Carbon credits are typically associated with regulatory cap-and-trade systems, where they represent a government-allocated permit to emit a specific amount of greenhouse gasses; companies can trade these credits to meet regulatory requirements.
Let’s explore exactly how these carbon credits are verified and what that means.
What Is A Carbon Credit?
A carbon credit is a permit or certificate that allows the holder to emit a certain amount of carbon dioxide or other greenhouse gasses, typically one tonne, designed as part of global efforts to reduce emissions and combat climate change. They exist within regulatory cap-and-trade systems to encourage businesses to lower their emissions. Companies can acquire these credits either through direct allocation from a governing body, by reducing their emissions below granted levels, or by purchasing them on the market from others who have surplus credits.
Key stakeholders who need to know about carbon credits include businesses subject to emissions regulations, environmental policymakers, sustainability professionals, and investors interested in supporting green initiatives. Carbon credits serve as a crucial tool in the global strategy to incentivize emission reductions and transition towards a more sustainable economy.
Is a carbon offset the same as a carbon credit?
Carbon credits and carbon offsets represent two distinct concepts within the framework of emissions reduction, though they are sometimes mistakenly used interchangeably.
Carbon credits are typically part of a regulatory cap-and-trade system, allowing businesses to emit a certain amount of greenhouse gasses; these are not typically purchased in the voluntary market.
Carbon offsets are voluntary purchases made by individuals or companies aiming to counterbalance their own carbon footprint by funding projects that remove or avoid emissions elsewhere, like renewable energy or reforestation projects.
While both mechanisms aim to reduce overall emissions, carbon credits are more about compliance within a regulated system, and carbon offsets are about voluntary actions to achieve carbon neutrality or positive environmental impact.
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The Two Primary Carbon Markets
Carbon credits are an official term for compliance markets because they represent government-allocated permits required for businesses to emit specific amounts of greenhouse gasses under regulatory cap-and-trade systems. Carbon offsets, while not officially termed as credits, are often treated as voluntary carbon credits because they allow individuals and businesses to voluntarily compensate for their emissions by investing in projects that reduce greenhouse gasses elsewhere.
Carbon credits and carbon offsets can be traded in two primary carbon markets: voluntary and mandatory. Here is how they differ:
Mandatory compliance carbon market
The mandatory compliance carbon market is part of a regulatory system where governments or international bodies set a cap on the total amount of GHG emissions that can be emitted by regulated entities, such as industries or countries. Entities that exceed their emissions allowance must purchase carbon credits to comply with the cap, while those under their limit can sell their excess credits.
This carbon pricing system, often referred to as “cap-and-trade,” aims to reduce overall emissions by creating a financial incentive for business emission reductions. The mandatory compliance market is crucial for meeting national or international legally binding climate targets, such as those set by the Kyoto Protocol or the Paris Agreement.
Voluntary carbon market
The voluntary carbon market allows businesses, governments, and individuals to purchase carbon credits on a voluntary basis to offset their carbon emissions. These markets enable participants to invest in environmental projects around the world that remove or avoid greenhouse gas (GHG) emissions, thus compensating for their own emissions footprint.
The types of offsetting projects can range from reforestation to renewable energy and are often certified by third parties to ensure their impact. The voluntary nature of this market means participants choose to buy credits as part of their sustainability goals, corporate social responsibility (CSR) initiatives, or to meet consumer demand for environmentally friendly practices.
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Verified Carbon Standards Overview
Both types of carbon markets — voluntary and mandatory — have standards for carbon offset projects. The verified carbon standards are set and overseen by independent verification bodies that have stringent rules projects need to meet to be accredited by them. These independent carbon crediting programs are uniting to boost the effectiveness and integrity of carbon markets. This will aid the goals of the Paris Agreement by enhancing climate action finance and ensuring credible carbon avoidance and removal efforts.
Here are the independent verification bodies in the voluntary and mandatory carbon markets:
Mandatory Compliance Carbon Standards
Clean Development Mechanism (CDM)
The United Nations’ Clean Development Mechanism is a carbon offset program under the Kyoto Protocol that allows countries to fund carbon emissions reduction projects in other countries, claiming the saved emissions toward their own emissions targets.
Carbon standards and the Kyoto Protocol
The Kyoto Protocol made emissions trading possible, creating the standards for which CERs from a CDM project can be used in a compliance market. While VERs are independent of government commitments under the Kyoto protocol, they can be created under the same standards, but reflect a business’ corporate social responsibility.
Voluntary Carbon Standards
Verified Carbon Standard (VCS)
The Verified Carbon Standard (VCS) Program, from third-party organization Verra, is the world’s most widely used greenhouse gas crediting program. Verra is one organization trying to create a global standard for how carbon credits are verified.
Gold Standard (GS)
Carbon removal projects designed to the Gold Standard are aligned with the UN’s Sustainable Development Goals and verified by SustainCERT — a digital verification solution intended to drive mass adoption.
American Carbon Standard (ACR)
The American Carbon Standard ensures the voluntary market’s carbon offset projects are registered and verified and oversees the cap-and-trade program in California.
Climate Action Reserve (CAR)
The Climate Action Reserve is a carbon offset registry for the North American carbon market. They provide standards, oversee third-party verification bodies, issue carbon credits generated from projects, and track how the credits change hands in a system open to the public.
Carbon Credit Verification Process
It’s a big job to protect the integrity of the carbon offset industry. Fortunately, there’s a robust and transparent process in place for how carbon credits are verified against an organization’s standards. This part is critical, so let us walk you through it.
- Project Planning and Proposal: This is where a project developer would estimate the climate impact of their project, plan the design, and assess it against the standards of the verification body.
- Preliminary Approval: The first review of draft reports and assessments (including monitoring plans) is completed by the verification organization, and the project developer gets the green light!
- Validation by a Third-Party: A third-party organization (like Verra, CDM, or the Gold Standard) will conduct an independent assessment, including a site visit, to confirm that the project meets the standards’ requirements.
- Final Project Review and Approval: With the validation complete, the body gives the project its certified/verified status! Now, the project developer can start selling the credits generated through a carbon registry.
- Project Monitoring: The project developer implements the monitoring plan and submits the annual and monitoring reports to the verification body. This step is critical to ensure the project is accomplishing what it set out to do, and is still in good standing.
- Third-Party Validation of Project Performance: Another third-party validation and verification organization will independently assess the impact of the project every five years to confirm it’s in line with the standard.
Frequently Asked Questions
Still have questions about how carbon offsets are verified? It’s a complex subject, but we’ve got you covered!
How are carbon offsets verified?
Carbon offset verification involves a rigorous inspection and approval process from a third-party organization ensuring the project meets the standards accepted by the carbon market, including being additional and permanent.
What is a carbon offset project?
A carbon offset project is a practice or process that is proven to remove greenhouse gas emissions from the atmosphere. They often involve reforestation (planting trees) but can be carbon-neutralizing agricultural or even industrial carbon-capture and storage practices.
What is a verified carbon offset?
If a carbon offset project has been verified, that means it’s proven to avoid or remove carbon emissions from the atmosphere. Each metric tonne of emissions removed or avoided is able to be claimed as a carbon credit. Businesses buy carbon credits called Verified Carbon Units (VCUs) to mitigate their emissions. They calculate the greenhouse gasses created during their operations, then buy VCUs to offset the metric tons they created.
Who can certify carbon credits?
Carbon credits can be certified by accredited organizations, including:
- The Gold Standard
- Climate Action Reserve
- American Carbon Registry
- Verra
- CDM
- SCS Global Services
Conclusion
Whether you want to buy verified carbon offsets on the voluntary market or you are regulated by the compliance market — ensuring the carbon credits you buy are from a verified carbon offset project is critical.
Luckily, there are many independent organizations mentioned in this article that do the work to ensure these offset projects are legit. Look for the seal of approval of reputable organizations next time you’re on the carbon market, and breathe easy knowing you’re doing your part to remove and avoid carbon emissions.
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