Carbon Credits
Carbon credits are government-allocated permits that allow companies to trade on a voluntary or compliance carbon market. They’re typically linked to cap-and-trade programs, like the California cap-and-trade program and the European Union Emissions Trading Scheme. They’re also used in carbon offset markets. In either case, they’re a way for businesses to offset their emissions or meet their corporate social responsibility (CSR) goals by investing in projects that reduce greenhouse gasses (GHGs). But how are these carbon credit projects verified?
A number of organizations oversee carbon credit standards, and they work on a variety of issues including monitoring, reporting, verification, certification and registration. They establish rules for carbon project development and implementation, set performance requirements, and provide accreditation to project developers. They also create and maintain systems that transparently identify credits, enable their trading and retirement, clarify ownership, and help prevent double-counting through sales to multiple buyers. Finally, they establish rules and procedures for monitoring and reporting GHGs from GHG-reducing projects.
Some of these carbon.credit organizations are governments, while others are non-governmental organizations or private entities. International organizations are also significant players in the industry, as they fund and support carbon projects around the world. They can also facilitate private sector investment and promote sustainable development by promoting and supporting voluntary carbon market schemes, as well as working to establish a global regulatory framework for compliance markets.
How Are Carbon Credits Verified?
While there are many different ways to create and claim carbon credits, only those projects that are verified by one of the world’s major carbon standards can be considered truly eco-friendly. To be certified, a project must meet the standard’s minimum requirements, which cover things like ensuring that the project actually achieves the reductions claimed. This is accomplished through a detailed review process, including on-site visits to assess monitoring equipment and data collection methods, and comparing the results against the carbon standard’s emission reduction calculations.
These processes differ slightly among the four largest carbon standards: Verified Carbon Standard (VCS), Gold Standard, Climate Neutrality Initiative, and the American Carbon Registry. However, they all have the same basic goal: to ensure that carbon projects are delivering on their promises to reduce GHG emissions and support sustainable development.
In addition to demonstrating good governance and offering robust methodologies for VCM activities, these standards all demonstrate good environmental and social performance. This means they must avoid harming biodiversity or local ecosystems, follow national and international laws, and consult with communities and indigenous peoples in accordance with the principles of Free, Prior and Informed Consent.
The resulting VCM certificates are then added to carbon standards’ registries, which track all credits generated and retired, as well as the sale and transfer of tradable credits. These registries are critical to carbon credit quality as they provide transparency and accountability to both the carbon market and to investors. This information is then used to verify the credits’ legitimacy and quality for use in both compliance and voluntary carbon markets. For example, companies participating in the CORSIA aviation emissions cap-and-trade system must buy carbon credits that are sourced from a VCS-certified project to ensure they’re reducing their carbon footprint and complying with regulations.
