The use of carbon credits is one of the rising strategies when it comes to the need for companies to explore more sustainable and innovative actions to minimize their environmental impact. You may have already heard of the term “carbon credit” in climate conferences, news about trends in the economy, and companies with sustainable initiatives, but do you really know what carbon credits are and how they work? Today, let’s delve a little deeper into our understanding of what carbon credits are to better understand the need for offsetting these credits, given that all human activities use natural resources, and if not used consciously and sustainably, they may be generating greater emissions of greenhouse gases.
What are Carbon Credits and How Do They Work?
To provide a brief historical summary, during the ECO-92 (a convention held in Rio de Janeiro to discuss climate issues), an international treaty of collaboration was created among the participating countries to reduce greenhouse gas emissions, and in 1997, targets were established for reducing emission levels through the Kyoto Protocol, which established the Emissions Trading.
In 2015, through the Paris Agreement, the countries involved committed to reducing their emissions so that the planet’s average temperature would not exceed 2°C by the end of the century… unfortunately, we have already surpassed that mark this year! But we must resist or the situation may worsen.
Carbon credits are certificates representing the reduction of one ton of carbon dioxide equivalent (CO2e). Reduction is the term used to represent the amount that is no longer emitted or is captured from the atmosphere. For a company to generate carbon credits, it must act in its production flow so that activities that could generate emissions of greenhouse gases are replaced by solutions that would reduce or eliminate these emissions, such as replacing non-renewable energy sources with renewable sources, for example.
As each credit represents one ton of equivalent carbon being removed or emitted less into the atmosphere, they function as a compensation mechanism, where companies finance environmental projects that reduce greenhouse gas emissions to balance their own emissions.
These projects can range from reforestation initiatives to the implementation of clean technologies in industrial sectors.
How Much is a Carbon Credit Worth?
The value of carbon credits varies widely, depending on the market and supply and demand. The average price is approximately USD 37, according to the Bioeconomy Observatory of FGV that monitors carbon pricing. Globally, the price has been increasing, ranging from USD 1.20 to USD 40 per ton of equivalent carbon, depending on the market in which it is being traded, reflecting the growing importance attributed to sustainability.
In Brazil, although the market is still developing, there are already significant transactions, and the value of a carbon credit has been negotiated in the range of USD 5. Companies, government organizations, and even individuals can participate in this market by buying credits to offset their emissions or selling those generated by sustainability projects. As mentioned before, the values vary according to the market where they are being traded, both geographically and economically, and carbon credits have two types of markets of different natures:
- REGULATED MARKET: those monitored by the government and follow established goals for the sectors involved in the market. For this market, there are two forms of pricing, namely 1- fee or taxation, with the price per ton of carbon established by the government 2- “cap and trade” systems, where governments auction or distribute a certain volume of emission permits and allow them to be traded among companies (famous carbon credits)
- VOLUNTARY MARKET: when part of the interest of companies, NGOs, or governments is to buy or sell credits independently, that is, not being related to the UN and, therefore, not being considered in the emission reduction targets of countries. Through their sustainability reports, companies can request from regulated markets that their compensations in voluntary markets be considered for global goals.
How to Calculate Your Carbon Footprint?
Calculating carbon footprint is crucial to understand a company’s environmental impact. Advanced environmental management software, such as Carbon Trust, GHG Protocol, and Normative, are examples of very useful tools for this. Smart sensors and detailed analyses identify specific sources of emissions, enabling the implementation of effective reduction strategies. This calculation is complex and subjective, using various factors and information compiled in various areas. For us mere mortals, it is possible to adopt some practices that can help offset our carbon credits in our daily lives, such as:
- using renewable energy sources instead of fossil fuels: hybrid/electric vehicles, use of “clean” energy programs (such as solar and wind), products that consume less energy, etc.;
- offsetting carbon emissions in transportation: many transport companies offer the option of carbon offsetting for the distance traveled in their offerings;
- attention to consumption: reducing waste or excess consumption can help control carbon footprint, as waste production and new products in large quantities to meet the market demand are also factors for greater carbon emissions into the atmosphere.
Utilization of Carbon Credits by Companies
In addition to simply offsetting emissions, these credits can be incorporated into broader strategies. Companies can invest in sustainable projects that generate credits, strengthening their position as leaders in sustainability. Furthermore, carbon credits can be integrated into green marketing initiatives, highlighting the company’s commitment to environmental responsibility. To ensure the integrity of carbon credits, several certifications have been established. The Gold Standard and the Verified Carbon Standard (VCS) are two important examples. These certifications attest that credit-generating projects follow rigorous sustainability standards. However, companies should be wary of greenwashing, adopting reliable and transparent certifications to avoid deceptive practices.
Carbon credits emerge as a valuable tool for companies committed to sustainability. In addition to offsetting emissions, companies can strategically use them to improve their image, invest in sustainable projects, and comply with future regulations. By adopting a holistic approach to carbon management, companies not only contribute to a healthier environment but also strengthen their foundations for a sustainable future. Stay tuned to your footprints and what you are leaving behind. Our focus is to help you look forward and outline the best sustainability strategy for your company, leaving a sustainable legacy of your activities and an example to be followed. Join us!
