Looking for information on the different types of carbon credits? Check out this guide! We break down the perks, benefits, and drawbacks of each type of credit and explain how they could benefit your business’s sustainability efforts.
Carbon credits are a powerful tool to help businesses and individuals mitigate their carbon footprint and promote sustainability. Whether you’re looking for direct offsets, voluntary credits, or emissions reduction and removal certificates, this guide will explain the types of carbon credits available and their associated pros and cons.
What is Carbon Credit?
Carbon credits are units of measurement used to represent the ability of a business or individual to offset its carbon footprint. They can be used directly, or sold on the open market, for businesses and individuals to purchase in order to reduce their own emissions and comply with government regulations. Carbon credits are also known as “emission allowances”, “carbon offsets”, “greenhouse gas credits”, and “climate change offsets.”
Voluntary Carbon Credit Markets:
There is a growing trend of companies taking part in voluntary carbon credit markets. This type of trading allows entities to purchase, sell and trade emissions credits without being regulated by a government body. Voluntary markets are ideal for businesses that have made commitments to lower their emissions as part of a sustainability initiative, but may not be required to do so by law. Companies engaging in these types of markets are publicly acknowledging the importance of reducing their carbon footprint and can gain recognition in their industry and beyond.
Compliance Carbon Credits:
Compliance carbon credits are those purchased for mandatory compliance in an emissions trading system. These credits can be used by companies to offset their own emission limits, ensuring that they do not exceed their mandated emissions caps. Compliance carbon credits are typically government-backed and have the potential to stabilize prices in cap-and-trade systems. Additionally, these credits offer traders regulatory certainty and guaranteed returns, making them a popular choice for businesses looking to offset their carbon emissions in a cost-efficient manner.
REDD+ Carbon Credits:
REDD+ (Reducing Emissions from Deforestation and Forest Degradation) carbon credits are a type of compliance carbon credit that derives their environmental social and governance (ESG) credentials from verified greenhouse gas reductions associated with reforestation, improved forest management and reduced deforestation. These credits are typically issued by national governments to international buyers in order to generate revenue for the country while providing emissions mitigation benefits. While some REDD+ units include avoided emissions, most focus on improving land stewardship in tropical forests and rebalancing the relationship between carbon, people, and nature. REDD+ credits have gained popularity because they benefit both people and the environment while providing economic opportunities for local communities.
OTC/Non-regulatory Carbon Credits:
OTC (over-the-counter) or non-regulatory carbon credits are those issued without a regulated market to back them. This type of credit is typically verified through an auditing process and guaranteed by a third-party organization, such as the Verified Carbon Standard (VCS), Climate, Community & Biodiversity (CCB) standards, or Plan Vivo standards. These credits may be renounced in order to prevent double counting and other types of corruption. While OTC/non-regulatory carbon credits may lack the legal recognition offered by a regulatory credit, they have been catching on with big businesses seeking to demonstrate their environmental commitment while creating reputational value for themselves.