Carbon credits come in many different forms, each serving a unique purpose and operating in its own way. This article will guide you through the three most common types of carbon credits, helping you understand how they work.
What is a carbon credit?
A carbon credit is a permit allowing the holder to emit a specific quantity of greenhouse gasses, typically measured in tons of carbon dioxide equivalent (CO2e). It represents the right to emit one metric ton of CO2 or its equivalent in other greenhouse gasses.
The concept of carbon credits originated from the Kyoto Protocol, an international treaty on climate change. Under this protocol, countries with lower emissions than their assigned targets could sell their excess "emissions allowances" to countries that exceeded their targets. This gave birth to the carbon credit market, which serves as a mechanism to incentivize global greenhouse gas reductions.
Types of Carbon Credits
Carbon credits represent a mechanism for one party to compensate another for actions that reduce, avoid, or remove carbon. Based on their net emissions impact, there are three types of carbon credits: carbon reduction, carbon removal, and carbon avoidance.
1. Carbon Reduction Credits
A carbon reduction credit is issued when an organization or individual undertakes activities that reduce their greenhouse gas emissions compared to a baseline.
Carbon reduction credits are measured and quantified based on the baseline emissions of an existing technology or process. According to Carbon Direct, carbon reduction credits account for approximately 22% of certified credits in the voluntary carbon market. Some carbon reduction credits are relatively easy to measure and monitor, such as energy efficiency projects or methane capture. However, others are more complex. For instance, clean cookstove projects in developing countries rely on tracking cooking practices and quantifying emission factors for various fuels and stove combinations. This can be challenging and may lead to overestimation of carbon credits.
2. Carbon Removal Credits
A carbon removal credit is issued when an organization or individual undertakes activities that directly remove carbon dioxide from the atmosphere and store it for decades, centuries, or even millennia.
Carbon removal projects range from nature-based solutions, such as afforestation and reforestation, to technological solutions, such as direct air capture.
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Nature-based solutions: involve using natural organisms and ecosystems to remove carbon from the atmosphere. This can include using natural carbon sinks like forests, mangroves, and seagrass. Nature-based solutions fall into categories like Agriculture, Forestry, and Other Land Use (AFOLU), Blue carbon, and Regenerative Agriculture.
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Technology-based solutions: involve using new technologies to directly remove carbon from the atmosphere. Technological solutions often offer greater permanence of carbon storage compared to nature-based solutions. Examples of technological solutions include renewable energy, biochar, direct air capture (DAC), enhanced rock weathering (ERW), bioenergy with carbon capture and storage (BECCS), mineralization, ocean carbon capture, and air capture.
According to Carbon Direct, only about 3% of credits in the carbon market are carbon removal credits. Accurately quantifying the amount of carbon removed is crucial. For technological projects, this is relatively straightforward as there is no baseline of carbon removal before the project starts. However, for nature-based projects like afforestation, determining the additional carbon removed compared to a business-as-usual scenario is more complex and requires careful measurement and estimation.
The permanence of carbon storage is another important factor. Removed carbon can return to the atmosphere if not managed properly, such as when forests are cleared or burned. Nature-based solutions (stored for less than 50 years) typically have lower permanence compared to technological solutions (often stored for hundreds or thousands of years), as carbon stored in natural ecosystems is more vulnerable to natural and human disturbances. In contrast, technological solutions like carbon capture and storage often offer more durable carbon storage.
3. Carbon Avoidance Credits
A carbon avoidance credit is issued when an organization or individual prevents future greenhouse gas emissions by replacing a polluting technology, process, or activity with a more sustainable solution.
According to Carbon Direct, approximately 75% of all certified carbon credits are carbon avoidance credits. A prime example is forest conservation projects, where preventing deforestation reduces carbon emissions. However, the classification of such projects can be confusing as they are sometimes also referred to as reduction projects.
There are five main types of carbon avoidance projects:
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Forestry and Land Use: These projects involve activities such as forest management planning, timber production, agroforestry, and land-use optimization.
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Renewable Energy: Contributing to the decarbonization of the local grid through renewable energy infrastructure, thereby preventing greenhouse gas emissions from entering the atmosphere.
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Fuel Switching: Utilizing lower-carbon energy sources, resulting in reduced carbon emissions.
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Household Appliances: Using efficient cookstoves and reducing the use of firewood for daily cooking, contributing to reduced deforestation. Benefits of such projects can include gender equality, health benefits, income generation, capacity building, and environmental conservation.
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Waste Management: Instead of treating waste as the end of the production process, these projects actively use waste to generate energy, reduce pollution, and minimize carbon emissions.
Quantifying avoided emissions is a significant challenge. Since it's impossible to directly measure the emissions that a project has prevented, researchers typically develop models to estimate these emissions based on historical data and relevant information. This approach introduces a degree of uncertainty as it is difficult to accurately determine what would have happened without the project.
To ensure accuracy and credibility, carbon avoidance projects require strong evidence to support their estimates. New datasets, tools, and statistical methods are being developed to improve the reliability of avoidance credits.
Measuring and issuing Carbon Credits
Regardless of whether it's a carbon reduction, avoidance, or removal credit, the assessment and issuance of credits are based on estimating the project's impact on the climate. Specifically, the amount of carbon dioxide emissions that the project has reduced, avoided, or removed is calculated.
The baseline is a crucial element in this assessment process. It is a hypothetical scenario that indicates what emissions would be like without the project. By comparing the project's results to the baseline, the actual impact of the project can be determined. The baseline should be constructed based on scientific data and be sufficiently accurate to ensure the objectivity of the results.
However, establishing baselines for different types of credits varies and presents unique challenges. For example, determining the amount of emissions a project avoids in the future (avoidance credits) is often more difficult than measuring reduced emissions (reduction credits). Inaccurate baselines can lead to misestimating the project's impact and reducing the credibility of the carbon credit.
Reference:
ClimateSeed. (2024, June 18). The difference between carbon removal and carbon avoidance projects. ClimateSeed. https://climateseed.com/blog/what-is-the-difference-between-carbon-removal-and-carbon-avoidance-projects
Removal, reduction, and avoidance credits explained | Carbon Direct. (n.d.). https://www.carbon-direct.com/insights/how-do-carbon-credits-actually-work-removal-reduction-and-avoidance-credits-explained
Understanding carbon credits. (n.d.). Senken. https://www.senken.io/academy/understanding-carbon-credits
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