May 1, 2023/
4 min. read
Carbon market basics: What you need to know before buying carbon credits
The best science available suggests that both greenhouse gas emissions reduction and carbon dioxide removal are necessary to meet long-term climate targets. Likewise, to achieve net-zero targets, organizations need to both reduce their emissions, as well as remove CO2 from historical emissions and offset ongoing, hard-to-abate emissions.
One way to contribute to carbon dioxide removal is by purchasing carbon credits to offset emissions. But while the science is clear that we need carbon removal in order to hit 1.5℃ climate mitigation targets, there are serious concerns about the quality of available carbon credits. At the same time, in order to scale up the carbon removal capacity that will be required to achieve these targets—which the IPCC estimates may need to be as high as 10,000 billion metric tonnes by 2100—more investment in carbon removal projects is necessary.
Read More: IPCC Report: Carbon Removal is Now Required to Meet Climate Mitigation Targets >
Here is what you need to know to start evaluating carbon credits for purchase.
What is carbon dioxide removal?
Carbon dioxide removal is any activity that removes CO2 from the atmosphere and durably stores it. There are three approaches to carbon dioxide removal:
Nature-based solutions such as reforestation restore or enhance nature’s ability to remove and store carbon dioxide. These efforts are necessary, but not sufficient, to meet the carbon removal capacity needed to hit 1.5℃ targets.
Engineered solutions, such as direct air capture, account for a very small percentage of current carbon dioxide removal, but will play a critical role in carbon removal moving forward. Engineered carbon dioxide removal offers more durable carbon sequestration and has the potential to provide greater scalability than nature-based solutions. More investment in the form of carbon credit purchases, tax credits, and other capital investments is needed to ensure faster development of these technologies.
Hybrid solutions combine elements of both engineered and nature-based carbon removal solutions. Examples of hybrid solutions include biomass with carbon removal and storage.
What is a Carbon Credit?
Carbon credits represent the additional removal or reduction of one metric tonne of carbon dioxide equivalent from the atmosphere. In its most basic form, credits are created by calculating the difference in emissions from a baseline scenario and a project scenario:
The baseline scenario is the amount of CO2 that would be captured through natural processes, with no capital invested.
The project scenario is the amount of CO2 captured (or avoided) if project developers invest capital into a project such as planting trees or creating an engineered solution.
Unfortunately, in many cases, carbon credits are created based on scenarios where the injection of capital doesn’t result in additional carbon dioxide removal, or when that removal isn’t durable. This can happen, for example, when credits are sold for carbon removal associated with a forest that would have been preserved even without the additional carbon finance.
Read the Carbon Direct analysis of the Voluntary Carbon Market in 2022 >
What makes a quality carbon credit?
Additionality and durability are the most common considerations when evaluating the quality of a carbon credit. But there are other factors that can also affect credit quality. Below are nine considerations that are important when assessing carbon dioxide removal quality:
Additionality and baselines refer to the total amount of additional carbon removed versus the baseline scenario. Projects in which little to no additional carbon is removed as a result of capital investment lack additionality.
Carbon accounting method refers to the methodology used to ensure that the project accurately represents tonnes of CO2 removed from the atmosphere.
Durability refers to the duration or permanence of the stored CO2. To meet quality standards, CO2 storage should endure for a minimum of decades (typically in nature-based solutions) or be permanent (a state possible through many engineered methods).
Harms and benefits refer to the impact on the environment and the community in the local vicinity of the project. Carbon removal projects that lack the support of the local community or result in harm to the local community are less likely to be successful, and even if successful may be more detrimental than valuable. Conversely, a project that is aligned to community needs and values, has community support, and accrues benefit to the community has a great likelihood of long-term impact.
Environmental and Climate Justice promotes and incorporates equitable environmental decision-making in the development of carbon dioxide removal projects. It relates to harms and benefits in that it acknowledges the role and engagement of the community in the success of carbon dioxide removal.
Leakage refers to the greenhouse gas emissions that result from the project itself crossing geopolitical boundaries. When leakage occurs, it does not actually remove CO2, but instead shifts the burden of that emissions elsewhere.
Monitoring, reporting, and verification refer to the long-term monitoring of CO2 removal projects to ensure that they comply with applicable regulations and protocols, and that CO2 removal and storage meet investor expectations for the project.
Read More: Carbon Direct and Microsoft Criteria for High-Quality Carbon Dioxide Removals >
Legitimizing the carbon credit market
While the quality of carbon credits still remains a challenge, more robust investment and offtake of engineered carbon removal technology, combined with the implementation of government frameworks to ensure quality and accountability across projects, can quickly and dramatically improve overall quality in the carbon credit market. To aid future government frameworks Carbon Direct and the Bipartisan Policy Center analyzed potential policy changes that may help legitimize the carbon credit market. Read more about the recommendations in their joint report.