Author – Aishani Mukherjee
The concept of carbon credits has emerged as a multifaceted and dynamic solution to address the pressing concerns of climate change by effectively regulating business activities.
Evaluating Carbon Credit Metrics
Understanding the intricate process of calculating carbon credits is an essential step in the global effort to combat climate change. Carbon credits, also known as carbon offsets, play a pivotal role in mitigating the impact of greenhouse gas emissions by providing a means to balance environmental harm with positive actions.
In accordance with 8 Billion Trees, it is essential to first correctly identify and quantify emissions based on activities appropriately. Activity data can be collected in different metrics (for example, food/mass waste would be calculated in the amount of electricity consumed for it).
It is important to realize that when determining the emissions of all six major greenhouse gases there is an involvement in the use of specific formulas, such as emission factors, with the
reporting period spanning 12 months and ideally aligning with the financial year, as per Carbon Credits
The EPA provides relevant information on emissions factors; however, these emissions must be normalized in terms of a CO2 equivalent, also known as their Global Warming Potential. Thus, greenhouse gas emissions are calculated by the formula:
∑(Activity Data × Emission Factor (Global Warming Potential)) = Annual CO2 emissions
It is important to note that the emissions are measured in tons. Thus, to calculate their worth the pounds of emissions must be converted to tons and multiplied by the current market price per ton.
It’s equally vital to explore the dynamics of voluntary markets for these credits, where global stakeholders actively participate in environmental initiatives.
Voluntary Markets for Carbon Credit
Voluntary carbon markets have emerged as a compelling avenue for individuals and organizations to actively contribute to the fight against climate change. These markets offer opportunities for participants to voluntarily offset their carbon emissions by investing in projects that promote sustainability and reduce greenhouse gas emissions.
Established standards and credit registries, such as the American Carbon Registry (ACR), the Climate Action Reserve (CAR), the Gold Standard (GS), and the Verified Carbon Standard, play a pivotal role in regulating the supply of the voluntary markets. These organizations define project standards, verify compliance, and manage credit issuance and retirement (Dawes et. al).
There is no centralized voluntary carbon market as of now. However, it is denoted that in 2021, the market for carbon credits reached nearly $2 billion, driven by increasing private demand (Dawes et. al). This growth highlights the continued significance of voluntary carbon markets within the framework of the Paris Climate Agreement and underscores the necessity for enhanced centralized market infrastructure.
Such mechanisms are leveraged by developing countries to drive sustainable development and emissions mitigation.
Sustainably Developing Carbon Credit
From renewable energy projects to reforestation initiatives, developing countries are unlocking a wealth of opportunities by actively participating in carbon credit programs, showcasing that the quest for climate sustainability is both a universal challenge and an inclusive solution. These nations can attract vital financial resources from both public and private sectors. These funds are then channeled into critical initiatives that enhance environmental sustainability, such as clean
energy projects (reforestation, energy efficacy, etc.). The revenue generated from the sale of carbon credits not only supports emissions reductions but also contributes to economic growth.
A 2023 case study published by Brookings evaluated various nations and the impact of their carbon offsets and sales. It suggests that developing countries may need to “increase climate spending to around $2.4 trillion per year by 2030—more than four times the current level—of which $1 trillion would need to come from external sources.” This underscores the magnitude of financial support required from the international community to facilitate sustainable development and emissions mitigation.
However, more powerful countries should be acutely aware of and actively work to avoid what has been termed “carbon colonialism.” Such a term underscores the risk that developing countries could become dependent on external funding, potentially resulting in an imbalanced power dynamic and hidden motives from external support (Martin). By avoiding carbon colonialism and fostering equitable collaboration, the international community can work together more effectively to achieve climate and development goals.
Dawes, Allegra, et al. “Voluntary Carbon Markets: A Review of Global Initiatives and Evolving Models.” Center for Strategic & International Studies, Center for Strategic & International Studies, 31 May 2023, www.csis.org/analysis/voluntary-carbon-markets-review-global-initiatives-and-evolving-models.
Huq, Saleemul, et al. “Keys to Climate Action: How Developing Countries Could Drive Global Success and Local Prosperity.” Brookings, Brookings, 16 Oct. 2023, www.brookings.edu/articles/keys-to-climate-action-how-developing-countries-could-drive-global-success-and-local-prosperity/.
Kharas, Homi, et al. “Developing Countries Are Key to Climate Action.” Brookings, Brookings, 14 June 2023, www.brookings.edu/articles/developing-countries-are-key-to-climate-action/.
Kilgore, Georgette. “How Are Carbon Credits Calculated? It Depends on Type (Full List).” 8 Billion Trees: Carbon Offset Projects & Ecological Footprint Calculators, 8 Billion Trees, 31 Mar. 2023, 8billiontrees.com/carbon-offsets-credits/how-are-carbon-credits-calculated/.
L, Jennifer. “How to Calculate Carbon Credits? (5 Easy Steps to Follow).” Carbon Credits, Carbon Credits, 7 Mar. 2023, carboncredits.com/how-to-calculate-carbon-credits/.
Martin, Laura J. “Avoiding ‘Carbon Colonialism’: Developing Nations Can’t Pay the Price for Pollution.” The Hill, The Hill, 26 Apr. 2021, thehill.com/opinion/energy-environment/550313-avoiding-carbon-colonialism/.