Carbon credits enable companies to offset their greenhouse gas (GHG) emissions through a structured system. This guide explores the essentials of carbon credits, including their types, verification processes, and the functioning of carbon markets. It also highlights how businesses can actively mitigate their carbon footprint using EcoCart’s tools, offering a direct path to environmental responsibility and sustainability.

What Are Carbon Credits?

A carbon credit is a tradable certificate or permit that represents the right to emit one tonne of carbon dioxide (CO2) or the mass of another greenhouse gas equivalent (CO2e) taken from the atmosphere. The role carbon credits play varies significantly between two main arenas: compliance markets and voluntary markets.

While the compliance market is driven by regulatory mandates to combat climate change, the voluntary market thrives on the commitment of participants to go beyond these requirements, supporting projects that might include renewable energy, forest conservation, or community development.

In compliance carbon markets, carbon credits are part of regulatory cap-and-trade systems. Governments set GHG emission limits for industries, creating a cap on the total amount of greenhouse gasses that can be emitted. Companies that reduce their greenhouse gas emissions below these caps earn carbon credits. They can sell these surplus credits to other companies struggling to meet their GHG emission limits, incentivizing overall emissions reduction across the industry.

In the voluntary carbon market, businesses and individuals purchase carbon offsets on their own initiative, not because of legal requirements but to work toward carbon neutrality, enhance their sustainability credentials, or support environmental projects. Carbon offsets sold in the voluntary carbon market are created by various carbon offset projects that either remove emissions from the air or avoid adding more. These are sometimes called carbon offset credits.

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How are carbon credits verified?

In the compliance market, the verification process for emissions and the corresponding carbon allowances or credits a company is allotted often starts with the company’s self-reported emissions data. Regulatory bodies or governments then require these reports to be verified by accredited third-party auditors. These auditors ensure the accuracy of the emissions data and compliance with the cap-and-trade program’s rules. The regulatory body overseeing the cap-and-trade system ultimately approves the issuance of allowances based on this verified data. For example, within the European Union Emissions Trading System (EU ETS), companies report their emissions, and third-party verifiers accredited by national accreditation bodies check these reports for compliance.

In the voluntary market, carbon offset projects that aim to generate carbon offsets for purchase undergo validation and verification by third-party auditors against specific standards, such as the Verified Carbon Standard (VCS) or the Gold Standard. Validation occurs when an offset project is first developed, ensuring its design is capable of achieving the proposed emission offsets. Verification happens periodically throughout the project’s operation, confirming the actual emission reductions achieved. These verified projects can then issue carbon offsets, which companies or individuals purchase to offset their emissions voluntarily.

Who issues carbon credits?

Carbon credits are issued by a variety of entities, tracing back to the establishment of the carbon credit system under the Kyoto Protocol in 1997. This international agreement set quotas on greenhouse gas emissions for countries, particularly industrialized ones, introducing the concept of emission caps.

To clarify, while governments or their designated regulatory agencies primarily issue carbon caps, carbon credits themselves can be issued by both governmental and non-governmental organizations. A notable example of a non-governmental body involved in issuing carbon credits is the Clean Development Mechanism (CDM) under the United Nations. This system allows for the creation and exchange of carbon credits through projects aimed at avoiding or removing emissions in developing countries, thereby contributing to the global effort to mitigate climate change.

Types Of Carbon Credits

Carbon credits are tools for meeting regulated emission limits, allocated to businesses by governing bodies based on an emissions allowance. These can be bought and sold by businesses within the same compliance market, also known as a cap-and-trade system. 

Even so, many businesses are seeking voluntary ways to reduce emissions and purchase carbon credits to compensate for any emissions they cannot eliminate. As such, a voluntary carbon market has emerged where carbon offsets can be bought and sold for this very purpose. These carbon offsets are often referred to as a type of carbon credit.

Here are how carbon credits are generally referred to, including the traditional purpose of carbon credits in compliance markets.

Based on Market Origin

1. Compliance Carbon Credits: These are generated within regulatory cap-and-trade systems where governments set emissions caps for industries or sectors and issue a corresponding number of carbon credits. Companies can trade these credits to comply with legal emissions limits. An example is the EU Emissions Trading System (EU ETS) credits.
2. Voluntary Carbon Offset Credits: Produced from projects that voluntarily remove or avoid emissions, these offsets can be purchased by individuals, companies, or governments looking to offset their carbon footprint beyond any legal requirements. Projects generating voluntary credits often include renewable energy, reforestation, or community development initiatives.

Based on Project Type

1. Renewable Energy Credits (RECs): Although sometimes considered separately from carbon credits, RECs represent the environmental benefits of generating one megawatt-hour (MWh) of electricity from renewable energy sources rather than fossil fuels. They are a key tool in supporting renewable energy development.
2. Carbon Sequestration Credits: These credits are generated from projects that physically remove carbon dioxide from the atmosphere and securely store it. This category includes reforestation, afforestation, and carbon capture and storage (CCS) projects.
3. Methane Capture Credits: Generated by projects that capture methane emissions (a potent greenhouse gas) from sources like landfills, coal mines, or livestock operations, preventing its release into the atmosphere.
4. Avoided Emissions Credits: These come from projects that prevent the release of greenhouse gasses that would have otherwise occurred, such as through the development of renewable energy projects that replace fossil-fuel-based electricity generation.

Based on Certification Standards

Projects generating carbon credits adhere to various standards that ensure their credibility, such as:

• Verified Carbon Standard (VCS): For credits verified under VCS, ensuring emissions removal is real, measurable, and permanent.
• Gold Standard: Focused on projects that not only remove carbon emissions but also contribute to sustainable development goals.
• Clean Development Mechanism (CDM) Credits: Under the Kyoto Protocol, allowing emission-reduction projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2.

Each type of carbon credit plays a specific role in the broader context of climate action, supporting different strategies for reducing greenhouse gas emissions and promoting sustainable development.

What Can Businesses Do To Mitigate Carbon Emissions? 

Businesses seeking to mitigate their carbon footprint can turn to EcoCart for effective solutions. EcoCart’s carbon footprint dashboard empowers companies to identify and reduce carbon emissions, streamlining the path towards sustainability. Beyond tracking carbon emissions, EcoCart offers carbon offsetting, allowing businesses to invest in global environmental projects that counterbalance their carbon output.

EcoCart also provides life cycle analysis tools, giving insights into the environmental impact of products from creation to disposal. This comprehensive approach helps businesses make informed decisions to minimize their ecological footprint.

For businesses ready to take action, EcoCart is the gateway to a suite of tools designed for sustainability. By partnering with EcoCart, companies not only contribute to a healthier planet but also align with consumer values of environmental responsibility. Start your journey towards sustainability with EcoCart today and make a tangible impact on the planet’s future.