CARBON MARKETS

A carbon offset is one metric ton of carbon dioxide reduction or absorption that occurs as a result of a project activity. This project must be “additional,” meaning it must result from an activity that is above and beyond any mandatory regulations, industry standards or business as usual. Voluntary offsets can be used by individuals or businesses to take action to reduce their greenhouse gas emissions impact. The credits are called “offsets” because they literally offset an emission caused in one place with a reduction created in another place.  The purchase of voluntary offsets improves a company’s sustainability rating and affects its CSR score. Additionally, offsets help companies prioritize and achieve social and environmental goals. Offsets are essential to meet net zero goals.

Offsets vary in price substantially, based on a number of factors.  The most significant drivers of price include co-benefits, location and the quantity purchased.  Offsets can cost as little as less than $1 or be even higher than $20.  For a more detailed explanation you can visit this page “What is a carbon credit worth””

The concept behind carbon trading is simple.

Let’s say Company A is subject to a legally-imposed cap of 100 units but, without implementing new technology to directly reduce the carbon it emits, produces 120 units. Company A knows it will be fined or taxed for every unit of emissions it generates over their cap amount.

Company B has the same cap of 100 units but can quickly and cheaply implement solutions that drive down emissions to 80 units.

In this case, as long as there is a market mechanism by which credits can be recorded, traded, and used, Company A can agree to buy the 20 units’ worth of excess credits Company B does not need. As long as the price of the 20 units of credits is lower than the fine Company A would face if it couldn’t meet its targets, it makes sense for Company A to buy Company B’s excess credits.

Most credits are transacted on an “Over-the-Counter” basis (i.e., privately-negotiated transactions between two parties) though limited trading is available on some public markets.

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To generate a carbon credit/offset, you must have an eligible project that reduces emissions to the atmosphere in at least one of three ways:

• Capturing emissions that would otherwise be released into the atmosphere
• Sequestering (storing) emissions from being released in the first place
• Using renewable or clean forms of energy rather than fossil fuels

Projects go through a rigorous process of third-party validation and verification to ensure the offsets they create meet certain criteria for quality. Non-profit certification bodies, or “Standards,” govern the criteria that must be met in order for an offset to bear the Standard’s name.  Several standards, including the American Carbon Registry, Climate Action Reserve, Canadian Standards Association and Verified Carbon Standard, are widely recognized throughout the North American and global carbon markets for their excellence and rigor.