– Author: Aishani Mukherjee
Amidst the pressing challenge posed by climate change, nations across the globe have united in a shared mission to address its escalating impacts. Carbon credits have emerged as a pivotal instrument in this global endeavor. These credits create a market-driven system, allowing individuals and organizations to support sustainable projects while reducing their own carbon emissions. Notably, in revelations highlighted by the 2017 CDP Carbon Majors Report, 100 fossil-fuel companies were revealed to be responsible for over 71% of the greenhouse gas emissions currently accumulating in our atmosphere, emphasizing the significance of such environmental obstacles.
Exploring Carbon Credits and Their Formation
Carbon credits are often referred in the same context as carbon offsets. They serve as quantifiable metrics symbolizing the reduction of one metric ton of carbon dioxide (CO2) or greenhouse gases in the atmosphere. This concept has given rise to a thriving industry promoting sustainability and emission reduction.
Carbon credits are generated through projects and activities that improve on carbon capture or mitigation of emission. These initiatives encompass a range of actions like renewable
energy installations, afforestation, reforestation, and energy efficiency improvements (Thompson and Miranda).
Initially, in project development, opportunities for carbon sequestration are identified, such as transitioning to renewable energy sources. Baseline calculations compare expected emissions (prior to the project) to actual emissions (during operation). Certifications of detecting emissions reductions are presented after rigorous monitoring to ensure accuracy in emission information. These credits get logged in a carbon credit registry, complete with unique serials for easy tracking and trading purposes (Jez. et. al). Dr. Soheil Saraji and Dr. Mike Borowczak plan to develop a blockchain-based Carbon Credit Ecosystem in order to “bring more transparency, accessibility, liquidity, and standardization to carbon markets.” Block-chain technology can enhance this process by providing secure and transparent record-keeping for such carbon credit.
Utilizing Carbon Credits
Carbon credits play a pivotal role in supporting sustainability and advancing the objectives outlined in the Paris Agreement. They offer a practical solution for both organizations and individuals to offset their carbon emissions. Industries like shipping, agriculture, cement production, and aviation finding them especially beneficial due to the challenges they face in reducing emissions. By purchasing carbon credits, they can neutralize their carbon footprint, aligning with the Paris Agreement’s mission.
Article 6.4 of the Paris Agreement enables companies in one country to reduce emissions and sell those reductions to companies in other countries, quoting “…That second company may use them for complying with its own emission reduction obligations or to help it meet net-zero.” This mechanism strengthens international cooperation in tackling climate change by allowing emissions to be offset where it’s most efficient. Carbon credits promote global-scale emission reductions while also actively contributing to sustainable development by creating jobs, preserving vital ecosystems, and strengthening local communities.
Carbon Credit Transactions: Buyers, Sellers, and Price Points
In addition to businesses acquiring carbon credits for offsetting carbon emissions as a demonstration of their environmental responsibility, in regions with emissions regulations or carbon pricing mechanisms, carbon credits help businesses meet compliance requirements cost-effectively. Many companies also acquire carbon credits as part of their Corporate Social Responsibility (CSR) initiatives. Project developers conceive and manage carbon offset projects, funding their initiatives by selling credits, while Carbon Market platforms like the Climate Action Reserve facilitate credit trading, with Carbon Credit Brokers assisting buyers in finding suitable credits for purchase.
Organizations like Climate Neutral Group (CNG), secure numerous carbon credit projects to expand their portfolio and meet the growing demand for carbon credits in the corporate sector. Their comprehensive approach not only supports businesses in achieving their environmental targets but also strengthens CNG’s position as a key player in the carbon credit market.
Cool Effect collaborates with various transportation sectors (such as American Airlines and Audi), making it another notable organization to aid in offsetting emissions. American Airlines, in collaboration with Cool Effect, offers its passengers a direct chance to offset their commercial flight’s carbon footprint, underscoring their allegiance to sustainability and greener aviation solutions.
Price points for carbon credits exhibit significant variability, influenced by factors such as project type, location, and market conditions. As of October 5th, 2023, carbon credits in California are currently valued at $29.41 per ton, with a small 1.17% increase in their value since the beginning of the year, despite no recent major price changes (“Live Carbon Prices Today,” Carbon Credits). These are predicted to further increase accounting the circumstance regarding inflation.
“CNG as Partner for Carbon Offsetting.” Climate Neutral Group, Climate Neutral Group, 6 Feb. 2023, www.climateneutralgroup.com/en/cng-as-partner-for-carbon-offsetting/.
“Cool Effect and American Airlines.” Cool Effect, Cool Effect, 1 Sept. 2021, www.cooleffect.org/american-airlines.
Griffin, Paul. CDP Carbon Majors Report 2017, The Carbon Majors Database, July 2017, cdn.cdp.net/cdp-production/cms/reports/documents/000/002/327/original/Carbon-Majors-Report-2017.pdf?1501833772.
Jez, Areta A., et al. Carbon Credit And Carbon Offset Fundamentals, Mintz, 8 Nov. 2022, www.mintz.com/sites/default/files/media/documents/2022-11-08/Carbon-Credit-Carbon-Offset-Fundamentals.pdf.
“Live Carbon Prices Today.” Carbon Credits, CarbonCredits.com, 5 Oct. 2023, carboncredits.com/carbon-prices-today/.
“Paris Agreement: Article 6.4 Mechanism.” United Nations | Climate Change | Paris Agreement, United Nations, unfccc.int/process-and-meetings/the-paris-agreement/article-64-mechanism.
Saraji, Soheil, and Mike Borowczak . A Blockchain-Based Carbon Credit Ecosystem , 2020, arxiv.org/ftp/arxiv/papers/2107/2107.00185.pdf.
Thompson, Lucas, and Leticia Miranda. “What Are Carbon Credits? How Fighting Climate Change Became a Billion-Dollar Industry.” NBCNews.Com, NBCUniversal News Group, 30 Oct. 2021, www.nbcnews.com/business/business-news/are-carbon-credits-fighting-climate-change-became-billion-dollar-indus-rcna3228.