Carbon crediting is a vital component of climate change mitigation. The landscape is constantly evolving as the relativity new technology becomes refined. This has created much debate about carbon credits in recent years, and a bit of misunderstanding about their history, their goals, and how they operate. The origin of the carbon (CO2) market can be traced back to the 1997 Kyoto Protocol, and more recently the 2015 Paris Climate Agreement. Both events set international goals for nations to reduce CO2 emissions. As a result, carbon crediting was constructed to aid businesses and organizations in reaching those goals.
As someone who works in the industry, I believe that most crediting projects contribute to emission-reduction goals while providing a suite of benefits for biodiversity, renewable energy, and development. There are unfortunately some instances in which crediting projects have over credited. Overall, it boils down to the project implementer—that is, the people on the ground managing the carbon project. A high level of transparency, a rigorous auditing mechanism, and continuous evolution should be an integral part of all carbon credit projects. With this in mind, I wish to provide an overview of the market as it currently exists; to lay foundational knowledge of the carbon crediting landscape.
Broadly speaking, there are two carbon marketplaces, the regulated market and the voluntary market. The regulated market is a mandatory reduction on emissions set by cap-and-trade regulations at a government level. The voluntary market, on the other hand, is optional and open to businesses and individuals. In contrast, the regulated market is a government mandatory reduction on emissions.
In a cap-and-trade market, each organization is given a calculated carbon reduction goal over a period of time, typically a year. Once that period is over, if an organization has reduced carbon emissions beyond its goal, it has excess carbon reduction points that can be sold to separate actors under the same cap-and-trade umbrella. The reverse also stands true, if a business has not met its goal, it is then required to compensate by purchasing points from other companies under the same scheme. The primary driver of this system is to account for emissions across a given region, thus forcing all actors to work toward a singular goal for CO2 reduction.
The mechanism behind the voluntary market is fundamentally different. Rather than reducing emissions, business or individuals offset their emissions through contractual agreements with carbon developers. Because these offsets come at a price, buyers still have an incentive to reduce their carbon emissions.
In general, there are four categories of carbon emission reduction projects; blue carbon, carbon capture, energy transition technologies, and land use offsets. Across all four categories, emission reduction is measured against a baseline representing pre-project levels of CO2.
Blue carbon schemes store CO2 in below-ground rich soil pools of coastal and marine environments. These ecosystems include mangroves, tidal salt marshes, and seagrass meadows. They store more carbon per unit area than old growth forest, and protect the coast from storms and erosion. Blue carbon projects produce credits from the restoration and management of coastal ecosystems, with the added bonus of protecting marine biodiversity.
Carbon capture schemes employ technology to compress and concentrate CO2 from the atmosphere and inject it into underground geologic storage reservoirs. CO2 may also be injected into materials such as cement. Carbon capture technology may play an important role in the road to net zero, but I prefer nature-based solutions that have added benefits for biodiversity and communities. I view carbon capture as a temporary solution on the road to net zero. It is a practice that should only be applied to hard-to-abate sectors where no other options for reducing emissions are feasible given modern technology.
Energy transition projects phase out high-emitting fossil fuels by utilizing new energy producing methodologies. This is the newest framework of carbon-offset projects aimed at incentivizing decarbonization in energy production. Switching to renewable energy such as solar and wind can often be difficult as it requires a large financial investment. Applying accrediting methodology fast-tracks the development and volume of renewable energy. Unlike other offset schemes it prevents the production of CO2 rather than sequesters what is emitted to the atmosphere. Energy transition schemes are the newest form of carbon offsetting projects on the market.
Lastly, land-use offset schemes, the main of which is avoided deforestation through the Reduction of Emissions through Deforestation and Forest Degradation (REDD), sequester carbon to produce carbon credits. To create these carbon credits depends on a well calculated scheme of deforestation avoidance within a Carbon Accounting Area. REDD+ projects are aimed at stopping deforestation in developing countries, and as a condition, require project proponents to invest in rural community livelihoods to address one of the key drivers of forest degradation—poverty. Overall, this is my favorite category of carbon offset schemes as it protects biodiversity and enhances community livelihoods. REDD+ projects have been instrumental in protecting the forests and enhancing forest-community livelihoods across Cambodia. The Southern Cardamom REDD+ Project implemented by my organization, Wildlife Alliance, protects 1.2 million acres of tropical forest and helps support the livelihood of the 29 communities through benefit sharing.
Ethical and scientific standards for carbon offset schemes are developed by an accreditor. The most well-known accreditor at the moment is Verra, as it holds 70% of the market volume. Other widely known accreditors include Gold Standard, American Carbon Registry, and Climate Action Reserve. The function of Verra and other accreditors is to ensure a project’s effectiveness in offsetting greenhouse gases and issuing carbon credits. Upon issuance, credits are sold on the market to businesses and individuals for use in offsetting their carbon emissions, or to resell to others. The value of such carbon credits is determined by supply and demand, influenced by the perceived quality of the auditing company.
The carbon market is one of the most powerful tools available for tackling climate change. Constant refinement and data tracking are crucial to its success. As the auditing process becomes more and more rigorous with experience, businesses and individuals will be able to know better which projects are most effective and therefore valuable. I strongly urge all business to take the time to research how carbon crediting can play a role in their sustainability strategy.
