What is a Carbon Credit

What is a Carbon Credit
How to Certify Greenhouse Gas Emission Reductions
Jan 13, 2009 Elisa Harley

 

Carbon Credits Take Environment to the Marketplace - E. Harley

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Carbon dioxide (CO2) is a valuable commodity on the open market. Emission reductions can be turned into cash if you know how to make a carbon credit.
   
At its simplest level a carbon credit equals one ton of carbon dioxide (or its equivalent in greenhouse gases) removed from the atmosphere. The removal is measured as an emission reduction. As a business, knowing how to monitor and market emissions reductions could help you realize a new revenue stream.

How are Emission Reductions Quantified?
Organizations quantify their greenhouse gas emissions to establish a baseline. Then emission reductions are measured against this baseline to establish how many tons of greenhouse gases have been ‘removed’ from the atmosphere. Properly measured, audited, verified and registered, these tons of avoided emissions can be sold to private buyers or on the open market.

Voluntary Credits vs. Certified Emission Reductions
There are many ‘brands’ of carbon credits. The value that is ascribed to each type of credit is determined by a number of variables such as the rigor of the verification, where they are registered, and the credibility of the proponents. Assigning a value to one ton of carbon is like assigning value to one acre of land: context is everything.

One major factor that affects the price that carbon credits command is whether the emission reductions are certified or voluntary. Certified credits are those that are created in jurisdictions where there are regulatory obligations to reduce emissions. The value of credits created in regulatory regimes is firm because the market for credits is assured by strict obligation for emitters to produce emission reductions or to purchase credits to offset their overages. Examples of certified credit regimes include:

•United Nations Framework Convention on Climate Change (Kyoto Protocol)
•European Union - Emissions Trading Scheme (EU-ETS)
•Regional Greenhouse Gas Initiative of the North East United States (RGGI)
Voluntary credits can be created by proponents in any jurisdiction. There is a value to voluntary credits but it is significantly less than credits produced for regulated obligations. Voluntary credits are often used as offsets by corporations and individuals who wish to go carbon neutral. Examples of voluntary credits include:

•The Voluntary Carbon Standard
•California Climate Action Registry
•Western Climate Initiative
Types of Projects and Emission Reductions
The types of projects and carbon management activities that might qualify for carbon credits include:

•energy efficiency
•combined heat and power
•renewable energy
•reforestation/afforestation
•low-carbon till methods in agriculture practices
•methane capture and flaring in landfills
•biogas flaring on farms
There is no limit to the kind of projects that could qualify for credits as long as the project proponent can verify, quantify and register their method for avoiding or removing greenhouse gases.

Carbon Markets and Carbon Trading
Carbon credits represent a valuable commodity that commands a price on trading markets throughout the world. The European Union Emissions Trading Scheme has been buying and selling carbon since January 2005. The Chicago Climate Exchange is a membership-based commodities exchange that facilitates trading among members on a voluntary basis. These are just two examples of commodity exchanges that facilitate buying and selling of carbon credits between producers and buyers. As well, there are brokerage houses that specialize in helping project managers register and sell credits. These businesses operate on a fee for service or percentage basis.

If they are properly measured and registered, greenhouse gas emission reductions can represent a new revenue stream for business. Carbon credits have international or local value and can be sold through markets or brokers that are specifically dedicated to this new commodity.