In the race to achieve net-zero emissions, carbon credits have become a crucial tool for companies with hard-to-abate emissions. As of 2024, almost half of the Fortune 500 companies have net zero goals, many of which are approved of by the Science-Based Targets initiative (SBTi). These companies, often with emissions that are difficult to reduce, can benefit significantly from carbon credits. With SBTi’s recent updates, companies can now neutralize up to 10% of their emissions through carbon credits. This article will explore carbon credits, their intricacies, and best-fit cases for organizational benefit.
What Are Carbon Credits?
Carbon credits can allow for companies to offset their greenhouse gas emissions by purchasing credits that represent a reduction in emissions elsewhere in the US or globally. These credits can serve as part of a broader strategy to achieve sustainability goals, such as net-zero emissions or science-based targets. Essentially, they can provide a mechanism (called “carbon offsetting”) for organizations to compensate for their emissions by supporting projects that reduce or remove emissions from the atmosphere. These initiatives include reforestation, renewable energy projects, and carbon capture and storage.
Types of Carbon Credits and Their Distinctive Characteristics
Carbon credits can be broadly categorized into two main types: removals and avoidance.
Removals:
- Direct Air Capture: Capturing CO2 directly from the air and storing it underground or using it in industrial processes.
- Reforestation and Afforestation: Planting trees to absorb CO2 from the atmosphere.
- Soil Carbon Sequestration: Enhancing soil’s ability to capture and store carbon through practices like no-till farming and cover cropping.
Avoidance:
- Renewable Energy Projects: Replacing fossil fuel-based energy with renewable sources like wind, solar, and hydroelectric power.
- Fuel Switching: Switching from high-carbon fuels to lower-carbon alternatives.
- Landfill Gas Recovery: Capturing methane emissions from landfills and converting them into energy.
Carbon Markets
Carbon credits can be purchased from either Compliance Markets, Voluntary Ones, or Brokers and Exchanges:
Compliance Markets: Regulated markets where companies must purchase carbon credits to comply with mandatory emission reduction targets set by governments. Examples include the European Union Emissions Trading System (EU ETS) and the California Cap-and-Trade Program.
Voluntary Markets: These markets allow companies to purchase carbon credits voluntarily to offset their emissions beyond regulatory requirements. The less regulated voluntary market offers many project types and credit options.
Brokers and Exchanges: Carbon credits can also be purchased from Carbon Brokers and Exchanges:
Carbon Brokers: Brokers act as intermediaries between buyers and sellers of carbon credits. They help companies navigate the complex market, identify suitable projects, and negotiate prices.
Carbon Exchanges: Platforms like the Chicago Climate Exchange (CCX) and the Gold Standard Marketplace facilitate the buying and selling carbon credits. These exchanges provide transparency and standardization, making it easier for companies to purchase verified credits.
Direct Purchase from Project Developers
Companies can also purchase carbon credits directly from project developers. This approach allows buyers to support specific projects that align with their sustainability goals. Examples include reforestation projects, renewable energy installations, and carbon capture initiatives.
Online Platforms
Several online platforms offer carbon credits for purchase. These platforms provide access to various projects and allow companies to select credits based on their preferences and sustainability objectives. Examples include Cool Effect and Carbonfund.org.
Verification of Carbon Credits
Companies must ensure that the credits they purchase are verified by reputable organizations, as not all carbon credits are of the same quality. Verification bodies such as Verra, Gold Standard, and the Climate Action Reserve provide certification for carbon credits, ensuring that the projects deliver the claimed emission reductions and meet rigorous standards.
How Would Purchasing Carbon Credits Support Sustainable Practices?
Carbon credits can significantly reduce a company’s carbon footprint by allowing organizations to offset their greenhouse gas emissions. When a company purchases carbon credits, it invests in projects that reduce or remove an equivalent amount of carbon dioxide from the atmosphere.
Examples of Successful Carbon Credit Projects
- Reforestation Projects: The Kasigau Corridor REDD+ Project in Kenya protects over 200,000 hectares of dryland forest and has prevented millions of tons of CO2 emissions.
- Renewable Energy Projects: The Gujarat Solar Project in India involves installing solar panels to generate clean energy and reduce reliance on fossil fuels.
How Do Carbon Credits Complement Other Sustainability Initiatives?
Carbon credits are most effective when integrated into a broader sustainability strategy. They can complement other initiatives such as energy efficiency improvements, renewable energy adoption, and waste reduction programs.
The Pros & Cons of Carbon Credits
Pros:
- Flexibility in Meeting Emission Targets: Carbon credits provide a flexible mechanism to meet emission reduction targets.
- Support for Green Projects: Purchasing carbon credits funds various environmental projects.
- Enhanced Corporate Image: Investing in carbon credits can enhance a company’s reputation.
- Regulatory Compliance: Carbon credits can help companies comply with regulatory requirements.
- Risk Management: Integrating carbon credits into your ESG strategy can mitigate risks associated with climate change.
Cons:
- Verification Challenges: Ensuring the legitimacy and effectiveness of carbon credit projects can be challenging.
- Cost Considerations: The financial implications of purchasing carbon credits can be significant.
- Quality Concerns: The effectiveness and legitimacy of carbon credits can vary.
- Complex Market Dynamics: The carbon credit market can be challenging to navigate.
How Would Carbon Credits Help My Sustainability Goals?
Carbon credits can be seamlessly integrated into a broader ESG strategy by complementing other sustainability initiatives. Companies can use carbon credits to offset emissions that are difficult to eliminate through direct measures.
What Are the Potential Benefits of Using Carbon Credits for Sustainability Goals?
- Achieving Carbon Neutrality: Carbon credits can enable companies to offset their emissions, helping them achieve carbon neutrality.
- Supporting Environmental Projects: Companies can purchase carbon credits to fund projects that reduce or remove greenhouse gases from the atmosphere.
- Enhancing Corporate Image: Investing in carbon credits can improve a company’s reputation.
- Regulatory Compliance: Carbon credits can help companies comply with environmental regulations.
- Risk Management: Integrating carbon credits into an ESG strategy can help companies manage risks associated with climate change.
Who Would Benefit Most from Purchasing Carbon Credits?
Carbon credits may be particularly valuable for organizations that have already implemented direct emission reduction measures but still face residual emissions that are difficult to eliminate.
Which Types of Companies and Industries Benefit Most from Purchasing Carbon Credits?
- Biotech and Pharmaceutical: High energy demands and emissions from research and manufacturing processes.
- Manufacturing and Heavy Industry: Significant emissions that are difficult to reduce.
- Energy Companies: Offset emissions and transition towards more sustainable practices.
- Transportation and Shipping: Substantial emissions from fuel usage.
- Financial Services: Offset operational emissions and support sustainable investment portfolios.
Navigating Carbon Credits with an Expert
Navigating the process of assessing, researching, and pursuing carbon credits can be complex and benefits from the expertise of a trusted sustainability consultant. Consultants bring valuable insights, handle the complexities of the market, and develop customized solutions that align with your sustainability goals.
Carbon credits can be a viable tactic for companies to achieve their ESG goals. They provide opportunities for larger organizations that find it challenging to abate emissions in their present situations.
If your organization is considering carbon credits as a tool in its ESG arsenal, contact Mantis Innovation’s sustainability team. They have decades of combined experience helping various enterprises realize their ESG outcomes.
