Carbon Offsetting is an internationally recognized mechanism to incentivize climate action and work towards decarbonization on a global scale. Purchasing carbon credits provides critical finance for advancing new greenhouse emission reductions and removal technologies. In this changing landscape, navigating the carbon offset market can be challenging.
In the second of our two-part series, experts from Schneider Electric’s Renewable Energy and Carbon Advisory have compiled nearly a dozen frequently asked questions we have received on carbon offsetting to help you get started. Review part one posted recently for the first five questions.
6. Why do prices of carbon offsets vary by project type?
Carbon offset providers usually have a set price per ton of CO2 equivalent credit that has been verified and issued on a global registry. Carbon credit prices vary depending on several factors: project type, location, vintage year, volume, co-benefits and quality characteristics. As a market-based instrument, carbon credit pricing has fluctuated over time due to low-carbon project advancements, changing policies and the ebb and flow of supply and demand. Though quality cannot be determined based on the price of a carbon credit, it’s important to keep in mind that offsets incorporate the costs for project development, implementation, validation, verification, ongoing monitoring, and issuance on a public registry.
7. Are all carbon offset vintage years equal in quality?
Common belief is that vintage year (year in which emission reductions are generated) does not necessarily indicate anything about carbon offset quality. However, buyers may indicate preference for offset project vintages that align within a few years of their greenhouse emission reduction reporting year – and to invest in new greenhouse gas emission reductions or removals.
Some market actors have voiced concerns regarding “legacy” credits that have remained unsold on the market for many years. Evaluating the quality of a carbon offsets can be a complex process of due diligence to determine the project’s ability to deliver effective climate benefit and alignment with corporate goals.
8. What is the difference between a Carbon Credit and EAC?
Carbon offset credits are fundamentally a different market-based instrument and claim than the energy attribute certificates (EACs) associated with energy production. Carbon credits are designed to drive market adoption of greenhouse gas emission reductions or removals that would not otherwise occur without market funding incentives. A carbon credit represents one metric ton of CO2 equivalent emission reductions or removals, tied to an offset project that may occur anywhere in the world.
In contrast, EACs (such as RECs, I-RECs, TIGRs, GOs, REGOs and other national certificates) represent one megawatt-hour of electricity generated and supplied to the grid from an eligible clean energy resource. EACs can be unbundled and sold separately from its source of energy generation to demonstrate specific renewable energy claims by the purchasing entity. However, the purchasing entity’s energy load and usage generally must match the EAC renewable energy generation period and proximity.
9. What impact does purchasing carbon credits have in the voluntary market?
Purchasing carbon credits can support current and future development of offset projects, and provide needed funding for ongoing monitoring and verification required to validate and issue high-quality credits each year. Carbon revenues generated through credit transactions creates incentives and sends important market signals to help drive low-carbon activities and advancement of technologies that go beyond “business as usual.” Investments into early-stage offset projects (either pre or post validation), or forward credit purchase commitments can help to scale new greenhouse gas emission reduction projects and advanced carbon removal technologies much needed to achieve global net-zero goals by 2050.
10. How can carbon credits support a company’s decarbonization strategy?
Carbon offset credits can fund protection and restoration of ecosystems, community wellbeing and reduce climate impact. Long-term investments in carbon offset projects can provide market commitments needed to scale advanced technologies, reduce costs, and ensure availability of supply now and in the future. Purchasing and retiring carbon credits are a complimentary tool to help mitigate an organization’s hard-to-abate emissions. Best practice guidance suggests that carbon credits be used in addition to a broader science-based target to reduce Scope 1 and 3 emissions. Focusing on direct emission cuts within operations, purchasing renewable energy to mitigate Scope 2 emissions and supporting supply chain mitigation efforts are all important elements of a decarbonization strategy.
11. What is the role for carbon offsets in SBTi’s Beyond Value Chain Mitigation?
The Science Based Target Initiative (SBTi) Net Zero Standard emphasizes the importance of continued investments in carbon removal technologies, avoidance or reduction offsets now – in addition to meeting near-term and long-term targets and during transition to net zero. SBTi also recommends that companies mitigate greenhouse gas reductions outside of their own value chain - Beyond Value Chain Mitigation – as a contributor towards societal net-zero. Beyond Value Chain Mitigation can include greenhouse gas reductions or carbon offsets that avoid, remove and store greenhouse gas emissions from the atmosphere. Although Beyond Value Chain Mitigation is not limited to carbon removals in transition to net-zero, SBTi expects that companies will neutralize any residual emissions – at their net-zero target date – with an equivalent amount of permanent carbon dioxide removals (which may include carbon removal offsets).