Carbon Business
What is the origin of carbon credit?
Q1. Do carbon credits expire?
No. Carbon credits do not expire in the way a food product might. However, the quality or impact of carbon credits can diminish over time because the methodologies used to quantify the emissions reductions or removals can be updated and improved, potentially impacting the validity of older credits.
When a person or organization claims the environmental benefit, the corresponding amounts of credit must be retired to ensure the emissions reductions or removals are not counted or claimed more than once.
Q2. Can using carbon credits reduce carbon emissions?
Using carbon credits can contribute to reducing carbon emissions by funding real reductions or removal elsewhere. Also, under agreements like Paris Agreement Article 6, countries can trade emissions reductions, encouraging global cooperation in reducing overall emissions.
However, when and how to use carbon credits, and the quality of carbon credits could affect their effectiveness in helping carbon emissions reduction. For example, carbon credit should be used after practical reduction, and that carbon credits should be additional, permanent, independently verified, etc.
In sum, using carbon credits can help reduce carbon emissions, but using them as part of decarbonization strategies and only choosing high-quality, verifiable, additional projects will ensure the effectiveness of the carbon credits in reducing carbon emissions.
Q3. Is using carbon credits greenwashing?
Using carbon credits is not inherently greenwashing, but it can become greenwashing if done irresponsibly or deceptively. For example, when companies use carbon credits as a cover that they continue polluting without making real changes, only relying on carbon credits to appear “green”; when they claim carbon neutral or climate positive based solely on carbon credits without reducing their own emissions, the claims could be seen as overstatement or misleading claims; or when companies buying poor-quality credits like those from projects that would have happened anyway (non-additional), are poorly monitored, or have only temporary impact, etc.
Carbon credits are only one of the tools for achieving global climate goals. Real reduction from every sector is still essential for making a real impact as all sectors take responsibility for the goals. When carbon credits are verified with high quality, and are used responsibly and transparently, they can help accelerate climate action.
Q4. How to ensure the environmental integrity with carbon credits?
The Evaluation Criteria for Carbon Credits Quality
Evaluating the quality of carbon credits is essential to ensure that they represent real, additional, and permanent reductions or removals of greenhouse gas emissions. The chart below shows some core criteria agreed upon by countless organizations and governments.
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The purpose of issuing carbon credits is to direct funding toward carbon reduction projects that would not be prioritized under normal circumstances without specific incentives. Carbon credit standards (e.g., CDM, Gold Standard, VCS, GCC) typically provide guidelines for assessing additionality. Common methods include:
- Regulatory analysis: Is the project legally required or promoted by policy?
- Financial analysis: Would the project be financially unviable without carbon credit revenue?
- Technological barriers: Does the project involve high technical risks or significant development costs?
- Common practice analysis: Is the project widely adopted or already commercially mainstream in the region?
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Permanent refers to the GHG removed or avoided by a project remains sequestered and doesn’t re-enter the atmosphere. It’s crucial in determining the effectiveness of projects, ensuring that the climate benefits are long-lasting and not reversed by future events.
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With transparent, conservative, and peer-reviewed methodologies, the amount of GHG emissions reduced or removed by a project could be measured accurately. A third-party verification with independent process and established methodologies is to help confirm that the project activities have been implemented as planned and that the reported emission reductions or removals are accurate.
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Double counting occurs when the same emission reductions or removals are claimed by two or more entities, effectively inflating the overall climate impact. Tracking mechanisms for retirement and claiming of the carbon credits should be established to avoid double counting, e.g. corresponding adjustments under the Paris Agreement ensuring that one country transfer to the other to be disclosed and tracked transparently; robust reporting requiring all transactions and claims to be publicly disclosed and aligned with international accounting standards.
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A project must not cause significant negative impacts to the environment, communities, human rights, and/or any other environmental and social responsibilities – even if it reduces GHG emissions. A project should ensure that any potential harm is avoided, minimized, or offset, that overall, it does not result in social or environmental damage.
Tools and Resources for Quality Evaluation
Carbon projects registered under the internationally known and recognized registry standards should follow robust rules from project design to long-term monitoring, reporting and verification (MRV), only that quality still depends on the specific methodology and implementation. As the voluntary carbon market grows, a number of independent tools and initiatives have emerged to help assess the integrity, transparency, and impact of carbon credits. These resources support investors, buyers, and policymakers in making informed decisions:
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These organizations independently assess and rate carbon credit projects based on environmental integrity, risk, co-benefits, and transparency. They use data-driven methodologies to identify high- and low-quality credits. Examples are Sylvera, BeZero Carbon, and Calyx Global, etc.
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Integrity Council for the Voluntary Carbon Market (ICVCM) is a global governance body that aims to set a unified benchmark for high-quality carbon credits, known as the Core Carbon Principles (CCPs). The CCPs are ten interlinked principles to define a threshold standard to ensure integrity in the voluntary carbon market.
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Independent institutions or governments provide guidance and framework on how carbon credits should be used responsibly, including the Claims Code of Practice by Voluntary Carbon Markets Integrity Initiative (VCMI) to ensure credible corporate claims using carbon credits, ISO 14068 to provide international standards for organizations or products to achieve and declare climate neutrality, Voluntary Carbon Market Guidance by National Climate Change Secretariat, Singapore, and Operational Guidelines for Corporate Carbon Neutrality