What is a Voluntary Carbon Credit?

Carbon credits are an invaluable tool against climate change

Carbon credits are a vital component of efforts to reduce carbon emissions and combat climate change. In this page, we'll explore what carbon credits are and how they work.

Carbon Credit definition

“Carbon credits are instruments that monetize quantifiable reductions in greenhouse gas emissions achieved by certified climate action projects.”

Carbon Credit definition and how much CO2 is one Carbon Credit equivalent to

Why are carbon credits important?

Voluntary carbon markets allow carbon emitters to offset their unavoidable emissions by purchasing of carbon credits generated by projects specifically which remove or reduce greenhouse gas (GHG) emissions from the atmosphere.

Infographic showing circular economi obtained thanks to carbon credits
  • Voluntary carbon credits are a powerful tool for companies to offset their inherent emissions, and allow virtuous industrial and nature-based projects to acquire resources to develop their activity.
  • Voluntary carbon credits also help finance carbon capture, utilization and storage technologies, which play a central role in meeting global energy and climate goals.
  • Voluntary carbon credits can help accelerate the transition to a decarbonized global economy. Greener alternatives will be able to grow and gain market share, accelerating our society's transition to a circular economy.

Carbon credits play an important role in scaling up carbon dioxide removals needed to neutralize residual emissions that cannot be further reduced. In a recent analysis, McKinsey found that at least 5 Gigatons of negative emissions will be needed annually to reach net-zero emissions by 2050. These could be realized through a combination of natural climate solutions such as reforestation and nascent technology-based carbon capture, use, and storage solutions. Voluntary carbon credits can help finance the scale-up of these solutions.

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How are carbon credits priced?

Industrial building with a blue sky and clouds

The range of carbon credit prices is quite broad, but we typically see most projects fall between 10 and 100€ per ton. Carbon credit prices can vary based on several factors, including:

  • The project's financial needs, which depend on its business model and complexity
  • The project's location
  • The project's vintage
  • The project's co-benefits
  • The cost of project certification

Additionally, the current political and economic climate can affect the demand and price of carbon credits.
It is important to ensure that the price of carbon credits is fair and reflective of the actual emissions reductions achieved by the project. By verifying the legitimacy of the carbon credits and the project that generated them, buyers can ensure that they are paying a fair price for the environmental benefits they are receiving.

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Preventing greenwashing allegations in carbon credits

Biomethaniser in the middle of green fields

When purchasing carbon credits, it is important to ensure that they are reliable and transparent by:

  • Check the certification: Carbon credits should be certified by a reputable third-party organizations, so they meet certain standards and are not being double-counted.
  • Verify the project: Make sure that the project generating the carbon credits is legitimate and has actually reduced emissions, through documentation and the certifying organization.
  • Check the additionality: Additionality is the concept that the emissions reductions would not have occurred without the carbon credit project. Make sure that the project is actually reducing emissions beyond what would have happened anyway.
  • Look for transparency: Look for projects that provide detailed information on their emissions reductions and the certification process.
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Reduction vs. Avoidance Carbon Credits

View of cultivated fields from above

An avoidance carbon credit represents one ton of CO2 not emitted due to the deployment of a project. These projects can issue avoidance carbon credits, also known as carbon offsets, to finance themselves.

A removal carbon credit represents one ton of CO2 removed from the atmosphere. These projects are mostly funded by carbon removal, and their price depends heavily on permanence, which refers to the duration of carbon storage.

Examples of avoidance credit projects include reforestation or avoided deforestation projects. These projects work to prevent emissions from occurring through actions such as planting trees or protecting existing forests.Both reduction and avoidance credits play an important role in mitigating climate change. While reduction credits work to reduce emissions from existing sources, avoidance credits work to prevent emissions from occurring in the first place.

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