The ultimate guide to carbon credits and carbon offsets

July 4, 2023 by Admin

When an organisation begins the process of embarking on a carbon reduction journey they are soon bombarded with a raft of measures, practices, and behaviours to integrate into their operations. Among these are carbon credits and carbon offsets.

As these two options tend to exist in the shadow of the big solutions such as switching to renewables or changing vehicle fleets to electric only, there can be a lack of understanding as to what carbon credits and offsets are and how they can accelerate the journey to net-zero.

In this guide, we pull carbon credits and carbon offsets into the spotlight and demonstrate how, when used effectively, they can become the catalyst for a greener, more sustainable future for all.

 

An intro to carbon markets

The 1997 Kyoto Protocol, latterly bolstered by the 2015 Paris Agreement, are international accords that established global CO₂ emissions targets with the latter ratified by all nation states bar six. Both accords have since become the platform from which domestic emissions targets have matured together with the development of regulations that ensure they can be met.

For example, in the UK, the Net Zero Strategy: Build Back Greener, is the framework within which all policies and proposals for decarbonising the UK economy are set out with the aim of meeting nationwide net-zero by 2050.

As pressure mounts on organisations to clean up their act, carbon markets have evolved which convert CO₂ emissions into a commodity by attaching a price tag to them. Emissions are assigned a category – either carbon credits or carbon offsets – and are traded on these carbon markets.

 

So, what actually are carbon credits and carbon offsets?

Firstly, it’s important to recognise that there is a distinction. Often, the two markets are used interchangeably but it’s incorrect to do so.

Carbon credits: Sometimes referred to as carbon allowances, carbon credits can be thought of as a permission slip for producing greenhouse gas emissions. Typically, a carbon credit equates to one tonne of CO₂ and allows the purchasing organisation to generate one ton of CO₂ emissions without negatively effecting its overall carbon footprint.

Carbon offsets: Conversely, offsets flow horizontally between organisations. When an organisation prevents, reduces, or removes a unit of carbon from the atmosphere as a result of its own initiatives, it can choose to generate a carbon offset. These offsets are then sold to other organisations as a means of reducing their carbon footprints too.

In summary, a carbon credit is ‘bought’ by investing in a project that removes carbon from the atmosphere. A carbon offset is created by making significant changes to business activity that reduces carbon emissions and can be purchased by another organisation that’s unable to make similar changes without disrupting workflows.

 

Are there different carbon credit and offset projects to choose from?

Yes. In fact, there’s quite a few, which means organisations can invest in projects that best align with their values. Here are some of the main ones:

 

Forestry and conservation

Reforestation and biodiversity conservation projects are among some of the most popular globally. Credits are generated through the plantation of new trees and the volume of carbon they will capture. Or, by protecting existing woodland areas and simply maintaining the volume of carbon that is captured. Such projects can be found worldwide, from regions in the UK to the replenishment of dead zones within the Amazon rainforest.

Not always the cheapest option, forestry and conservation projects tend to be favoured because the plantation and protection of woodland does more than just capture carbon, it creates and maintains entire ecosystems, and areas of greenbelt that communities can enjoy. Moreover, as a result of new technologies, it is possible to calculate and verify the amount of carbon reduction these projects achieve more accurately than ever before.

For organisations wishing to explore this route, the likes of verifiable Woodland Carbon Units (WCUs) are a powerful means of offsetting residual emissions and fast-tracking towards net-zero.

Similarly, Biodiversity Habitat Units (BHUs) – which comply with DEFRA’s Biodiversity metric – bring value to both the organisation and the environment by focusing more heavily on the biodiversity aspect of carbon offset projects.

 

Renewable energy

Switching to renewable energy isn’t the only way of reducing carbon emissions. Offsets can be purchased that help to build or improve solar, wind, or hydro sites anywhere across the world.

Investing in renewable energy projects means more renewably-sourced energy enters the grid which, apart from expediting the shift away from fossil fuels, creates jobs, and boosts local economies.

The Bokhol Plant in Senegal is a great example of this in action. The photovoltaic solar plant covers a 40-hectare site with 75,000 solar panels producing 20 MW of electricity. Altogether, the plant prevents around 23,000 tonnes of CO₂ emissions from being released into the atmosphere each year.

Aside from these stunning environmental benefits, the Bokhol Plant project has provided employment opportunities, granted 160,000 people with access to renewable energy, and profits from the sale of carbon credits are routinely fed back into local communities.

 

Waste to energy

Waste to energy projects generally consist of capturing atmospheric methane and converting it into electricity. Methane can be captured from landfill sites or even from human and agricultural waste and provides a two-fold benefit.

Firstly, a dangerous gas is removed from the atmosphere, meaning local communities have cleaner air to breathe and, secondly, rather than being simply removed, the methane can be redirected towards power production, giving wider access to electricity.

Other methane-based projects involve the capture and burning of methane to create CO₂. Though this might sound wildly self-defeating at first, it soon makes sense when your learn that methane is over 20 times more harmful to the atmosphere than CO₂. As such, converting one molecule of methane to one molecule of CO₂ via a combustion process reduces net emissions by more than 95%.

 

The big (but hidden) advantages to carbon credits and offsets

Investment in carbon credits and offsets is mostly undertaken by organisations with an altruistic drive to do their bit for the future of the planet. As we near 2050, pressure from central government will rally others to explore them too.

However, those that enter the carbon market quickly realise that there a range of additional benefits to be had from carbon credits and offsets.

 

They can make your organisation money

An extreme example perhaps but one only needs to look to Elon Musk’s Tesla for proof of the financial potential of carbon credit sales. Between Q1 2021 and Q2 2022, the company registered $2.1BN in carbon credit sales, accounting for over 20% of its profits in Q1 2022.

Of course, such heady numbers are beyond the imagining for most organisations but the Tesla story shows that there’s money to be made from trading in carbon credits and offsets.

Revenue can also be generated from more than just cold, hard sales of carbon credits and offsets. Increasingly, consumers want to spend their money with organisations that can demonstrate sustainability. A report by social impact enablement platform provider, Impact, found that:

• 84% of consumers would or might stop buying from a brand with a poor sustainability record

 

• 66% are willing to pay more for sustainable goods with 70% claiming that they’d pay up to 35% more

 

• 33% have stopped buying brands or products because they were concerned about their sustainability

By leveraging the green credentials of carbon credit and offset investments, organisations can put together PR campaigns that attract a whole new swathe of customers while strengthening relationships with those that already interact with their brand.

 

They help to recruit and retain talent

Particularly among younger generations, the expectation that the organisations they work for are environmentally friendly is high. Indeed, research commissioned by strategic communications company, Porter Novelli, in 2020 showed that a social purpose helped businesses find and keep talented employees.

93% of employees surveyed believed that organisations should lead with purpose and 90% of employees who work at organisations with a strong sense of purpose describe themselves as being more inspired, motivated, and loyal.

By integrating carbon credits or offsets into an overall sustainability plan, organisations leverage themselves into a position where they can prove to existing and prospective employees that they are serious about protecting the environment and working towards net-zero.

 

It’s in their best interests

To put it bluntly. Climate change might not present the same immediate threat level to the UK as it does to other parts of the world but as supply chains and customer bases are increasingly international, catastrophe overseas will quickly catch up to British industries.

If long-term survival and prosperity is the objective, environmental concerns must be taken seriously. This is especially true should organisations seek outside investment as private equity firms and other investors are paying more attention than ever to what businesses are doing to achieve sustainability.

 

Explore the world of carbon credits and carbon offsetting with Tariff.com

At Tariff.com, we’ve established and strengthened partnerships with some of the most reputable carbon reduction companies in the industry. This is crucial because as popular as carbon credits and offset projects are becoming, there’s no guarantee that every provider is legitimate.

To ensure that your organisation never joins the list of those that have invested money into dubious projects, we ensure all our carbon reduction partners are fully vetted and 100% genuine. In turn, it means you can be sure that your credits are verifiable and deliver the environmental benefits promised.