Are carbon credits financially necessary?
In the last post, we introduced the concept of carbon credit durability – how long a project locks away carbon emissions. In this post, we explore the role that money plays in determining the quality of a carbon credit.
There are two linked questions:
How much does a given project cost to offset carbon emissions?
Was sale of carbon credits necessary to achieve its carbon reductions?
On the surface, the first question is straightforward. Just check the price of the project’s carbon credit. By definition, every carbon credit equals the removal or avoidance of one metric ton of carbon dioxide emissions. A credit’s price indicates a project’s cost to offset that carbon dioxide.
If all projects were identical in attributes like durability and additionality, then the obvious strategy to maximize climate impact would be to buy the most credits for the cheapest price. However, carbon projects vary widely in their attributes and, hence, quality. If you only looked at the price, a $10/ton project might look attractive – except that it has a high risk of not sequestering that carbon long enough to have a significant impact (low durability).
Buying the cheapest credits rarely corresponds to the greatest real-world impact. You get what you pay for.
Money well spent: Additionality
The second question addresses an essential and nuanced attribute of a carbon credit: additionality. For a carbon credit to be considered high quality, funds generated from its sale must result in ‘additional’ carbon reductions.
Consider an avoided deforestation project that receives money from carbon credits versus one that does not. If the land in question was not under serious threat of logging or degradation, then credits sold to preserve it did not result in additional carbon reductions. The forest would have been preserved with or without the sale of those credits, and the funds could have been used more effectively on another carbon project. The credits have low additionality.
In contrast, if the sale of credits allowed the project to purchase and save a plot of land from deforestation, it prevented the release of the carbon stored in the forest. Those credits had high additionality.
Context matters for every type of project. If a methane-leak mitigation project operates in a developed country where local regulations require methane capture, credits sold for that project are not necessary. They would have low additionality. A similar project operating in a developing nation that lacks methane regulations might require carbon credits to fund the mitigation. In that context, the credits are additional.
Additionality changes over time. The cost of commercial solar power has dropped by about 80% and solar panel performance has increased over the last 15 years. Solar power is now economically viable on its own. Such projects displace emissions, but they rarely require the sale of renewable energy carbon credits to move forward. The developer already has an economic incentive.
At OffsetC, we only offer projects where the sale of credits results in significant additional carbon reductions, based on analysis of the project’s context, economics, and specific activities.
In the next post, we’ll explore the third crucial attribute we use to assess the quality of projects we support: verifiability.
Heard enough and want to start taking climate action by offsetting your fuel purchases? Join our carbon crusade!
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Our Understanding Carbon Offsets Series:
Part 3: Are carbon credits financially necessary?
Part 4: Trust, but Verify
Part 5: Beyond Carbon: Do Good, Not Harm
