INTRODUCTION TO CARBON OFFSETTING

What is a carbon credit?

A carbon "credit" is a tradable certificate that represents one metric tonne of CO2e (either a tonne of CO2 or an equivalent amount of other greenhouse gases), generated by any of a wide range of activities that either remove a measurable amount of CO2e from the atmosphere or reduce the amount of CO2e being emitted.

Carbon credits are often talked about as if they are one single interchangeable product, however, this is not quite accurate. They exist in a few forms depending on how they are generated, measured, and traded. There are two main types of credit:

Credits generated by emissions reductions can be an effective mechanism to subsidise and accelerate decarbonisation. The buyer offsets their own CO2e emissions by paying for the supplier (the party reducing their emissions) to be able to take action to produce fewer greenhouse gases. So, for each credit, 1 tonne of CO2e gases is emitted instead of 2.

Credits generated by CO2 removal draw CO2 from the atmosphere and store that carbon away over timescales ranging from tens to thousands of years. The greenhouse gas removals are traded from the supplier (the party removing GHGs from the atmosphere) to the buyer (the emitter). For each credit, 1 tonne of CO2e gases is removed from the atmosphere to offset 1 tonne of CO2e emissions from the buyer, equalling a net zero increase in atmospheric greenhouse gases.

Of course, both types of credit can be purchased by any company or individual who do not have emissions to offset, or companies may also purchase more offsets than their emissions require, so that despite being a source of GHGs, overall they are reducing or removing more than they emit. This is called a climate positive approach. There are also two types of carbon markets - compliance and voluntary.

Compliance markets may be national or international government-regulated programs – the Clean Development Mechanism or CDM (recently renamed the Sustainable Development Mechanism or SDM) is a well-known example. Compliance markets on a national level are also known as cap and trade systems.

Voluntary markets are international, largely unregulated, and supply offsets to companies and individuals taking action to reduce their carbon footprints, but which do not fall under any compliance program.

There is no single set of rules regulating carbon markets; however, there are bodies that provide recommendations and set best practices. The Article 6 Rulebook established by the UNFCCC COP26 introduces a centralized management system and recording structure for international carbon trading under the SDM and now allows for a selected exchange of credits between voluntary and compliance programs. The International Carbon Reduction and Offset Alliance (ICROA) seeks to establish regulation and oversight in the voluntary carbon market to ensure the highest level of environmental integrity. A detailed assessment of Article 6 and Nationally Determined Contributions (NDCs) can be found in our additional article here.

What are co-benefits, and how do they affect credit value?

 

Some activities, such as planting trees, may have additional positive effects - commonly termed co-benefits - like creating wildlife habitats. Others, such as constructing a dam to produce hydroelectric, may avoid the emissions of GHGs by replacing coal-fired power plants but can also interfere with migratory fish and affect the health of entire river systems. Both activities reduce GHGs but have different positive and negative impacts on their environments. They have different costs and funding sources. One generates additional income from power production, while one doesn't. 

 

As a result, the price of the credits will be understandably different.

 

Projects which appear similar at first glance may also be significantly different. A tree-planting project which plants nothing but pine trees in straight lines will be effective at removing CO2 from the atmosphere but will not support wildlife and biodiversity. A tree-planting project that plants various native species in an area of former forest and slowly restores that forest back to a natural state - ecosystem restorationwill have the co-benefits of supporting greater wildlife and biodiversity. The credits generated by each project should be priced differently; however, it is often up to the purchasers of credits to spot the difference and decide whether the asking price is justified.

The carbon standards

The voluntary market is centred around a handful of major standard-setting organizations, often referred to as accreditation agencies and colloquially known as carbon standards. Each standard uses its own criteria and protocols to ensure all projects are meeting their targetted goals and that the GHG reductions are genuine. Standards then issue tradeable “credit” certificates on behalf of carbon offset projects that meet their requirements. While there are a number of smaller certifying bodies, the most commonly seen standards are: Verra, Plan Vivo, and The Gold Standard, plus the American Carbon Registry and Climate Action Reserve in the USA and ART TREES (Architecture for REDD Transactions) for terrestrial forest projects. Verra currently has the largest market share and is known for rigorous technical methodologies, while Plan Vivo is the smallest, longest-running, and focuses on delivering small-scale community-based projects.

 
 
 

 

To make things more complicated, not all “credit” certificates offered for sale will have been issued by a reliable accreditation agency and may not meet credible scientific baselines. Broadly, all credits offered for voluntary purchase can fall into one of three categories: accredited carbon offsets, unaccredited verified carbon offsets, and unaccredited and unverified carbon offsets.

Accredited carbon offsets.

These are produced by projects which accurately measure emissions reductions or carbon sequestration using a published technical methodology accepted as valid for use by their chosen accreditation agency. The project must demonstrate they meet standard requirements, and their measurements are further verified by an independent third-party organisation before any credit certificates will be issued. This is commonly referred to as the accreditation process. Projects are also required to monitor their performance and are subject to further checking and verification at agreed intervals to confirm their emissions reductions/carbon storage claims continue to be real. Credit certificates are issued periodically, and their issuance and current status are recorded on registries. Certified credits can be retained, traded, or used once by the current owner to offset one single tonne of emissions, at which point they are considered retired or canceled. Fair Carbon's project map shows the global distribution of blue carbon projects throughout various phases of the accreditation process.

     

Unaccredited verified carbon offsets 

These are produced by projects which have chosen not to go through the accreditation process. These may be projects where the offsets generated are retained by the project owner for their own use rather than sold, meaning they have no practical need for certificates as they have no intent to trade anything, or projects which have decided accreditation is too expensive or otherwise not suited to their needs. Projects which are unaccredited but still verified may use a methodology accepted by any of the carbon standards, by a compliance mechanism like the CDM, or implement their own custom science-based methods. All, though, still use third-party organisations to validate their claims. As there is no need to add an unaccredited project to any kind of registry, it can be difficult to know how many are out there and in which ecosystems.

Unaccredited, unverified carbon offsets

These are produced by projects making emissions reductions or carbon removal claims that have not been accredited by a carbon standard, nor verified by any kind of third-party organisation. These projects may or may not use reliable measuring methodologies. Some hold themselves to high scientific and ethical standards and do excellent work, others are outright fraudulent in their claims or may be operating outside any legal framework. A buyer’s capacity for carrying out due diligence on these projects may be limited and sometimes even recognisable “household name” companies have been documented purchasing "credits" for non-existent offsets in good faith. There are multiple websites offering unaccredited, unverified carbon offsets for sale to the general public without regulation.

The "colours" of carbon offsets

Carbon offset can be categorized using a color-coded classification system based on the application of carbon capture management techniques. The colored carbon credits are further broken down into two categories: industrial offsets (brown, red, yellow) and nature-based solutions (blue, teal, green). Brown carbon offsets are generated by increasing efficiency in industrial practices such as energy efficiency, landfill carbon capture, and fuel switching. Red uses innovative technologies to reduce emissions, while yellow incorporates the benefits of renewable energy projects. Nature-based solution offsets protect or enhance the natural environment to store carbon. Blue carbon projects sequester atmospheric carbon in marine habitats, vegetation, and the soil. Green projects also sequester carbon but through terrestrial vegetation and the growth of new biomass or avoided destruction of forests or other habitats. Carbon removal from freshwater ecosystems is considered teal carbon. Green and Blue carbon are referred to frequently in articles or conversations about credits or offsets, while the others are seen less often. 

Nature-based solutions are the sustainable management of natural resources to combat environmental problems such as food security, water quality, biodiversity loss, and natural disaster risks. Natural carbon sinks such as forests, mangroves, and peat swamps sequester more carbon than they emit, making them a long-term solution to climate change. Compared to offsets through changes in industrial practices, nature-based solutions have more co-benefits  for the environment and local communities.

What is “Blue” carbon?

"Blue Carbon" is a term used to describe the carbon stored in ocean and coastal habitats such as mangrove forests, seagrass meadows, saltwater marshes, kelp, and even the biomass of marine creatures. A more in-depth explanation of the different types of blue carbon can be explored in our Introduction to Blue Carbon Projects article.

Measuring and monetizing carbon storage from ecosystem protection and restoration provides communities with economic incentives to conserve local ecosystems. They offer a 20 plus year source of income to supplement or replace traditional philanthropic or government funding sources and a sustainable income alternative to extractive or destructive practices. For commercial organizations wanting to produce verified carbon credits for sale or to offset their own carbon footprints, nature-based carbon projects can compound multiple benefits into one credit.

The Fair Carbon modular programme is designed to guide project managers through the process of developing a blue carbon project, from concept to accreditation and ongoing operations.

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