don’t want to wait, you can always seek out a project that has finished and has leftover credits. The downside to this, however, is that they might not have as many credits available as you need.

Use a broker

A broker can do the hard part for you by shopping around for the credits you need on your behalf. This process is one of the easier ways to purchase carbon credits, and it’s ideal for companies who want a customized credit investment plan without having to do the work. However, it will be more expensive than other options as you will have to compensate your broker as well as pay for the credits.

Buy from a retailer

A carbon credit retailer is just like any other retailer. They have a list of carbon credits that you can purchase and use, and they should be able to provide information about where the credits came from and which projects they support. This can be a quick way to get carbon credits, and it’s often the preferred method for those who need a small amount of credits quickly.

Buy from an exchange

Carbon exchange platforms allow people to buy, sell, and trade carbon credits. If you’re looking for a place to do it all, then this might be the option for you. This is also a quick and simple way to get carbon credits, however, some credits traded in this way do not have all of the information that you need to ensure that it’s validated, so it does carry some risk.

How To Invest In Carbon Credits?

Because it’s such a booming market, there are countless ways that you can invest in carbon credits. The entities that you choose to invest in will depend upon your brand values, the goals of your carbon credits, and your budget. Here are some carbon investment options for you to consider.

  • NCX: Landowners can look into this company that helps you navigate options simply for not cutting down your trees.
  • Native Energy offers plenty of projects that you can support and gain credits from. Their primary focus is helping companies with their residual emissions.
  • Rubicon Carbon similarly carries a portfolio of projects for both businesses and individuals with many different options depending on your values.
  • United Nations Carbon Offset Platform is a one-stop shop to purchase carbon credits and support programs all over the world. 
  • Sustainable Travel International is the perfect solution for travelers and travel companies looking to reduce carbon emissions surrounding travel and tourism.
  • EcoCart: We partner with eco-conscious ecommerce companies seeking to minimize their carbon footprints. Not only do we provide projects that offset the emissions associated with each delivery, but we also offer resources such as a carbon emissions dashboard and a sustainability marketing toolkit. All of our projects are verified by Verra, ensuring that we are a reliable carbon offset program.

Frequently Asked Questions

Now that you know how to invest, here are a few common questions you might have on your mind.

Are carbon credits a safe investment?

There is no such thing as a safe investment. Based on how an industry performs, you can estimate potential risk, but you can’t guarantee the outcome.

Compared to other investment opportunities, carbon credits have the potential to be riskier than other markets. The reason is that the market is young and limited. We don’t have years of market performance to consider, making the future of the market entirely speculative. While it has been an incredibly profitable market for investors, we don’t know where this market is going.

On the other hand, environmental consciousness is in the public eye in ways that it never has been before. With non-profits, corporations, and government agencies sinking time and energy into green solutions and programming, the market looks promising. 

Investing in any market is a gamble. Do your research and make an educated decision on what’s right for you and your investment portfolio.

What’s a beginner-friendly carbon credit ETF?

KRBN is a great carbon credit ETF to invest in. This ETF’s strategy is focused on investing in companies that signed the Paris Agreement. Each has committed to reducing greenhouse gas emissions, providing a strong collection of climate change stocks.

This beginner-friendly option makes it easy to invest in carbon credits indirectly.

Is investing in carbon credits expensive?

Like other markets, you can find a variety of different investment opportunities to meet your needs. ETFs and mutual funds are a great way to get started if you don’t have much money. For the cost of a share, you can start diversifying your portfolio and supporting a greener future.

Why is it important to invest in the environment?

We live in a world where climate change is becoming an increasingly imposing threat; it’s easy to understand why people want to make a global impact with their investments. Carbon credits and carbon offsets are a great way to do that, allowing you to invest in everything from carbon credit futures to carbon offset ETFs. 

What are the limits of carbon credits?

Carbon credits and both the voluntary and mandatory marketplaces are still limited in their scope. National and state governments maintain the mandatory system by setting the cap and decreasing it over time, while the voluntary market is driven by the standard economic forces – supply and demand. Companies sell unused carbon credits and some, like Shell, use the resulting cash flow to fund green projects.

Individuals can’t buy carbon credits directly. A carbon offset is more accessible to individual investors. 

Carbon offsets work by proactively offsetting greenhouse gas emissions, which they trade with climate change-conscious organizations. Some examples of carbon offset projects are protecting trees and building renewable energy sources.

How do I lower my risks when investing in the environment?

With a young and limited market, investing in decreased greenhouse gas emissions can be unpredictable. You should always do your research before making an investment decision, and maintain a diverse portfolio to meet your needs.

Different ways of investing in carbon credits, like ETFs or buying stock in green companies, are accessible ways for investors to branch out into green investments. ETFs are more beginner-friendly, as they are maintained by a manager. If you want to try buying stocks, look for companies verified by the Verra, Gold Standard, the Climate Action Reserve, and other reliable sustainability organizations.

In conclusion

At EcoCart, we’re proud to help businesses offset their carbon emissions, educate their consumers, and leverage valuable insights. For us, every project is a chance to create access to carbon offsetting while setting industry standards.

Our carbon offset projects are diverse, meeting unique environmental concerns around the world. We design them to positively impact the environment and local economies while supporting communities. Request a demo today to see how EcoCart can help your business invest in carbon projects.

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