Introduction to Blue Carbon

Carbon offsetting is a complicated space that is constantly evolving, especially when it comes to blue carbon and the restoration and conservation of mangroves for carbon credits.

At Fair Carbon, we explain different elements of how carbon markets work, from what a "carbon credit" is, to how they are produced and traded, and why some credits sell for higher prices than others.

This guide to understanding the process will cover an overview of carbon credits, the major carbon standards, blue carbon, and the implementation of mangrove carbon projects.

Introduction to Carbon Offsetting

Mitigating Climate Change

Climate change is a global shift of temperatures and weather patterns primarily caused by human activities. When humans cut down a forest, disturb soils for agriculture, or burn fossil fuels, they release greenhouse gases (GHGs), which cause the climate to shift by trapping heat in the atmosphere. In the long-term, climate change threatens both humans and biodiversity by causing extreme weather events, sea level rise, droughts, fires, and flooding. Therefore, mitigating climate change, or reducing or preventing further GHG emissions, is a global priority.

The Mitigation Hierarchy is one way of prioritising different ways of addressing emissions:

1. Avoidance

Individuals or organisations should avoid participating in activities that cause GHG emissions, such as deforestation or burning fossil fuels, wherever possible.

2. Minimisation

If avoidance is not possible, the individual or organisation should minimise their climate impact, such as by burning fewer fossil fuels, or using them more efficiently.

3. Restoration

If minimisation is not possible, the individual or organisation should repair the damage they have done, such as by reforesting a degraded area, or using carbon capture technology to remove emissions from the atmosphere.

4. Offsets

If restoration is not possible, the individual or organisation should balance their negative climate impacts by funding someone else to avoid, minimise, or restore impacts from GHG emissions.

Offsetting is, therefore, a last resort for individuals and organisations, but it is necessary when taking other mitigation actions is impossible or prohibitively difficult or expensive. For example, some industrial processes, such as cement production, are necessary for development, energy, or infrastructure but generate emissions which are very difficult or impossible to avoid, minimise, or restore. In this case, the emitting industry should purchase offsets or carbon credits equivalent to or greater than their emissions.

Carbon Credits 101

A carbon "credit" is a tradable certificate representing one tonne of carbon dioxide equivalent (CO₂e), or an amount of greenhouse gases (GHGs) with the same atmospheric heating potential as one tonne of CO₂. Carbon credits are generated by carbon projects, which actively remove or reduce emissions through various project activities.

Each carbon credit has a vintage or a label for the year the credit was issued. The vintage, corresponding project name, location, activities, partners, and more are tracked through a registry managed by a carbon standard or government agency.

Once a carbon credit has been issued to a project, the project can either hold onto the credit (“retain” it) or sell it to someone who wants to remove or reduce their emissions. A project may also decide to hold the credit to sell later, if or when the price for the credit increases in the market; this is called arbitrage. Ultimately, the carbon benefits of an offset can only be claimed once. When a credit is claimed or “used,” it is then retired or “cancelled” on the registry and cannot be traded again.

Carbon Projects

There are three types of carbon credits: credits for emissions removals, for emissions reductions, and for avoided future emissions.

Projects can earn carbon credits for emissions removals, where the project activities capture and store GHGs. For example, restoration projects repair a degraded ecosystem, capturing and storing carbon in plant matter and soils.

Projects earning credits for emissions reductions limit, alter, or stop activities that create GHG emissions. For example, a project may change land management from a high-emissions activity, such as unsustainable timber harvesting, to a lower-emissions activity, like sustainable forestry, reducing the emissions in that area.

Similarly, projects that earn credits for avoiding future emissions prevent emissions from occurring at all. For example, projects that protect ecosystems from degradation prevent emissions that may otherwise occur if that ecosystem is degraded or destroyed. Avoiding future emissions is often in the same category as emissions reduction projects. See our articles on Carbon Sequestration vs Storage, Improved Management, and Conservation vs Restoration for more information. 

Carbon Markets Explained

Carbon credits are traded on carbon markets. There are two types of carbon markets: compliance and voluntary.

Compliance carbon markets are government-mandated emissions reduction programs, also called Emissions Trading Schemes (ETS) or Cap-and-Trade programs. Under an ETS, the government sets a limit (or cap) on the total allowable emissions of an industry. The limit generally decreases over time, resulting in industry-wide emissions reductions. If a company cannot reduce emissions below its limit, it can purchase offsets to meet the mandated reductions. The regulator of the compliance market, usually the government, chooses the types of carbon offsets buyers can purchase.

The Clean Development Mechanism (CDM) is a well-known example where participating countries trade carbon offsets to reduce global emissions. Today, parties to the Paris Agreement are negotiating a new international carbon trading mechanism called Article 6 to replace the CDM. For more information, see our article on Article 6 and Nationally Determined Contributions (NDCs).

On the Voluntary Carbon Market (VCM), individuals or organisations can purchase offsets to meet their personal or organisational climate goals but are not mandated by legislation. Individuals or organisations on the VCM can purchase any type of credit from any registry and may purchase more offsets than their emissions reduction needs if they wish to have a positive climate impact. In some cases, governments allow VCM credits to be used in compliance markets.

Carbon Market Regulations

While no single set of rules regulates voluntary carbon markets, some bodies provide recommendations and set best practices.

For the VCM, organisations such as The International Carbon Reduction and Offset Alliance (ICROA) establish regulation and provide oversight on the VCM, ensuring VCM projects and third-party auditors have the highest environmental integrity.

The Article 6 Rulebook established by the Paris Agreement includes a centralised management system and recording structure for international carbon trading among countries. It allows for credit exchange between the voluntary and compliance markets.

See our article on Article 6 and Nationally Determined Contributions (NDCs) under the Paris Agreement for more information.

Suggested Citation: Francis, E., Wilkman, A., Beeston, M. "Introduction to Blue Carbon Offsetting". Geneva, Switzerland: Fair Carbon, 2023. https://faircarbon.org/content/fc/offsets101