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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 credits are instruments that monetize quantifiable reductions in greenhouse gas emissions achieved by certified climate action projects.”
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.
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.
Read moreThe 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:
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.
Read moreWhen purchasing carbon credits, it is important to ensure that they are reliable and transparent by:
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.