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To properly understand how carbon credits can fit into your company’s holistic sustainability strategy, one must first understand what they are and how they work. In this blog post, we explain the basics of carbon credits, as well as how you can ensure that your credit purchases are high-integrity.

What are Carbon Credits?

A carbon credit is a financial instrument that represents the reduction or removal of carbon dioxide from the atmosphere. These credits are issued to projects that reduce or remove greenhouse gas (GHG) emissions and are universally measured in metric tonnes of carbon-dioxide equivalent emissions (tCO2e). Each credit is part of a vintage, which is the year in which the emission reduction or removal that the credit represents actually occurred. While there are some regulated compliance markets for carbon credits in the European Union, the United States, and elsewhere, there is also a large voluntary carbon market (VCM) that is growing rapidly around the world.

Carbon credits are sometimes referred to as carbon offsets because they can be used to compensate for an equivalent emission elsewhere, with the goal of achieving carbon neutrality or meeting regulatory requirements. However, this term can be misleading as they don’t necessarily need to be used to offset emissions. Once a credit is used to offset emissions or meet compliance obligations, it must be permanently retired in a registry to ensure that it cannot be used again, preventing double counting of its climate benefit.

Why Purchase Carbon Credits? 

The science of climate change is unequivocal. According to the Paris Agreement, we need to transition the global economy to net zero by 2050 to avoid the most severe consequences of climate change. But we cannot just flip a switch and transition to a zero carbon economy. Entire sectors of the economy like power generation and construction require significant investment, and in some cases, invention, before they can become zero carbon. Individual actors like corporations have limited resources and may not be able to reduce the entirety of their value chain emissions immediately or even over the next 10-20 years.

By purchasing high quality carbon credits, companies and other actors can immediately reduce their carbon footprint, beyond what would otherwise be financially or even technologically feasible. That is why organizations like the Climate Pledge and Oxford Net Zero recognize that carbon credits are critical to any path towards a net-zero future. Purchasing carbon credits also provides the necessary support for critical technologies to scale so that we can meet global climate change goals. Of course, purchasing carbon credits to compensate for emissions should never be done in place of directly reducing emissions within your value chain. Instead, they should be used to compensate for emissions that are not yet possible to mitigate.

How Do You Know if a Carbon Credit is High Quality? 

Carbon credits should be interchangeable–a tonne of carbon should equal a tonne of carbon–but, in practice, that is not the case. Some credits are higher quality than others, and the specific attributes of a given carbon project directly influence whether its credits drive actual climate impact.

Some key attributes considered when evaluating carbon credit effectiveness are: 

• Additionality: A carbon project is considered additional when its emissions reductions or removals would not have occurred without the funding from carbon credits. In other words, the project must be “additional” to any actions that would have been taken anyway.
• Durability: Also called permanence, durability means that the emissions reductions achieved through a carbon project must be long-term and enduring. If a project results in emissions reductions that are only temporary–for example, avoiding cutting down a forest, but only for a year or two–it will not provide the lasting benefits buyers seek.
• Quantification Accuracy: A project that is additional and permanent may still issue more carbon credits than realistic assumptions justify, making each individual credit worth less than a tonne. For instance, an avoided deforestation project may over-issue credits if it assumes that an unreasonable rate of deforestation would have occurred absent the carbon project.

In addition to all these differences, carbon credit prices can vary widely from as little as $1-2 per tonne to $1,000+ per tonne. It’s also important to note that price does not necessarily correlate with quality. It is therefore difficult–and intimidating!-to find value in the carbon credit market.

Making Carbon Credits Easy

While carbon credits are a necessary and powerful tool, ensuring responsible purchasing involves extensive due diligence, research, and technical analysis. As a result, carbon credits can be intimidating for buyers who want to drive real climate impact but are not experts. We’re here to help!

• We build science-backed portfolios of carbon credits designed to maximize impact and mitigate risk;
• We make it easy for you to purchase in seconds so you can go back to growing your business. Let us do the heavy lifting of selecting projects;
• We charge a flat rate per tonne of carbon. No need to muddle through inefficient and opaque markets with prices that fluctuate by the day;
• We charge based on usage. No subscriptions or additional fees;
• We meet you where you are. Order directly through our dashboard, integrate with our easy-to-use API, or contact us for portfolio customization options.

Reach out to learn more about how CNaught can help you reduce your carbon footprint, and sign up for our newsletter so you don’t miss our next blog post!