This article explores the importance of the carbon market in addressing climate change, emphasising both compliance and voluntary carbon market options, covering a range of prominent carbon credit types.
By investing in carbon offsets and supporting carbon reduction projects, businesses can actively reduce emissions and work toward becoming carbon neutral. Key mechanisms like cap-and-trade encourage companies to lower pollution by capping allowable emissions and trading excess credits. Additionally, carbon offset projects such as reforestation and renewable energy provide effective ways to reduce carbon emissions.
As reliance on fossil fuels declines, these strategies enable organisations to contribute to a sustainable, low-carbon future.
What are Carbon Credits?
A carbon credit represents the right to emit one metric ton of CO₂ equivalent (CO₂e). Essentially, one carbon credit equates to one tonne of carbon dioxide (CO2) or its equivalent in other GHG emissions. Carbon credits represent a decrease in GHG emissions that can be bought and sold on carbon markets.
These credits are a key tool in the fight against climate change. As the world continues to face the consequences of global warming, it is becoming increasingly important for countries and organisations to reduce their carbon footprint. Carbon credits provide a way for organisations to offset their emissions and contribute to a more sustainable future.
Compliance Carbon Credits
Mandatory carbon compliance programs must be undertaken by companies and individuals when meeting regulatory or governmental requirements. For instance, the EU ETS (EU Emissions Trading Scheme), which some companies have to buy to either cover or offset emissions.
Voluntary Carbon Offset Credits
On the other hand, voluntary carbon offsetting schemes are optional, where organisations and companies can decide to offset emissions to meet corporate sustainability targets, such as Verra’s VCS (Verified Carbon Standard).
Avoidance and Reduction Credits
In carbon markets, avoidance credits are given for projects preventing future emissions of greenhouse gases (such as renewable energy projects and forest conservation). These credits do not physically remove CO₂ from the atmosphere but rather prevent further emissions.
On the other hand, reduction credits directly move or reduce greenhouse gas emissions that are currently ongoing (such as energy efficiency projects, reducing the amount of CO₂ emitted by buildings, or reforestation, reducing the amount of atmospheric carbon due to absorption).
Renewable Energy Projects
Renewable energy is energy that can be replenished faster than it is consumed, making it sustainable and essentially unlimited, as opposed to natural resources like oil, coal, nuclear and natural gases which are all depleting with no return once they’re gone. Renewables provide energy security by lessening our global dependence on the planet’s limited fossil fuels and ensuring a supply that won’t run out.
Renewable energy initiatives are significant components of carbon offsetting programs, although new renewable energy projects often need to demonstrate additionality—proving that they wouldn’t have been implemented without carbon credit financing.
Energy Efficiency Improvements
Energy efficiency schemes optimise transport systems, industries, buildings, and more. This lowers the overall emissions count, by making swaps that require less energy for a range of energy-intensive tasks. This could be swapping traditional lights for LEDs, fitting insulation for less heating dependence, replacing outdated and draining equipment, or improving industrial processes.
This generates credits by implementing verified energy-saving upgrades, reducing emissions, and certifying the reductions for companies to purchase as offsets.
Methane Capture
Did you know methane is a flammable greenhouse gas 28 times more harmful than carbon dioxide? Methane capture is a common example of a carbon credit, involving the reduction of methane emissions from industrial or natural sources instead of releasing them into the atmosphere.
The process fluctuates to accommodate a range of methane-high industries. Landfill gas capture, for instance, involves the installation of perforated pipes in landfill cells which connect the methane. In oil and gas industries, vented methane can be captured with compressors and re-utilised in production. In wastewater treatment, methane from the decomposition of organic material in sludge digesters gets captured for energy.
Methane capture projects are frequently linked to carbon credits, in both voluntary and compliance carbon markets, and can be certified by standards such as Verra (VCS), American Carbon Registry (ACR), and Gold Standard.
Removal and Sequestration Credits
Afforestation and Reforestation
Reforestation directly combats deforestation by planting trees in areas that have been deforested, giving the forest a chance to take over again. This can be government-led or community driven, and allows for the long-term production of resources while enhancing biodiversity.
Afforestation, on the other hand, is the planting of trees in non-forested areas, creating new ecosystems that can convert degraded land, such as brownfield sites, into productive biodiversity hotspots.
Both techniques require regular monitoring and maintenance to ensure that the development is successful over time, however, this lessens when trees become more established in the intermediate ages.
They are both credible sources of carbon credits around the world.
Soil Carbon Sequestration
Soil carbon sequestration credits involve ditching traditional, environmentally-degrading, agricultural methods and incorporating sustainable land management practices.
Through processes such as no-till farming, agroforestry, grazing management or cover cropping, organic matter in the soil is increased, promoting healthy crops and carbon sequestration in the soil.
For every ton of CO₂ sequestered, one carbon credit can be sold or traded.
Direct Air Capture and Storage
Direct Air Capture and Storage (DACS) involves large-scale systems to extract CO₂ from ambient air and inject it deep underground, permanently trapped in reservoirs. Misconceived to be placed near sources of high CO₂ emissions (which is CCS), DACS technology is actually designed to capture diffuse atmospheric CO₂, making location near concentrated emitters unnecessary.
For each verified ton of CO₂ removed through DAC, a carbon credit can be sold or traded. This differs from CCS, which captures emissions at their source, such as from power plants. The process is explained in greater detail further along in the blog.
Nature-Based Solutions
Forest Conservation (REDD+)
Forest conservation is one of the most significant types of carbon credits, protecting natural carbon sinks while reducing emissions from deforestation and forest degradation. REDD+ stands for Reducing Emissions from Deforestation and Forest Degradation.
There are many methods to conserve forests, such as REDD+ Projects, which protect vulnerable forests from deforestation with legal frameworks, monitoring, and community engagement. A prolific example is the Katingan Mentaya Project, conserving around 157,000 hectares of Indonesian peatland forest.
Moreover, many conservation agreements exist between communities or landowners that provide financial incentives in return for forest conservation. They can be monitored with satellite monitoring, such as Global Forest Watch, surveyed by drones, or recorded closely within carbon accounting models.
Wetland and Mangrove Restoration
Wetlands and mangroves can store masses of carbon in both soil and biomass—making them not only critical for biodiversity, species diversity, essential ecosystems, and services humans rely on for just about all parts of life, they are essential in protecting the planet from global warming.
Their destruction on a major scale has contributed heavily towards the warming of the planet, as every metre of mangrove releases up to 1,000 tons of stored carbon per hectare into the atmosphere, where it remains for centuries.
A metre of mangrove forest could be destroyed in a minute—and for perspective, it could take several months to over a year for a large-scale DACS facility to capture and store 1,000 tonnes of CO₂.
This highlights the immense value of wetland and mangrove restoration carbon credits, which offer a cost-effective and natural solution to carbon sequestration while preserving vital ecosystems.
Sustainable Agricultural Practices
Sustainable agricultural practices involve non-traditional methods of farming with a primary objective of regenerating and enhancing ecosystem health while still yielding crops. It plays an important role in large-scale environmental maintenance and restoration.
Where traditional farming may rely on chemical inputs and large-scale farming equipment aimed at maximising short-term yields, sustainable methods differ. Though farmers still sell crops and make a living, economic viability is balanced directly with enhancing the land rather than degrading it.
These practices foster economic sustainability by using natural inputs like cover cropping, composting and no-till methods. Managed crop fields can traditionally involve monocultures with one crop grown repeatedly in rows. Sustainable agriculture, instead, sees the value of crop diversity, which, in turn, creates more resilient and sustainable ecosystems.
Blue Carbon Credits
Mangrove Forests
Mangroves can store up to 10 times the amount of carbon than forests, due to their high productivity, anoxic soil conditions, long lifespan, and complex root systems.
These ecosystems must be protected from climate change,and able to store carbon for thousands of years, while supporting a broad range of biodiversity and marine habitats.
Carbon credits from mangrove restoration and conservation are most common in tropical and subtropical regions, including Southeast Asia, Africa, and Central and South America
Seagrass Meadows
Seagrass meadows can store carbon up to 35 times faster than tropical forests, and the carbon stored is trapped under sediment, locked for 1,000 years.
Blue carbon credits involve the conservation and restoration of critical marine habitats, in high demand of companies supporting marine biodiversity while offsetting emissions.
Salt Marsh Restoration
In the same vein, salt marshes are capable of storing large amounts of carbon in both anoxic, deep soils and dense vegetation. They are highly valuable to climate mitigation, storing carbon for millennia.
Blue carbon credits both enhance water quality and provide flood protection while allowing organisations to offset their emissions and invest in marine biodiversity.
Industrial and Energy Credits
Clean Cookstove Initiatives
In comparison to basic cookers, clean cookstoves are a modern alternative designed specially to burn fuel efficiently and with less pollution. This can be achieved by improved combustion efficiency, thermal retention, fuel alternatives and solar power.
As a result, less CO₂, black carbon (a short-lived climate pollutant), and methane emissions are released, while the users are drastically less exposed to indoor pollution. Less fuel costs, less time collecting firewood, and less deforestation.
Clean cookstoves use alternative fuels such as processed biomass, biogas, ethanol, or solar energy. This generates carbon credits because clean cookstoves replace inefficient, polluting methods in developing regions, such as three-stone fires in Kenya and charcoal stoves in Haiti.
When companies purchase clean cookstove credits, they offset an amount of emissions, and payment goes to the project developers, funding stove distribution, covering logistics, production, and community training.
A prolific clean cookstove developer is BURN Manufacturing, Africa’s largest cookstove manufacturer, operating in 21 countries.
Waste Management and Recycling
When in landfill, waste simply decomposes while releasing harmful gases and liquids that deplete the ozone layer, destroy the environment and harm human health.
Waste management and recycling credits direct waste away from landfills, incentivising circular economy and sustainable waste management practises.
Transition to Low-Carbon Fuels
Transition to low-carbon fuels carbon credits are earned by replacing high-emission fuels with cleaner alternatives such as biofuels, hydrogen, or natural gas.
These projects help decarbonise key sectors like transportation, shipping, and heavy industry by lowering overall CO₂ emissions. Credits are based on the reduction in emissions, encouraging sustainable fuel choices.
Technology-Based Credits
Carbon Capture and Storage (CCS)
In comparison to DACS taking historic and dispersed carbon from ambient air anywhere, CCS captures point-source emissions, so is placed nearby power plants or industrial facilities. These are deemed high-quality credits, being measurable and verifiable reductions, directly preventing CO₂ from entering the atmosphere at its source.
Direct Air Capture Technology
Organisations can offset unavoidable emissions with the purchase of DAC-based carbon credits. DAC (Direct Air Capture) works by a process of air capture, such as fans, taking in ambient air through fans with chemical sorbets or filters, separating the CO₂ with chemical reactions, releasing the CO₂ with pressure or heat through regeneration, and then utilising the carbon dioxide in products or storing it underground.
These are a verified carbon removal strategy, where each credit typically amounts to a ton of CO₂ removed (the rough equivalent of planting and growing 44 trees for a year / taking a car off the road for 10 months.)
The market for DAC credits is still emerging, but growing demand and supportive government policies are driving its potential. Standards like Verra or Gold Standard ensure credit validity, with primary sellers being Carbon Engineering and Climeworks on marketplaces like Puro.earth and Patch.
Innovative Emission Reduction Methods
There are various innovative emission reduction methods surfacing across the globe—algae cultivation, for instance, uses algae to absorb CO₂ and produce biofuels or bioproducts.
Ocean alkalinity enhancement mitigates ocean acidification, increasing the ocean’s ability to absorb CO₂.
Moreover, methane-reducing feed additives change livestock digestion by altering gut processes, and reducing methane emissions.
Creative and nature-based solutions are essential for tackling global warming; offering targeted emission reduction methods tailored to the unique characteristics of different emission sources.
Community-Based Projects
- Rural Electrification Programs – Rural electrification programs replace fossil fuel-based energy in remote areas with renewables, improving energy access and health for rural populations.
- Clean Water Access Projects – Clean water access projects reduce the need to use fossil fuels to boil water. Instead, water purification systems are installed to lower emissions and promote safe drinking water.
- Social Impact-Oriented Emission Reduction – Social impact-oriented carbon credits focus on reducing emissions through projects that create invaluable social benefits, such as improved health, gender equality, and economic empowerment.
Program-Specific Carbon Credits
- Verified Carbon Standard (VCS) – The VCS, managed by Verra, is one of the world’s leading programs for certifying voluntary carbon credits. This covers a broad spectrum of project types from renewable energy to forestry; ensuring high-quality and verifiable carbon credits with rigorous third-party verification.
- Gold Standard – The Gold Standard focuses on projects that deliver strong environmental and social co-benefits while reducing carbon emissions. It is widely respected and applauded for its transparency alongside its focus on SDGs (sustainable development goals).
- American Carbon Registry (ACR) – ACR is a voluntary carbon offset program that supports various protocols for emissions reduction projects. In North America and beyond, ACR emphasises science-based methodologies and concrete standards.
- Climate Action Reserve (CAR) – CAR is a North American carbon offset with a focus on forestry, agriculture, and waste management projects. They are known for high-quality protocols, and provide key oversight of some primary carbon markets.
Emerging and Niche Carbon Credits
Biochar Production
Biochar combines “biological” and “charcoal”. This living charcoal is an organic, sustainable source that offers many benefits to soil health and is widely used in regenerative agriculture.
It dates back over 2,500 years, with recorded uses by indigenous people in the Amazon Basin of South America for healthy soil purposes.
It can be made from materials like wood chips, straw, leaves, corn stover, as well as manure from poultry, pigs and cows. These are put through a process called pyrolysis where the oxygen is removed at a high temperature, triggering decomposition and resulting in biochar. The carbon is trapped inside in a stable form, effectively sequestering it for an extended period, and preventing it from adding to CO₂ emissions.
Biochar is incorporated into the soil before planting or during the soil’s preparation, ensuring soils will be fertile, healthy and able to retain high levels of nutrients to support maximum plant health.
Biochar carbon credits are widely used in the United States, Brazil, and India.
Ocean-Based Carbon Removal
The ocean not only holds 42 times more carbon than the atmosphere, and also covers 70% of the earth. Ocean-based carbon removal (OBCR) leverages this vast resource by capturing CO₂ through large-scale farming structures on top of the ocean. These hold seeded algae such as microalgae or kelp, covering up to several square kilometers of ocean surface.
Through photosynthesis, the algae absorb CO₂ during growth, which is then stored as biomass when they die or sink. At lower ocean levels, decomposition is slower, meaning it takes a lot longer for the carbon to be re-released into the atmosphere.
Algae captures more CO₂ than terrestrial plants as it has higher photosynthetic efficiency and rapid growth rates, while not requiring arable land, making it sustainable. Beyond storing carbon, the algae can also be harvested and utilised for a range of use, providing economic value through revenue streams. Carbon credits linked to this method are relatively new but can be purchased.
Agroforestry
Agroforestry is where trees are integrated with crops, shrubs and other livestock all in one habitat. This type of carbon credit is most prominent in Indonesia, China, and Colombia.
The deep roots of trees effectively stabilise the soil and retain large amounts of water. They further promote high levels of biodiversity by offering rich habitats alongside sources of food and shelter, supporting a more diverse food chain. The shade they offer creates microclimates, lowering temperature extremes for crops and animals.
Trees capture more carbon than crops alone, meaning the farm is not just climate-friendly but potentially a strong global warming mitigator.
Trees also offer fruits, nuts and timber, powerfully diversifying farm income. After a careful planting period, pruning and protection, trees are quite self-sustaining and inexpensive to manage. They provide essential long-term ecosystem health, not only adding fruitful income but enhancing value through crop yield.
The Role of Carbon Credits in Achieving Net Zero Goals
Carbon credits play a key role in offsetting unavoidable emissions, such as long-distance transportation or industrial processes.
They enable the funding of carbon reduction and removal projects, such as renewable energy installations, reforestation, and soil carbon sequestration.
By promoting innovative, nature-based solutions, ecosystems and biodiversity is duly protected.
The Gaia Marketplace will soon be expanding its natural asset classes to include carbon credits, offering a new avenue for businesses to achieve their net zero goals.
With Gaia Carbon Accounting, emissions will be able to be directly offset within the Gaia Marketplace, streamlining the path toward sustainability.
More Information
https://carboncredits.com/the-ultimate-guide-to-understanding-carbon-credits
https://post.parliament.uk/research-briefings/post-pn-0713
https://www.goldstandard.org/news/what-is-a-carbon-credit-worth
https://biochar-international.org/wp-content/uploads/2023/12/BIOCHAR_Carbon-sheet_DIGITAL.pdf