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What Are Carbon Credits?

By November 30, 2022December 3rd, 2022Land

A professor, who teaches about carbon credits, walked into my office last week. While we didn’t get a chance to discuss them, I thought I might mention them here. You may have heard the term “carbon credits” before but not really understood what it meant. This is a brief overview of carbon credits.

A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or equivalent greenhouse gas with the effect of 1 tCO₂e. They are thus an accounting system for gathering and trading emissions. The objective of carbon credits is to reduce greenhouse gas emissions on a global scale by putting a price on emitting these gases.

Emissions trading schemes (ETS) are probably the best-known form of carbon credit. An ETS sets a cap on total emissions from all participating facilities within a specified industry or group of industries. The total number of allowances issued by the government must equal the overall emissions cap. Emitters must report their emissions yearly and surrender allowances equivalent to their emissions; otherwise, they face heavy fines. If a company emits less than its allotted share, it can sell or ‘bank’ the extra allowances for use in future years or retire them permanently.

Carbon offsetting is another way to use carbon credits. Carbon offsets are reductions in emissions of carbon dioxide or other greenhouse gases made in order to compensate for or cancel out an emission made elsewhere. One example would be planting trees to offset emissions from flying. The specific projects that carbon offsets support can vary widely, but all must meet specific criteria in order to create real, verified, permanent, additional, and verifiable reductions in GHG emissions.

Third-party certification bodies were set up to verify that proposed offset projects deliver the promised emission reductions. These standards also ensure that projects avoid any negative social or environmental impacts resulting from the project activities. The most popular voluntary standards for certifying carbon offsets include:
• The Verified Carbon Standard (VCS)
• The Climate, Community & Biodiversity Standard (CCBS)
• The Gold Standard
• American Carbon Registry

Carbon credits provide a way to put a price on emitting greenhouse gases and thus theoretically provide an incentive for companies to find ways to reduce their emissions. They also allow those who cannot immediately reduce their own emissions (such as airlines) to invest in clean energy projects elsewhere as a way of offsetting their own pollution.

I asked the professor to come back and talk more about carbon credits with me at some point. If you have questions about land, give me a call or come by and see me if you are in Auburn.